with Chris Wren, CEO, British Chamber of Commerce in Indonesia
Indonesia has been a destination of British investment for a long time, with the oil and gas industry and financial services being the main targets. British companies have been in Indonesia for more than a hundred years, for instance next year is Standard Chartered’s 150year anniversary. I am not sure if the Dutch colonial influence has any mixed synergies with the British colonial influence in Malaysia and Singapore. As a matter of fact, from a cultural point of view, Indonesia and Malaysia are sometimes at odds with each other on Issues.
How is the level of direct investment affected by the proximity of these commonwealth countries? What dynamic do you see?
There is a lot of trade passing through Singapore that does not come directly into Indonesia, so from a British measuring perspective, it is very difficult for the Embassy or UKTI to accurately measure the exact amount of investment or trade volume between the countries. What we have found is a switch in trend from companies being regionalized somewhere to actually physically setting up in Indonesia. It is logical because most of the countries understand that physical risk, like terrorism for example is rather a non issue now. It is and will always be accepted but it is no greater a threat than in the UK or any other country. In addition, there seems to be a growing respect for Indonesia in terms of developing relationships here that you cannot do it at a distance. Regardless of size, it is crucial to have a presence here.
Is this in terms of setting up a presence with foreign actors coming to do business in Indonesia or recruiting Indonesian manpower, given the known cultural differences?
It very much depends on what the profile of the business is and in particular how much interface will be required with the government, be that central government or regional governments. It is a fact that having Indonesian partners is integral for working with the government. It is very difficult for a foreigner even if they spend years here. Instead of trying to be completely autonomous, they need to build and use their local networks first.
David Cameron and former HSBC boss Lord Green were in Indonesia earlier this year with a trade delegation promoting British business and closed a high-profile aerospace deal. From your point of view, what were the most important commitments and targets to have emerged from these discussions?
It is a fact that the visit of a high-profile personality helps improve relationships; the same could be said when Prince Andrew used to come over in his capacity of British Trade Envoy. Usually it serves to do two things: one, give an opportunity for a company that might have ongoing issues to try removing those issues by using the leverage of political seniority or previously royalty. Secondly it reinforces the commitment of the country. I have beensomewhat critical of how passive the UK has been in reminding British business just how strong and well established our business and trade relationship has been with Indonesia. Other countries have been more active and probably benefited from that.
Why do you think that is? Why has British business not fulfilled its potential in this country?
Everyone that has looked east before looked at the two big countries that are China and India, which they thought or felt they knew better and could access more easily. Also, until five or six years ago, we would only hear of Indonesia if there was some sort of disaster happening— bombing, banking system melting down, mudflows or earthquakes, and so on. It has only been in the last few years that one started to see some positive reports fairly regularly in heavy-weight newspapers and publications like Financial Times or The Economist. Moreover, I think it is also due to the fact that we have been so successful in Europe, which is our backyard. If we want to be cynical we can say that this shift of focus happened because of the need to find another market. No one knows the extent of the Euro zone problem yet but it certainly will not be solved quickly. China has arguably reached a peak resulting in the need to find another larger market. If you are already operating in China, India and Europe you would logically come to Indonesia next, for its population, growing middle class, for its solid consumption-driven GPD and so forth.
British investment in Indonesia has been growing strongly for the past few years with a 222% growth spike in investment in 2010. Which are the sectors driving this growth and how much can be attributed to energy and finance?
In the last couple of years we haven’t seen any new important entrances in financial services; they are all long established businesses such as HSBC and Standard Chartered. We have seen also the reverse with Barclays leaving Indonesia. Despite that, there is increased British activity in services of different sorts, especially supply services to the likes of the energy sector, consulting and so on. It seems that the UK is back on the map as being a provider of quality technology— if decisions are not price-driven, then the UK features, in other case you go to China. There has also been quite a lot of activity in the education sector and services generally.
What other examples would you have from the energy sector, which services do you see British companies contributing to or getting involved in?
The British contribute integrity to any deal; I don’t think it can be underplayed. If a government or a partner is looking for another partner of high regard, trust and integrity, the British do feature there. That ingredient is a given, which allows for the premium to cost sometimes. In the list of British energy companies growing and investing in Indonesia I would mention BP and Premier Oil. As for non-oil and gas companies, there is Unilever, which has recently set up their eighteenth production facility in Indonesia, due to solid economic and commercial investments reasons.
Companies like BP have played a very important role in Indonesian production including the Tungguh project for instance. At the moment international companies are concerned about the nationalization of the industry, whether it is in terms of production quotas – 50% targets coming from domestic producers by 2025— or whether it is procurement down the value chain – PTK007. In this case, what is the challenge faced by the British companies?
Generally speaking, the energy sector is one of those sectors that rely on and have to work closely with the central government and regional governments. There will always be regulatory bottlenecks and issues that are perceived as protectionist. Nevertheless, I don’t hear of any of our energy companies planning a downgrade of focus in Indonesia; the issues faced now are clearly not taking the edge off the viability of current projects.
Your counterpart Andrew White and former Amcham boss James Castle said that Indonesia was frustrating because of the opportunity cost and that it wasn’t living up to its potential. How will Indonesia meet its potential?
I agree with what my counterparts said one hundred percent – in the eighteen years I have been here Indonesia has not lived up to its potential. There has always been this sense that something great can happen, but Indonesia has a great propensity for shooting itself in the foot, whether it is a poorly conceived piece of legislation or other things. There is a sense among the foreign business community that this country does not need a president to steer it to 4-5% growth, the private sector can drive that on its own The question is who can lead the country towards 7-8.5%, which would have a huge impact of driving tens of millions out of poverty and it would spur on middle class growth by nearly 50%. There are always challenges but there is a very good potential ROI for companies coming here.
Many British companies are coming here to have a look— they understand – and we always tell them – that Indonesia is not a country to come for a quick ROI. It takes longer because the investment is harboured in time and relationships. This is how you mitigate a lot of the risk of doing business here, by making sure that you are partnering with the right people at the right levels to help you navigate through the challenges and obstacles that might arise.
I was just polishing up a presentation for an event next month in Singapore about doing business in Indonesia and I realized that the barriers and challenges would have been the same eighteen years ago. Granted things have changed, but the basic challenges are the same: legal uncertainty, corruption, regulatory inconsistency, poor infrastructure and human resource development The one thing that has improved irreversibly is the stability of the Indonesian banking and financial system, with the Bank of Indonesia managing everything very well in the last three or four years, taking liquidity of banks to a much higher ground and regulation having a positive impact rather than a negative one. Although proposed foreign ownership restrictions represent a concern.
In an evolving Indonesia, what sort of dialogue is Britcham having with KADIN and the government in order to change the environment? How open do you find the government to engage in collaborations with foreign chambers?
The government is always very happy to engage with us, to speak at lunches and events; we very recently had a very interesting session with the Ministry of Bureaucratic Reform who has an honourable goal whose success will have a positive impact on issues like red tape and corruption. Corruption in particular is a barrier and since the introduction of the UK anti –bribery and corruption act last year, companies have been rather more nervous because unlike its American equivalent, this act does specifically refer to facilitation and the use of agencies, which has previously been a way of doing business in Indonesia. So we believe we need to engage with the government and encourage these types of initiatives because they are trying to reach exactly what our members would like to see: better governance in the civil service, more performance-related salaries in the civil service and a service orientation— all of these being quite positive goals. We do see this as a two way street, not only the government should be engaging and open with us but we shall also embrace those ministries that are progressive.
In my opinion, the next election will be the last one seeing most of the old time political politicians running, and from 2019 it will be more likely to see Harvard and Oxford-Cambridge educated Indonesians with a solid international mindset, a better perception of good and proper government and business ethics. We see the need for patience and openly embrace the positive changes.
Looking a few years down the line, what is your outlook on the future development of the British-Indonesian business partnership?
It depends on how smart ASEAN works. Britain’s competition is not with Germany or the USA, but with ASEAN as a group, which has an enormous potential to become very powerful. It now accounts for 38% of all Indonesian total trade, so my main concern is that UK has to see ASEAN as an entity that is the main competitor to British investment success in a country like Indonesia.
As a second idea, it is important for Britain to be consistent in its allocation of government financial resources in helping British business exploit opportunities here also. We are not set up as generously as the Australians through Austrade, which has many incentives. A positive shift has started, and I understand that a couple of months from now this will be the second largest human resourced embassy trade department outside UK apart from China
What is your personal goal as the head of Britcham?
The Britcham is perceived as a very simple, pro-business, 100% independent organization representing businesses and not the ethos of any particular party at any point in time. So I would like us to maintain that at all times, However,we will take every opportunity to support government initiatives. We must always aim to be relevant to our members and fully supportive of their aspirations.
Other than that, continue to fly the flag of the best of British – especially that in countries like Indonesia there is a lot of competition we are facing – also from newer countries from the eastern European block and to show people that Britain does not only mean traditions but also innovations.
What would be your final message for the readers of the Oil and Gas Financial Journal?
Approach Indonesia with a lot of caution— It is a land of plenty and will be relied on to provide significantly more to global energy. But at the same time, do not see it as a country to come, get rich quickly and leave. It is a country where you are rewarded for the investments in relationships – so be patient. Indonesia is a country with a lot of potential, and I do believe in that. Maybe Indonesia lacks a little bit of confidence in itself, but to know that it is one of the 20 most influential countries on earth, and to be elected to be so by some of its highly respected and highly developed traditional peers is a reason to be proud as a nation.
(Whilst Chris Wren is the full-time Executive Director of the British Chamber of Commerce, the comments made during this interview are his personal thoughts and perceptions and do not necessarily represent the positions of the Chamber as a body)