Investors pick from Indonesia's best, worst regions

By Sara Webb

SEKAYU, Indonesia (Reuters) -- When Indonesia shifted power from the capital, Jakarta, to the regions, investors had to start dealing with a confusing constellation of districts, some business-friendly, others downright unwelcoming.

Pick the right province or region -- and South Sumatra, with its rubber and palm oil plantations, plus oil, gas and coal deposits, is considered one such area -- and there are huge rewards to be reaped in Southeast Asia's biggest economy.

But make the wrong choice, and investors can find that their projects stall or founder, thanks to corruption, red tape, conflicting national and local legislation, erratic power supplies, and other poor infrastructure.

"Investors want good roads, they want to be near the port, and have good infrastructure. But it's also important to be in a place where the local leader understands about good economic governance," said Erman Rahman, director for economic programs at the Asia Foundation in Jakarta.

The Asia Foundation, in conjunction with a local research agency, recently assessed and ranked 243 Indonesian districts and cities according to their business-friendliness, providing a sort of Michelin Guide for investors, domestic and foreign.

With direct elections at the district level, Indonesians can put pressure on those local governments that perform poorly, or re-elect those that deliver results.

Identifying the provinces, districts, or cities with good governance is crucial for investors in a country like Indonesia, where rampant corruption and befuddling bureaucracy have long held economic growth in check.

Already, a handful of local leaders, for example in Java's Sragen district, Bali's Jembrana, and South Sumatra's Musi Banyu Asin, have acquired a reputation for improving governance, by introducing one-stop licensing systems that cut down the opportunities for graft, and by investing in infrastructure.

Thanks to the efforts of some local leaders, as well as to the anti-graft agency known by its local acronym KPK, Indonesia is beginning to make some headway in dealing with corruption, a problem that permeates almost every level of society.

FREE HEALTHCARE, EDUCATION

As regent of Musi Banyu Asin, Alex Noerdin used royalties from local commodities producers to fund much-needed facilities.

The district capital, Sekayu, now has a new hospital, and uses an insurance scheme to provide free health care and treatment for local residents, whose complaints typically range from malaria to traffic or workplace accidents.

There's also a new school, providing free education, plus new sports facilities. Noerdin even brought in a British football coach and Russian water polo coach to encourage children and teenagers to take up sports, and built roads, bridges, and other crucial infrastructure.

"People didn't believe I could do it, but I proved I could," Noerdin said in a recent interview.

This part of Sumatra has attracted big names such as U.S. oil giant Conoco Phillips, Indonesian explorer PT Medco Energi, state coal miner PT Tambang Batubara Bukit Asam, and plantations group PT London Sumatra.