Govt hopes hard sell will draw investment

Rendi Akhmad Witular, The Jakarta Post, Jakarta

The government is changing its strategy to lure more direct foreign investment by picking up the ball earlier to persuade multinational companies to come here, offering them a number of incentives.

Among the companies being lobbied recently by the government are German car maker Volkswagen, Japanese electronics giant Sony Corp., and several others giant automotive producers in Italy and the United States.

"We are not just going to wait for foreign companies to invest here. We are changing the strategy by persuading them to come and promising them hefty incentives," the chairman of the Indonesian Investment Coordinating Board (BKPM), Muhammad Lutfi, said Tuesday.

Lutfi said the government was encouraging more automotive companies to establish a manufacturing center for sedans categorized in B and C class -- sedans having a length of less than 4.5 meters.

The Office of the Coordinating Minister for the Economy is currently processing the BKPM proposals to provide tax breaks for up to eight years for automotive manufactures.

Sources at the BKPM said the agency had engaged in a talk with Volkswagen to attract the company to invest in the country, with executives from the company conveying its interest in engaging in the Indonesian and Southeast Asia market.

In the case of Sony, the government is trying to lure the company to return to Indonesia and set up its television set manufacturing plant, the sources said.

The BKPM also entered negotiations with a U.S. and an Italian carmaker to have their plants here. However, the names of the companies remain classified.

Indonesia, Southeast Asia's largest economy, has been struggling hard to attract foreign investment so as to increase growth to between 6 and 7 percent per year and create enough new jobs to put a significant dent in the unemployment figures.

An estimated more than 40 million people are fully unemployed or underemployed.

The BKPM also announced that actual foreign direct investment in Indonesia rose slightly by 4.77 percent to US$3.51 billion in the first semester of the year compared to $3.35 billion the same period last year.

Some 487 projects have been realized during the period, up from 424 projects a year earlier.

According to the agency, which is tasked with licensing and promoting new projects, investment in the electronics, machinery and metal sector accounted for the largest chunk of the investment, followed by food processing and services.

The most prominent investment in the month of June was from France-based cement maker Lafarge, which spent some $450 million to expand production capacity in its local unit PT Semen Andalas in Sumatra in order to supply cement to tsunami-stricken Aceh.

Publicly listed plantation company PT London Sumatra Plantation was among the prominent investors with some $91.9 million spent on expanding its oil palm plantations in North Sumatra, East Kalimantan, South Sumatra and North Sulawesi.

Japan was at the top of the list of investors during the first semester of the year, with some $653.4 million of investment involving 62 projects, followed by South Korea with $438 million in 83 projects, Mauritius with $379 million in three projects.

Britain is also at the top of the list with $356 million involving 27 projects and Malaysia with $332 million in 18 projects.

The government is targeting a total of Rp 206.7 trillion ($22.10 billion) worth of FDI and domestic investment approvals for 2006, with at least Rp 132.8 trillion being actually realized within the same year.
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