Japan is the second-biggest investor by country in Indonesia. (Antara Photo/M.Ali Khumaini)

Japanese FDI at $21b Restrained by Land Acquisition, Permits for Imports and Labor

JUNE 02, 2015

Jakarta. Japanese investors are seeking greater assistance from the Indonesian government in land acquisitions, import licenses and permits for skilled foreign labor in Indonesia, to help them realize $20.6 billion of investment still in the pipeline in Indonesia.

"Some things are still a concern [for Japanese investors]. The first is, again, land acquisitions,” said Azhar Lubis, Investment Coordinating Board (BKPM) deputy chairman, at a press conference on Monday in discussing results of the board's roadshow in Japan last week.

The Batang coal-fired power plant, which has been initiated by Japan’s Electric Power Development, Itochu Corporation and Indonesia’s Adaro Energy since 2005, has yet to start construction as some farmers refuse to give up their land, where their families have sustained their livelihoods for generations.

Azhar noted that a 2012 law allows the government to first take the land from the farmers and let the court decide on compensation later. But, “it still needs time for implementation," Azhar said.

Investors from Japan also spoke of hurdles in securing import licenses for some materials for their facilities.

"We do facilitate companies that need to import raw materials that are not yet available locally. However, there are also instances where the raw materials are available locally, but either the supply isn't enough or it isn't in the right specifications that the companies want," he said, citing an aluminum company as an example.

On top of that, some of the prospective Japanese companies also brought up issues regarding stringent rules in bringing foreign skilled labor to train local employees, Azhar said.

A 2013 Labor Ministry regulation regulated that a foreign company can bring in skilled workers, with at least five years of experience in their position or having a bachelor's degree, to train local workers.

"Of course, we're discussing this with the manpower ministry to learn more about this issue," Azhar said.

BKPM chairman Franky Sibarani visited three cities in Japan last week — Tokyo, Osaka and Nagoya — in efforts to attract more investment as part of a strategy for the nation's economy to reach 7 percent annual growth by 2019.

During Franky's trip, there was a total of $1.9 billion of interest in new investment from Japanese investors, ranging from chemical to shipping, according to Azhar.

Still, the deputy chairman emphasized that these figures are designated as "numbers on paper" as BKPM continues its work in facilitating prospective investors through the country's tangled bureaucracy.

Japanese companies were the second-biggest source of foreign direct investment for Indonesia in the first quarter of 2015 with $1.2 billion in realized investments, or 18 percent of total investment, data from BKPM showed.

BKPM aims to see as much as Rp 520 trillion ($39 billion) of foreign investment this year, up 12 percent from realization of Rp 463 trillion in 2014.