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A need for strategic and strong investment initiatives

*The stupid word is referred to all who ignore the essential role of investment in any economic revival programs. 

Empirical evidence suggests that investment is one of the most significant determinants of economic growth. A significant investment by domestic or foreign enterprises not only promotes growth but also further creates conducive environment for other agents to invest. However, as the government continues to formulate and implement prescriptions for recovering our economy, statistics shows that investment activities are far from satisfactory (table).

We have no need for an expert to explain the trends of the approved investment projects. The table clearly shows that the total approved domestic investment (DDI) and foreign investment (FDI) projects steadily decreased and its last year total was less than to the total approved in 1994. The figures are for approved investment projects and the total figures for realized project most likely is much less. 

However, there is an interesting fact that demands special attention. Contrary to what one might have thought, it is domestic investors, not foreign investors, that play key role in the investment projects. During the last eight years, the total approved DDI is approximately four times that of the approved FDI.  The graph below shows that the approved DDI drastically decreased in 1998 while the approved FDI slightly increased.  The implication is apparent that the domestic investors are more responsive to the instability of domestic politics and economy than foreign investors. Two these important observations are enough to suggest that urgent and strategic measures in order to restore the confidence of domestic investors are needed if the government really wants to improve our economy.

Table

Total Approved Domestic and Foreign Investment Projects
(Milliar Rp. / Billion of Rp. )

Source: Bank of Indonesia

Source: Bank of Indonesia

The stark bottom line conclusion from the graph is that Indonesia desperately needs strong initiatives for boosting investment projects. This is the only way to unlock the jammed economy for reducing unemployment, eliminating poverty, raising exports, stabilizing the rupiah and increasing the growth rate. Our economy needs an investment crusade for its revival.  Every effort and every possible way, big or small, must be used to make the local investors start investment. Only after the local investment starts, foreign investors could follow.

Strategic and concrete measures

Therefore, strategic and concrete measures have to be undertaken, on both long and short-term basis, by the government in collaboration, support, assistance and consultation with all the relevant elements in the country from private sector, mass organizations, to political parties.  When Megawati designed her cabinet, she seemed to ignore the fact that investment is one of the most important factors to improve the economy. Otherwise, she would have created a cabinet post to formulate and implement investment initiatives in order to attract the outflow and idle capital. Time has not run out yet. The president should consider renaming and revitalizing BKPM (Investment Coordinating Agency). Instead  of “coordinating”, its name should be changed to “attracting” and its top official is someone who can wage a war to break the investment deadlock in the country and inspire confidence in the investors through her/his imaginative and innovative approach and policies. A highly committed and dynamic official is the need of the hour. She/he must be a dedicated professional, not an opportunist politician. The country obviously needs top officials who can think and work wholeheartedly.

All the major issues confronting the country such as trade and fiscal deficits, low GDP growth, unemployment, poverty would be automatically addressed to a large extent if investment is accelerated. The primary focus of the new economic strategy must attack investment sector with secondary attention to all other matters.  This initiative then is combined with a strategic recovery policy that has yet to be formulated. The new government has been in power for almost nine months but so far we have seen no clear strategic plans from the government to revive our economy. We have been informed about the growth rate and inflation rates forecast. But those macro indicators are secondary after the need for direction. People need direction. Potential and “sleeping” investors need to be convinced by a clear direction where the economy will be heading. It appears that the current Cabinet works only to handle one problem after another and loses its sight for medium and long-term goals.  A temporary sacrifice is more valuable than a long painful uncertainty.

There is compelling need for starting a strong and long lasting investment campaign in the country. The domestic private investors in the country need to be convinced that with the new strategic measures, the country will have rosy economy, more market opportunities and etc. etc. The commonly held opinion of the private entrepreneurs is that economic revival is greatly affected by the inconsistency of government policy.  Consistency in economic policies is major requirement for sustaining investment flow. The government, through its strategic investment measures, needs to provide firm assurances on this subject. Any conflicting policies will only show a lack of coordination and planing in the Cabinet.

On a wider front, the government must make people investment-oriented. The government could establish a national investment account, for example.  Suppose we had around 20 million middle class workers. If each of those were to invest 10 thousand rupiah in the national investment account, the government would collect 200 billion rupiah which can be used to promote small businesses and create new jobs. The problem is we need to have clean, reliable and capable officials to manage the campaign.  Otherwise, costs can exceeds benefits.

Indonesians living abroad can also be attracted to make investment in the country. A lot of strategies and programs can be done to do this. However, any campaign officials must be clearly scrutinized before doing the job. The recent participation of Indonesia in a festival in Den Haag showed that consideration on cost and benefit analysis is often ignored.

Politics to the rest

The investment campaign is not without certain requirements. It requires political objective to be locked in the closet if any of government policy conflicts with this supreme objective of breaking the investment shackles and speeding its pace. Once the psychological barriers against investment are removed, it is expected that the process will continue and investment crusade gains momentum.

The advantage of announcing investment initiative strategies publicly is to place the party which might try to impede it on a shaky ground for the next election.  People need jobs and economic security. They are desperately hoping for a better life. Luckily, they do know that investment is one of the panaceas for realizing it. This is enough to convince the government that any strategic and concrete investment initiatives will likely be supported by majority of economic and political elements in the country.

The revival of the economy through investment is not going to be an easy goal to achieve but it is certain that once the government focuses its approach on investment initiatives, it could definitely place the country on the fast lane of the economic recovery.  Whatever investment campaign initiative that government may announce and implement, it is an objective worth pursuing with relentless devotion on top priority and urgent basis. This tasks needs to be undertaken like a dedicated and vigorous operation. Economic turbulence, dramatic political change and all that follows are extraordinary episodes that need to be met by creative and extraordinary measures.  People expect that the president and her Cabinet are able to do extraordinary jobs. But expectation has a time limit. Without immediate strong investment campaign, it is less likely that the people’s expectation will materialize.

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