It is worrying that of total foreign investment commitments in Indonesia, only about 50 percent becomes actual investment. The other half decides - after initially being interested - not to pursue investment in Indonesia. Although not in all cases, it is believed that Indonesia's difficult investment climate scares away part of the (potential) investment community, specifically bureaucracy (red tape) and the lack of sufficient hard and soft infrastructure.
For example, the Austria-based Lenzing Group, a global leader in textile and nonwovens cellulose fibers (and it also produces some polymer plastics), cancelled its initial plans to invest in Indonesia, and instead, opted for Thailand as their next investment destination.
In March 2017 the Lenzing Group, through its local Indonesian subsidiary South Pacific Viscose, pledged to invest USD $300 million in business expansion, while Indonesia's Industry Ministry said the company had already selected three locations for new factories.
However, based on an official statement, the Lenzing Group will now turn to Prachinburi (Thailand) to establish a state-of-the-art factory to manufacture lyocell fibers. The facility is designed to have a capacity of up to 100,000 tons annually. The Lenzing Group now plans to set up a subsidiary in Thailand and purchase commercial property in a local industrial estate near Bangkok. Its choice fell on Prachinburi due to the excellent conditions of infrastructure, outstanding expansion opportunities, and the sustainable biogenic energy supply. Completion of the plant is scheduled for the end of 2020.
The Lenzing Group added that a definitive decision has not been made yet on the construction of the new plant. It will now first focus on the required permits and licenses before taking the decision, possibly in the first quarter of 2018.
Azhar Lubis, Deputy Chairman of Indonesia's Investment Coordinating Board (BKPM), said actual investment realization depends on various matters including legal certainty, the difficulty to obtain all permits and licenses at both the central and regional level, the availability of supporting infrastructure, fiscal incentives (in relation to other countries) and the presence of competitors.
Ade Sudrajat, Chairman of the Indonesian Textile Association (API), said he is not surprised to see (potential) investors decide to invest in other countries because - although improving - the investment climate of Indonesia remains complex. One of the main issues is the energy supply. For example the price of natural gas, while being produced in Indonesia itself, is uncompetitively high, hence production costs rise steeply.
In the World Bank's (Ease of) Doing Business ranking Indonesia ranks 91st, while Thailand scores much better at 46th. This ranking reflects conditions in the nations' investment climate.
Doing Business 2017 Ranking:
|1. New Zealand|
|4. Hong Kong|
|5. South Korea|
|7. United Kingdom|
|8. United States|
Source: World Bank 'Doing Business 2017'