| JAKARTA/TAIPEI, June 12
JAKARTA/TAIPEI, June 12 Billions of dollars in
foreign investment hinge on next month's Indonesian presidential
election, with at least one major company holding back after a
former special forces general made a surprisingly strong entry
into the fray.
A tight July 9 election that will decide who runs Southeast
Asia's largest economy for the next five years pits popular
Jakarta governor Joko "Jokowi" Widodo against the ex-general,
Both favour a more nationalist agenda, underpinned by
popular perceptions that the economy has for too long depended
on selling off its vast natural resources cheaply to foreign
buyers and that past governments have done little to nurture,
and protect, local firms.
But Prabowo is seen as more fiercely nationalistic, while
Jokowi is seen as a hands-on, more capable administrator. And
despite Indonesia's large pool of labour, relatively low costs
and a growing middle class, many potential investors say they
will wait until the election is decided.
At the top of the list of foreigners with big money to spend
is Taiwan's Foxconn Technology Group, the world's largest
electronics contract manufacturer and one of the major suppliers
to Apple Inc.
Its chairman, Terry Gou, made no secret of the fact during a
visit to Jakarta in February that he liked dealing with Jokowi
in discussions over whether to bring his company's next giant
investment to the Indonesian capital.
At the time, Jokowi was the clear front-runner in the
election. He still is, but Prabowo has since been backed by the
powerful Golkar party and opinion polls show the former general
is catching up. A large percentage of voters are undecided, one
survey has said.
Foreign direct investment in Indonesia was 270.4 trillion
rupiah ($23 billion) in 2013, up about 22 percent from the
previous year. But growth slowed sharply to 9.8 percent in the
first quarter this year, the government has said.
Foxconn, listed as Hon Hai Precision Industry Co Ltd
in Taiwan, is waiting for the new government to take
office in October before deciding whether to go ahead with a $1
billion manufacturing project in Indonesia, a company source had
Key sticking points appear to be Foxconn's request for free
land in Jakarta and Indonesia's convoluted bureaucracy.
"Regarding the incentives Foxconn has requested, there's no
one they can talk to whose decisions will count," said a source
with direct knowledge of Foxconn's situation.
"Indonesia is a huge market for Foxconn. Foxconn truly hopes
there will be a clear direction in their policies after the
JOKOWI SEEN AS MARKET-FRIENDLY
The investor community tends to favour Jokowi, a former
furniture businessman, compared to Prabowo, according to
interviews with senior executives and capital market players.
Indonesian stocks and currency were hit following Golkar's
unexpected announcement on the afternoon of May 19 that it would
The rupiah has weakened further, trading around
11,800 to the dollar currently against roughly 11,400 before the
announcement. Jakarta's main stock index remains more
than one percent below the pre-announcement level.
"Generally, business people feel that Jokowi is more
business-friendly," said Kenichi Tomiyoshi, President Director
of the Japan External Trade Organization in Jakarta.
Jokowi has earned a reputation of being a hands-on leader
and a problem solver, analysts say.
"A lot of problems that businesses face in Indonesia are
operational issues such as land acquisition. Based on his track
record, he is likely to be more closely or directly involved in
trying to solve these issues," said Anton Alifandi, an analyst
"If Jokowi wins, businesses will look at what he does in the
first six months or a year. If they see some results and that he
can deliver what he promised, you'll see the foreign investment
The attraction of Indonesia to investors from countries like
Japan, South Korea and the United States lies with its
population of 240 million, the world's fourth-biggest, as well
as its expanding middle class.
Many companies are also keen to diversify their operations
away from Thailand, which has been rocked by political unrest.
In Vietnam, another regional manufacturing hub, anti-China riots
broke out last month over disputed sovereignty in the South
Japanese firms are keenly eyeing the automotive, food
products and financial services sectors in Indonesia, Tomiyoshi
said. "Japanese companies face limited growth in their domestic
market so they have to look overseas, particularly Indonesia."
Chief Economic Minister Chairul Tanjung has invited Samsung
Electronics to invest in a mobile phone factory in
Indonesia and the South Korean company is considering it, said
Lee Kang Hyun, vice president of PT Samsung Electronics
MINERAL EXPORT BAN TO STAY
In January, the government imposed a controversial export
tax and a ban on mineral ore shipments to force miners to build
smelters and processing plants, spurring investor concerns that
it signals a more protectionist Indonesia.
Jokowi and Prabowo are both unlikely to lift the mineral ore
export ban, party officials said.
Both presidential candidates are also likely to take a more
protectionist approach towards the banking sector. Jokowi has
proposed restricting the sale of national banks to foreign
investors, while Prabowo will insist on "strict reciprocity" for
the banking and insurance sectors.
Currently, foreign ownership of banks is capped at 40
percent. In July last year, Singapore's DBS Group Holdings Ltd
said it would not pursue a $7.2 billion takeover of
Indonesia's PT Bank Danamon after the deal was stuck
in limbo for months.
U.S. companies were planning around $61 billion in new
investments in Indonesia over the next 3-5 years "provided that
the investment environment is conducive and welcoming",
according to a study late last year led by Ernst & Young.
But some investors believe it's worth being in Indonesia in
the long term.
While Indonesia struggles with a lag in labour productivity
versus its neighbours and an uneven income distribution, these
are "short-term woes that could be opportunities down the road
if acted on," said Bharat Joshi, an investment manager at
Aberdeen Asset Management in Asia.
"We still like the attraction of the country's rising wealth
and favorable demographics, underpinned by low debt and
increased consumerism," Joshi said.
($1 = 11,805.00 rupiah)
(Additional reporting by Fathiyah Dahrul in Jakarta; Editing by
Jonathan Thatcher and Raju Gopalakrishnan)