APSN Banner

Looting, land rights keep investors out of Indonesia

Business Times - June 22, 2000

Jakarta – Indonesia's inability to guarantee land security is blocking foreign investment in farm-based businesses in Asia's third-largest agricultural producer, analysts said.

"Security of land rights is the main concern among foreign investors," said Rachim Kartabrata, head of research and planning at the Association of Indonesian Coffee Exporters and an official of agriculture group PT Prasidha Aneka Niaga. "While the potential is there, the risk is high."

The Indonesian government wants to attract foreign investment in the country's underdeveloped agriculture to boost exports, but potential investors in businesses such as coffee, rubber, cocoa, sugar, tea and spices are wary of ownership disputes, looting, corruption, economic turmoil and the slow pace of reform.

The problems have hurt the coffee, cocoa and rubber planters that provide most of Indonesia's farm-based export revenue. Plantation companies face growing theft of produce, while local inhabitants are making ownership claims on their land.

"Foreign companies find it difficult to invest in a country where the agriculture industry is still subject to looting," said Rachman Koeswanto, an analyst at BNP Prime Peregrine in Jakarta.

Many Indonesian companies went bankrupt and defaulted on loan repayments after the rupiah lost 80 per cent of its value in the six months to February 1998. These companies are being forced to sell plantations at bargain prices to repay debt.

"This is the cheapest [plantations] will ever get" for overseas investors, said Fayaz Achmad Khan, a marketing manager at PT Bakrie Sumatra Plantations, a member of the Bakrie Group, some of whose companies went bankrupt following the Indonesian economic crisis.

"Local companies are not so strong anymore," said Mr Khan. "The government wants foreign companies to invest. But no one is in a hurry to buy." Indonesia's agricultural production totalled about US$29 billion in 1999, accounting for a fifth of the country's US$142 billion gross domestic product.

Last year Vietnam overtook Indonesia as the world's third-largest coffee exporter and the largest producer of the bitter-flavoured robusta beans. Indonesia may also lose its place soon to Vietnam as the world's second-largest rubber and pepper producer, officials said.

"Indonesia is far, far behind even countries like India, Malaysia and Vietnam in processing, storing and marketing facilities," said KPG Menon, executive director of the Jakarta-based International Pepper Community which promotes global pepper trade.

The country needs more coordination between the government and private businesses to control the quality of its farm products so that it can fetch a higher price for its produce globally, he said.

The government hopes that initiatives such as the two-day Agribusiness Indonesia 2000 Conference in Bali will help attract foreign investors. Indonesia's top bureaucrats from the Agriculture Ministry, farm commodities business associations and companies are meeting at the conference, organised by IBC Asia Ltd, to address the issue of Indonesia's competitiveness with other producers.

For that, Indonesia needs technology from abroad for storage, processing and transportation. Indonesia also needs a government-backed marketing effort such as the ones provided by the coffee, tea and spice boards in India, rubber, palm oil and pepper marketing boards in Malaysia and rice export organisation in Vietnam, said Mr Menon.

In the absence of organised marketing, Indonesia is dependent on a few buyers. It sells 60 per cent of its black pepper to the US and 80 per cent of its white pepper to Singapore which re-exports the spice.