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Political instability spooks EU investors

Jakarta Post - March 9, 2017

Fedina S. Sundaryani, Jakarta Political instability has alarmed European businesspeople as they are now weighing their reinvestment options in Indonesia.

According to the Joint European Chambers' Business Confidence Index 2016, concerns over political instability have crept into 47 percent of 148 respondents, rising from 32 percent in the previous year.

The result was an indication that political stability was no small issue when evaluating Indonesia's business environment, said British Chamber of Commerce (BritCham) Indonesia chairman Adrian Short.

"We're seeing a negative bounce back in businesses' views around the risks of political and social stability. That is clearly a balancing factor against all the positive factors we've seen here," he said during the announcement of the index on Wednesday.

"So that's not one that we should take lightly and take that as something that is a factor for businesses in general."

The result contrasted greatly to the one reported in 2014, when 47 percent of the survey's respondents said they had a positive outlook on the political environment.

At the time, European businesspeople's optimism seemed to have been triggered by the euphoria surrounding the election of President Joko "Jokowi" Widoous do and the announcement of his Cabinet lineup, Short said.

However, the country has been hit by political instability since October stemming from the Jakarta gubernatorial election, with the race and religion card being played throughout the process.

It came as no surprise that the number of European investors on the fence about reinvesting rose 22 percent. When asked whether they would carry out major investment in Indonesia, 41 percent of respondents answered "maybe."

Meanwhile, those who answered "yes" still optimistic about investment prospects fell 11 percent and those who said "no" also declined by 11 percent.

In addition to political instability, the survey finds investors represented by senior executives at European firms operating in Jakarta are also worried about the regulatory environment and lengthy red tape. Regulatory environment topped the list of their concerns.

Data from the Investment Coordinating Board (BKPM) show realized foreign direct investment (FDI) in 2016 posted the slowest growth in the past five years. The growth rate came in at 12.3 percent, far lower than the previrange of 16.2 percent to 27.3 percent.

The amount of investment from the European Union to Indonesia stood at US$13.3 billion during the five-year period, with the top investors hailing from the Netherlands, the United Kingdom and France.

A majority of the investment was channeled in Java, with most investors opting to invest in the automotive, telecommunications and energy and mining sectors.

All concerns factored in, the survey finds 49 percent of respondents were confident about business in 2016, falling slightly by 1 percentage point from 2015.

UK Ambassador to Indonesia and Timor Leste Moazzam Malik said the survey might have been overstating people's worries around political stability, as it was carried out between December and January, when there were many protests held against Jakarta Governor Basuki "Ahok" Tjahaja Purnama.

"The survey slightly overstates the political concern given this particular period, just as I think two years ago the survey probably overstated the confidence and optimism when the survey period coincided with the first few weeks after the election of President Jokowi," he said.

Meanwhile, not all is dreary in regard to investors' expectations about conducting business in Indonesia. The survey also states that a majority of European investors believe revenue and workforce will increase in the next 12 months.

Moreover, most companies believe the Indonesian government will take more action than in the previous year in several areas, such as consultation with businesses, coordination with other ministries and making pro-business decisions.

Separately, Indonesian Chamber of Commerce and Industry (Kadin) deputy chairperson of international relations Shinta Widjaja Kamdani said it was not a surprise that Indonesia's political stability was a rising concern for foreign investors on account of the heated environment surrounding the elections.

However, she said it was "only a temporary concern" and was unlikely to significantly affect EU investment in Indonesia.

Source: http://www.thejakartapost.com/news/2017/03/09/political-instability-spooks-eu-investors.html.

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