Indonesia. Invest?

Indonesia. Invest?

A few days ago I read that Hankook Tires from South Korea will invest $1.2 bln in the Indonesian tire industry. In addition, Indonesia’s investment agency expects up to $10 billion of investment from South Korea in the next four years. Quite a welcoming investment project for Indonesia as in the beginning of the past decade Indonesia had a hard time recovering from the Asian Financial Crisis: FDI flew out of the country due to a labor force not tailored to international business requirements, deindustrialization, a much bigger growth potential in India and China and an aging infrastructure.

Zooming in on the labor force, I recalled it was one of Indonesia’s biggest challenges. For instance, in 2006 the Asian Times published an article with the headline stating: “Indonesia behind the learning curve”, where secondary and tertiary education enrollment was far behind and government spending on education lacking significantly. Looking into the progress made in that field, I found the “Macro Snapshot of Education in Indonesia” published in the Jakarta Post in April 2010. Unfortunately, it does not show much of an improvement. Enrollment in secondary education remains very low and for tertiary education it is even worse. Note that UNCTAD published a report in 2006 in which it said that “future foreign-investment flows to top developing countries in Asia will increasingly go toward so-called human-capital-intensive industries. The likely high-growth industries of the future, such as information technology and biotechnology, require an increasingly skilled labor force”.Taking this into account, but also South Korea’s decision to invest billions the coming years in Indonesia, would you invest in Indonesia?

Frank Peterse

Senior Consultant – ICA