Posted on 13 Mar 2015
The South Korean business community
has called on the government to create a more conducive regulatory environment,
including with regard to the wage issue and attractive incentives, to lure as
well as maintain direct investment into Southeast Asia’s biggest economy.
Speaking on the sidelines of a business dialogue on Thursday, Korean Chamber of
Commerce and Industry in Indonesia (Kocham) president Lee Kang Hyun said that
Korean firms might tolerate annual wage increases as long as the mechanism was
clear.
“What we need is a stable wage increase so that it is predictable,” he said.
Lee described Indonesia as “the most passive country” in providing fiscal
incentives for investment in Southeast Asia.
“Discussions on lowering the level of investment eligible for tax holiday from
Rp 1 trillion [US$75.86 million] to Rp 500 billion have run for three years,
but until now, there have not been any changes. In addition, tax allowances are
more difficult to access,” he said.
South Korea is among the top 10 foreign investors in Indonesia with its past
flagship projects, a $3 billion steel mill by the world’s third-largest steel
firm, Posco, and a $353 million tire plant by the world’s seven biggest tire
maker, Hankook.
Realized investment from Korea dropped by half to $1.13 billion last year,
mostly as investors were in “wait-and-see” mode during the general election.
An early year survey referred to by Korean Ambassador to Indonesia Taiyoung Cho
during the dialogue found that Korean firms picked Indonesia as the destination
with the second-highest potential for investment among newly industrialized
countries.
The survey, in line with statistics gathered by Indonesia’s Investment
Coordinating Board (BKPM) between October last year and January said that at
least 16 Korean companies had shown a serious commitment to pour $17.1 billion
in a number of sectors from power generation to mineral processing.
Kocham chairman CK Song also said in the same event that some Korean firms
still maintained an appetite to invest in the labor intensive industry, such as
garment and footwear.
At present, there are around 2,200 Korean firms operating in Indonesia,
supported by 60,000 expatriates from the East Asian nation, according to
Kocham’s data.
In response to the wage issue, Manpower Minister M. Hanif Dhakiri said that his
office was designing a wage formula that could accommodate the interests of
both employers and employees. Wage is a crucial issue in the labor intensive
industry, where it accounts for a 15 percent share of overall production costs.
The government has placed a priority in the specific industry to help meet its
target of creating 2 million jobs each year.
“Certainly we will set a predictable wage system, which is fair for employees
and at the same time predictable for business,” Hanif said on the sidelines of
the dialogue.
BKPM deputy head for investment climate development Farah Indriani similarly
said that the government was revising rules on tax allowances.
“The revision will refer to investment value, the number of employees absorbed,
local content and export orientation,” she said in the dialogue.
