Indonesia lures new factories

Indonesia will attract more new factories than any other Southeast Asian nation over the next few years, a survey of 75 manufacturers showed, bolstering President Joko Widodo’s drive to revitalise the economy.

Manufacturers plan to build 54 new plants in Southeast Asia’s biggest economy by 2019, a 68% increase that will allow Indonesia to overtake Malaysia and Thailand with 133 factories in total, according to the Economist Intelligence Unit survey sponsored by Baker & McKenzie and CIMB Group Holdings Bhd. The companies all currently produce goods in the region.

Widodo, known as Jokowi, has overhauled fuel subsidies to free up budget funds for infrastructure, pledging to spur investment and boost an economy growing at the slowest pace since 2009. Many companies are starting to implement their expansion plans in Indonesia after last year’s election that brought the president to power, said Mochamad Fachri, a lawyer with Hadiputranto, Hadinoto & Partners, Baker & McKenzie’s member firm in Indonesia.

“They believe that the transfer of power has been successful” and the government has shown its commitment to reforming public finances by changing fuel subsidies, he said, referring to the law firm’s clients. “Therefore, the timing is good for putting these expansion plans in place.”

The manufacturers’ plans add to signs of investor confidence in Indonesia. The benchmark Jakarta Composite Index of stocks has climbed more than 3% since Jokowi’s inauguration on Oct 20, outperforming markets in Thailand and Malaysia on optimism the president will improve the economy.

A survey by the British Chamber of Commerce in Indonesia shows business confidence rose last year, the group said in Jakarta this week. Investment may rise 15% this year, and the government will make it easier to do business in the country by cutting permit procedures, the investment coordinating board said.

“We have seen an increase in interest” from prospective investors in a new industrial park, industrial estate developer PT Kawasan Industri Jababeka said in an October e-mail. “With the election over, Indonesia is perceived to be more stable. The government is going to make a substantial investment in the development of the infrastructure.”

Jokowi’s government plans to start a land bank this year to accelerate infrastructure projects after an unprecedented move to scrap gasoline subsidies and cap diesel aid, which gave him access to 230 trillion rupiah ($18 billion) of savings to spend on ports, roads and other projects.

“The current administration is showing early promise by looking to boost infrastructure,” Fachri said. Indonesia also needs to ease importing and exporting and improve labor laws, which currently make it very expensive to hire, he said.

The companies surveyed predicted they would increase their factories in Myanmar to 27 by 2019, from none on Wednesday, the next most number of new plants planned after Indonesia. The number of plants in Vietnam will probably grow to 75 from 51, and those in the Philippines to 98 from 74, the survey showed.