Kerry Parker admits to the occasional moment of frustration as he forged an opening for his geothermal energy company in Indonesia.
”As an Australian, you like to push for a result, you drive hard to get the deal done,” says the managing director of Brisbane-based Panax Geothermal.
”At times, when I was in a meeting, I felt like picking up the table and throwing it across the room and just shouting ‘C’mon guys, let’s just do this’.”
Doing business in Indonesia undoubtedly requires patience. Navigating the country’s jaw-droppingly complex and contradictory regulations can be maddening, while finding a competent local partner is difficult.
Negotiations are rarely simple, and bureaucrats and legislators in Jakarta and the provinces often circle foreign investors looking for a kickback.
”It’s not for the faint-hearted, or those who lack patience,” says an Australian intimate with the business scene here. ”You talk to any major Australian business here and they will say how difficult it is, but then they will also say that, now they are here, it is really good business.”
So it has proved for Parker, who eventually joined up with one of Indonesia’s wealthiest and politically best-connected conglomerates, the Bakrie Group, and signed deals to build two geothermal power stations in Sumatra and Flores.
”While we are still arguing about a carbon tax in Australia, the Indonesian government has already guaranteed a tariff for geothermal and created a market,” says Parker.
”These guys have recognised they need power in large quantities and that they want green and renewable energy to feature prominently in the mix.”
The swift move to create a friendly investment climate for geothermal power speaks of a redoubled effort by Indonesian authorities to attract foreign companies and their determination to triple the size of the country’s economy in the next 15 years.
Indonesia’s 15-year economic ”masterplan”, unveiled last month, targets average economic growth of between 7 and 8 per cent and new investment of $US266 billion a year, of which 70 per cent is earmarked to come from foreign sources.
Indonesia’s current rate of economic expansion has been about 6 per cent; the third fastest among G20 countries.
The sustained and rapid economic expansion is seen by most analysts as achievable, but only if there are further reforms and a major investment in infrastructure.
Even so, there is almost universal agreement that Indonesia - so often overlooked by Australian companies - has immense potential.
For starters, Indonesia - which has 240 million people - is one of the few densely populated countries in the world with a young population.
About 30 per cent of Indonesians are under the age of 15, compared with less than 20 per cent for China and about 15 per cent for many developed economies.
”Countries with ageing populations have problems with a smaller productive workforce, which will lead to both lower consumption and a declining savings rate that will curb their economic growth,” says M. Chatib Basri, a Jakarta-based economist who advises Indonesian President Susilo Bambang Yudhoyono.
”But Indonesia will get a demographic dividend that will underpin strong consumption and see the middle class expand quite rapidly.”
Indonesia’s positive demographics are matched by its natural endowments - abundant resources in an era of high and sustained energy and commodity prices. The country also has low debt, a small budget deficit, a well-capitalised banking system and a decent financial regulatory regime.
And its embrace of democracy, an easing in ethnic conflict and a successful campaign to quash terrorism mean Indonesia has the kind of political and social stability many thought impossible a decade or so ago.
”My message to Australian businesses is that they need to at least have an Indonesia strategy, because there is too much potential to miss,” said Australia’s new ambassador to Indonesia, Greg Moriarty.
While large Australian companies such as Rio Tinto, Leighton Holdings, BlueScope Steel, ANZ and Commonwealth Bank have operations in Indonesia, just 400 Australian companies in total have a presence here.
Indonesia is only Australia’s 13th-largest trading partner, with two-way trade amounting to $9 billion. Singapore, with just a fraction of Indonesia’s population and an economy less than half its size, has a trade relationship with Australia that’s three times as large.
But Jakarta is perhaps the one G20 capital where Australia has genuine clout and it hosts Australia’s largest foreign mission.
Indonesia receives the largest share of Australia’s aid budget of any country. About 600,000 Australians will holiday in Bali this year.
”Australian business has always been outward looking but it has often seen other markets as more attractive or easier to access,” says Moriarty.
He has made expanding the economic relationship a priority, and the Australian and Indonesian governments have announced plans to negotiate a ”comprehensive economic partnership”, billed as ”more than a free-trade agreement”.
”I’ve heard quite a few sorry tales of Australian businesses entering this market,” says Moriarty. ”When you dig down and try and analyse why they ran into difficulties, it’s because they didn’t spend enough time and effort finding a really good reputable partner.”
Simon Gerard, the chief executive of Adelaide-based Gerard Lighting Group, which manufactures lighting in Indonesia for export and for local sale, agrees that finding the right partner is paramount, as is being prepared to take two or three years to get established. ”You have to be in it for the long haul, you have to take time to understand the local culture,” he says.
For example, some communities in Indonesia - where a strong strain of economic nationalism remains - can be hostile to foreign companies, and labour laws are notoriously rigid.
The key to getting workers onside, argues Gerard, is to provide non-monetary benefits for staff such as free on-site accommodation and food. Many businesses also invest money in the local community, building mosques and sponsoring other activities.
Such benefits can be provided at little cost but generate enormous goodwill. And, says Gerard, Indonesia is ”a really good low-cost alternative to China”, which he says is becoming increasingly less attractive in terms of labour costs.
While the export business bubbles along nicely, Gerard says he is ”getting really excited about tapping into the local market”.
James Castle, a business consultant who has lived in Indonesia for decades, identifies the consumer, financial services, transportation and communications sectors as markets ripe for more foreign involvement. Education and health services have also been recently opened up, says Castle, and the ”pent-up demand for quality services in these sectors is incredibly high”.
Where Indonesia really suffers is in its poor infrastructure. Power blackouts are common and its ports and road systems are decrepit and expensive.
The Yudhoyono government is starting to tackle the problem. It has introduced much-needed land acquisition legislation into parliament that will allow the state to forcibly buy property for infrastructure development.
Dr Basri, for one, is optimistic this vital legislation will pass, despite the national parliament’s notorious record of inaction.
”The politicians have a very strong incentive, self-interest,” reasons Basri. ”Many politicians are business people as well.”
