Indonesian Leader Says Companies Want to Relocate from China, Other Countries

Indonesian President Joko “Jokowi” Widodo announced on Tuesday that seven multinational companies, including LG Electronics and Panasonic, plan to move manufacturing facilities valued at $850 million to Central Java from Japan, South Korea and China, creating thousands of jobs.

Jokowi also said other foreign companies planned to relocate factories to Indonesia, as he urged officials to fast-track permits and offer land at competitive prices. His announcement comes as the nation’s economy has suffered as a result of the COVID-19 pandemic – the Manila-based Asian Development Bank projected that the gross domestic product was to contract by 1 percent this year.

“I am happy that seven companies have already confirmed relocation. There are also 17 others that have expressed commitments, about 60 percent (certain),” Jokowi said during a video conference as part of a ceremony marking the start of construction of the Batang Integrated Industrial Zone in Central Java.

The first phase covering 450 hectares (1,100) is expected to be completed in six months, according to State-Owned Enterprises Minister Erick Thohir. When completed, the industrial zone in Batang is to cover 4,500 hectares (11,100 acres).

Five companies including Taiwan’s Meiloon Technology, U.S. lighting maker Alpan Lighting Products and Japan’s Panasonic Corp. will move manufacturing facilities from China to the Central Java site, according to Indonesia’s National Investment Coordinating Board (BKPM).

LG Electronics Inc. and automotive part maker Denso will move their plants from South Korea and Japan, respectively, the agency said.

BKPM said the seven companies would invest a combined total of U.S. $850 million (12.1 trillion rupiah) and create up to 30,000 jobs.

Jokowi urged ministries and government agencies to speed up business permits.

“I have ordered the ministers and the head of BKPM, for those companies wanting to relocate from China to Indonesia – be they from Japan, Taiwan, Korea or the United States – give them the best service possible,” Jokowi said. “Explain to them what facilities we can provide.”

He said he did not want a repeat of last year when none of 33 global companies that announced plans to relocate from China or expand abroad decided to move to Indonesia.

Erick said investors would be offered long-term leases in the Batang Integrated Industrial Zone.

“We will buy land so that this entire area will belong to the Ministry of State Owned Enterprises and will facilitate investors,” Erick told reporters in Batang, adding the ministry would construct infrastructure to support bringing in new industries.

Task force

Meanwhile, BKPM chief Bahlil Lahadalia said he has formed a special task force to attract investors to Indonesia.

“The process is intensive. We immediately knocked on the doors of the companies one by one to convince them that Indonesia is the right location for their factories,” Bahlil said in a statement without providing details on most the 17 companies mentioned by Jokowi.

He did say one of the companies, South Korea’s LG Chemicals, expressed a desire to invest an estimated $9.8 billion (140 trillion rupiah) to construct a factory to produce batteries for electric vehicles.

Tuesday’s announcement followed one in mid-May when government officials said an unspecified number of U.S. companies, including a pharmaceutical company, wanted to relocate from China to Indonesia in the wake of a trade war between Washington and Beijing. The coordinating minister for maritime affairs and investment, Luhut Pandjaitan, said Jokowi and U.S. President Donald Trump had discussed the matter the previous month.

Officials have not updated the status of those companies seeking to move to Indonesia.

Post-pandemic opportunities

Tauhid Ahmad, executive director of the Institute for Development of Economics and Finance (INDEF), a private think-tank, said Indonesia stood to attract foreign investment if it could bring COVID-19 under control.

“Investors will look for large markets and Indonesia is one. Investors still believe Indonesia’s market has room to grow,” Tauhid told BenarNews, adding government officials need to improve Indonesia’s outlook as being competitive for business.

“Japanese investors, for example, consider tax rules in Indonesia to be complicated,” he said.

Inefficient bureaucracy, rigid labor laws that make it difficult for companies to hire and fire employees and legal uncertainty have been cited as disincentives to foreign investment in Indonesia.

To aid investment, the Jokowi government has proposed a series of bills to override laws seen as discouraging job creation, but widespread public opposition forced the parliament to postpone debating the draft legislation. Labor unions have said proposed legislation could remove some protections enjoyed by workers and make it easier for companies to fire employees and hire temporary staff.

Indonesian government data indicate that the average minimum wage in Indonesia is 3.94 million rupiah ($276) per month, according to the Ministry of Manpower and Transmigration. By comparison, the top monthly minimum wage in Vietnam is $190 (2.7 million rupiah), according to government figures.