Todd Callahan – At a seminar last month in Jakarta, Indonesia's new State Minister of Investment and SOEs Rozy Munir reported that the growing number of foreign and domestic investment approvals was a sign that Indonesia is slowly recovering.
Indeed, on the foreign direct investment front, 412 projects worth US$1.7 billion were booked in the first four months of the year. Of this, US$925 million occurred in April, which seems to suggest that foreigners are returning despite the social unrest and political problems that now colour daily life in Indonesia.
Still, no matter how the numbers stack up, the fact remains that a healthy scepticism prevails among investors, particularly larger ones.
Although investment approvals look encouraging, certainly no big deals are in the making until the business picture brightens in Indonesia. One factor hurting the country's attractiveness is the rising number of labour disputes in Java and other manufacturing centres.
In fact, Mr Munir has acknowledged that labour problems are hindering investor interest. At the same seminar, Luhut Pandjaitan, now minister of trade and industry, also admitted that rising labour unrest is a matter discussed at weekly cabinet meetings because the government recognises that it hurts Indonesia's image abroad.
The reality of the matter is that the mounting number of labour problems in Indonesia is only half the concern. Even more worrying are the sort of demands being made on companies. More and more frequently, Indonesian labourers seem to be pressing companies to meet their demands or face a shutdown. Many view the threat of a strike and embarrassing demonstration as the best negotiating tactic to extract what they want from management.
This new audacity is obviously fuelled by the country's raucous transition to democracy and all the excesses that go with it. The military and police are also no longer in a position to crush labour unrest, an action that was par for the course under former president Suharto.
Unfortunately, the consequences of this new freedom are a procession of unrealistic demands that will only drive away companies and, in the process, hurt labourers' hopes for a better future.
Sony's labour dispute is one of the more visible cases that illustrate what foreign companies are up against in Indonesia. In this case, approximately 900 of PT Sony Electronics' 1500 employees have been on strike since April 26. The provocation, if one can call it that, was a manufacturing change that required line workers to stand, instead of sit down, as they went about their jobs.
The change was necessary so that workers would be flexible and mobile enough to carry out several tasks as a conveyor belt carried television sets and other products down the line for assembly.
Under the old production system in place since 1992, employees could sit down the entire day as they did their work. Workers claimed the new standing system was exhausting. The company countered that competitors have long since adopted this system and, of Sony's 70 factories worldwide producing similar products, Indonesia was the last to still use production processes that permitted workers to sit down.
In the end, the real motivation for the strike was probably money. According to a report in Indonesia's Kompas daily, representatives of the employees asked for a 6,200 rupiah (S$1.24) daily wage rise in recompense for agreeing to the new conditions. Although Sony pays well over the regional minimum wage, the employees apparently felt another concession was in order.
When Sony refused to grant the increase, employee organisers resorted to a campaign of intimidation and embarrassment. Workers, for example, staged a sit-in at the plant's export area to disrupt the flow of overseas-destined orders. Organisers knew that management would be reluctant to throw them out, given the negative press that would accompany such a move. Other workers set up tents and makeshift housing beside the plant and continue to live there today.
In one particularly embarrassing episode in late April, workers organised a protest outside the United Nations building in Jakarta to decry unfavourable working conditions and demand the replacement of Sony's expatriate managers.
At this protest, the resentment of foreign control that often percolates below the surface in Indonesia also reared its unpleasant face. One banner vilified Sony's policies by comparing them to the forced labour that Japan was guilty of imposing during World War II.
On top of the unpleasantness of the strike, the dispute has put a dent in Sony financially. With less than half of the plant's employees working, the company can only produce 1,000 to 1,200 pieces per day.
This represents only 25-30 per cent of the plant's normal daily capacity. As a consequence, the company has had to send orders from foreign distributors to other Sony factories in neighbouring countries such as Malaysia.
Although the exact financial damage is unknown, losses could easily be in the millions of dollars. For this reason, it is not difficult to understand why Sony has warned workers and government authorities that it may consider leaving Indonesia if things do not improve.
Sony's disturbing labour dispute is by no means an isolated incident. Instead of demands for fair salaries and decent working conditions, naked opportunism is the main principle at work at an increasing number of companies.
For example, using the cloak of employee welfare, striking workers at PT Madae Indonesia actually demanded fresh milk and eggs on top of more generic requests such as a hefty wage increase, transportation allowance and daily meal money. However, the demands made by workers of the five-star Imperial Century Hotel near Jakarta definitely take the cake. In this incident, employee demands included a year-end party along with the dismissal of the hotel's expatriate general manager.
It is rather extraordinary that labour problems revolve around these kinds of issues in an economy suffering from massive unemployment. By some estimates, unemployment stands at well over 30 million in Indonesia.
Nevertheless, serious labour strife is likely to continue over the coming years as the country works out its economic and socio-political problems. Prudent investors should bear this in mind before they rush into any new projects.
[The author works as a technical adviser at a consulting and business information company in Jakarta. The views presented are his own.]