Indonesia is pushing for Australian investors to help recreate Nusa Dua – a high-end resort enclave in Bali – in an underdeveloped tourist destination in Eastern Indonesia as part of its drive to attract more Australian investment.
Minister for National Development Planning Professor Bambang Brodjonegoro recently returned from a five-city “roadshow” in Australia, during which he appealed to managers from superannuation funds and the government’s Future Fund to invest in Indonesian tourism and infrastructure projects.In an exclusive interview with Fairfax Media, Mr Bambang expressed incredulity that Australian long-term fund managers invested in infrastructure projects in a country as remote as Mexico but not Indonesia.
Last year, Australia’s investment in Indonesia stood at $9.16 billion compared to the cumulative total in the US of $617.4 billion.Mr Bambang said Indonesia was offering the opportunity to invest in infrastructure projects such as toll roads, power plants, airports and seaports with a much better return than any banking product.
“We only offer to any potential foreign investor a project with a return like 13 per cent,” he said.
He said at the end of the roadshow the two countries agreed to promote tourism in Labuan Bajo, a tourist town in Flores that is near Komodo and Rinka islands, the home of the famous Komodo dragons.
Labuan Bajo has been earmarked by President Joko Widodo to become one of the “Ten New Balis”, an ambitious program to attract investment to under-developed tourist destinations in the archipelago.
“We are planning to create something like Nusa Dua in Bali in Labuan Bajo – hopefully there will be Australian investors investing in creating more tourist attractions, maybe diving, paragliding, marina and also airport,” Mr Bambang said.
He hoped the project would be endorsed by Indonesian President Joko Widodo and Prime Minister Malcolm Turnbull at their next bilateral meeting.
“If we have this project … endorsed by two governments, then hopefully it will attract a bigger appetite for Australian investors to invest in Indonesia and any type of FDI (Foreign Direct Investment) not just tourism,” Mr Bambang said.
He was also hopeful the free trade deal being negotiated by the two countries would include “some kind of investment protection” to guard against the political risk of a newly elected government changing investment regulations.
I’m trying to convince them we have invested seriously in improving the business climate
“It will give them some security that they can continue [their] investment in Indonesia.”
The Indonesian government has flagged that investment along with household consumption will be the key drivers of GDP growth next year.
President Jokowi, as he is popularly known, has stressed he would like to see Indonesia jump from 91st to 40th place in the World Bank’s Ease of Doing Business report.
But in a submission to a parliamentary inquiry into the trade relationship between Indonesia and Australia in March this year, DFAT said despite some reforms, investment attractiveness remained low.
This was due to factors such as limitations on foreign investment, including investment caps, limitations on expat work visas, shortages of skilled local staff and low levels of labour productivity.
“Firms also incur large indirect costs due to poor logistics, infrastructure gaps, labour skills shortages and complex business licensing requirements,” the submission said.
The DFAT submission said in 2015 Indonesia ranked 23rd as a destination for Australian outward investment.
Mr Bambang said his general impression was that Australia didn’t know Indonesia very well, with one roadshow attendee expressing surprise at the size of its population.
“After our discussions with both super funds and the Future Fund during the roadshow we know they have been investing all over the world,” Mr Bambang said.
“To my surprise, they have invested for example in Mexico, which is so far away. We are both G20, we are emerging economies but no single dollar in terms of Australian long-term funds is invested in infrastructure in Indonesia but in Mexico they have done so.”
REST Industry Super said it currently had no direct investments in Indonesia due to “the risk-return profile being less competitive than other opportunities globally”.
Super fund Hostplus said 35 per cent of the more than $2.7 billion it invested in infrastructure was offshore – mainly in the US and UK but also New Zealand, France, Austria, Germany, Poland and Mexico.
“Scale, breadth of opportunity, legal structures and government relations are all factors our fund managers take into careful consideration when looking at investing in an infrastructure project on our behalf,” a spokesperson said.
However, outside of infrastructure Hostplus invested heavily in emerging market listed equities in Asia, including Indonesia.
Mr Bambang conceded there was still uncertainty about investing in Indonesia around licensing, permits and the political situation.
“I’m trying to convince them we have invested seriously in improving the business climate,” he said.
“We are trying to show them that Indonesia is different to what you saw 10 to 15 years ago.