Caution is the Watchword as Indonesia Eyes Business in Burma

By William Boot 25 April 2013

Two years after political and economic reforms began opening up Burma, giant regional neighbor Indonesia is only just beginning to wake up to the investment potential.

Indonesia is the biggest country by far in the Association of Southeast Asian Nations (Asean) and the fourth largest in the world in population terms, but it ranks only 14th in the international league of investors knocking on Burma’s business door.

To date, Indonesians have invested just US $241 million in Burma since 1988, according to the Union of Myanmar Federation of Chambers of Commerce and Industry.

Not surprisingly, this week’s visit to Naypyidaw by Indonesian President Susilo Bambang Yudhoyono aims to improve this situation by seeking to quadruple his country’s investment to reach  $1 billion—but not before 2016.

To achieve that target, the Indonesian government is leveraging its large state-owned business sector to put money into Burma. Proposals have been made by a coal producer, a bank, and metals mining and cement enterprises among 15 Indonesian state companies reportedly being chivvied to move into Burma.

President Susilo’s two-day state visit to Burma had been prepared by Indonesia’s Minister for State Enterprises Dahlan Iskan and Minister for Economic Affairs Hatta Rajasa.

The Indonesian state specializes in resource mining: apart from huge coal reserves, Indonesia has gold, nickel, copper, oil and gas.

Indonesia’s gold and nickel miner Aneka Tambang is among state companies looking for a Burma mining license.

State construction company PT Wijaya Karya, tin mining company PT Timah, and cement firm Semen Indonesia have already been granted licenses to work in Burma, according to the Jakarta government’s State Enterprises Ministry.

Coal-mining firm Bukit Asam has said it wants to build a mine-mouth power station of 200 megawatts electricity-generating capacity, which would be a major boost to Burma’s electricity shortage problems. But it must first develop an adequately productive coal mine.

“No doubt Indonesia has money to invest in Burma but Indonesian bureaucracy is notoriously slow and unwieldy, so when a state business says it has plans for 2014, Burmese should not automatically expect prompt starts,” energy industries analyst-consultant Collin Reynolds in Bangkok told The Irrawaddy.

“The kind of businesses named as showing interest in Burma are solid but stolid, in other words they are unlikely to act swiftly on development projects. Indonesian culture is ponderous.

“On the question of a coal-fired power station, the Burmese should be seeking best-practice fueling-burning technology to avoid pollution problems.”

Another potential problem is that much of what Indonesia proposes involves the kind of land-scarring mine working that has led to community protests in Burma in the past year. It’s an issue which bedevils Indonesian communities also.

Jakarta and Naypyidaw have also been in discussions on Indonesia buying Burmese rice as Burma steps up its exports. However, in the last three years Indonesia has greatly increased its own production and also become a net rice exporter.

The biggest single Indonesian investment on the horizon is a plan by the state-owned cement manufacturer Semen Indonesia to build a  $200 million cement-making factory. Semen said it wants the factory to have a production capacity of 1 million tonnes per year, but the downside of this plan—apart from a very slow development timetable—is that Semen wants to export some of the cement to neighboring countries.

Burma’s hoped-for economic boom will need all the cement it can get its hands on.

Semen has been considering the investment since the beginning of this year, but no details on a local partner or the location of the factory have been disclosed.

“This year, [Semen] will work on the partnership issue. Then, [we] will build the plant next year and three years after, which is in 2017, we will start the operation,” Semen president Dwi Soetjipto told a Jakarta business seminar on March 25.

Like Burma now, Indonesia started to change after the 1998 end of the quasi-military “New Order” leadership headed by army general President Suharto as the country’s economy staggered after the Asian financial crash.

It’s now the biggest economy by far in the 10-nation Asean, but it has been slow to expand business abroad. For instance, despite being a major natural gas exporter and oil producer the state-owned petro-company Pertamina has virtually no presence outside Indonesia—unlike near neighbors Malaysia and Thailand, whose state-owned oil companies Petronas and PTT have made massive overseas investments.

“The recent history of Indonesia’s economy is one of cautious progress, tightly managed from the center,” an economist with a Western embassy in Bangkok told The Irrawaddy on April 24. “So it is no real surprise that Indonesians have been slow to enter into the new economy of Myanmar. This might well begin to change soon, but not too quickly you can be sure.”