UK firms pick over the rubble
Sunday 18 January 1998
While some projects in the South-east Asian nation are being put on hold, some firms are optimistic that rich pickings can be found among the rubble.
Dozens of British companies have piled into Indonesia in recent years, attracted by one of the highest growth rates in the world, low wages and 200 million potential customers.
UK direct investment in the country last year topped $5.5bn (pounds 3.4bn) according to the Indonesian Investment Co-ordination Board (IICB). The UK was the biggest investor in Indonesia in 1995, the second biggest in 1996 and the biggest again last year, according to figures provided by the IICB and the Department of Trade and Industry.
Ambitious plans by BAA to take over the management of Bali airport have now been scrapped. British Steel has also delayed indefinitely a $750m investment in partnership with Indonesia's Bakrie Group to build a mini- mill in Indonesia capable of producing 1.5 million tones of steel plates a year.
Spokesman Mike Hitchcock said one of the main reasons for the delay was "whether the country would be able to finance big infrastructure projects that would use steel". Earlier this month the Indonesian government suspended 15 big infrastructure projects worth billions of dollars as part of its programme to slash government debt.
British Steel also fears Indonesia will start producing its own steel for export.
Other manufacturing companies with factories in Indonesia believe the devaluation of the local currency could benefit them. Porcelain maker Royal Doulton has a pounds 15m factory just outside Jakarta.
"We don't seem to have been troubled by the current problems" said Peter Walley, Royal Doulton's finance director. "Going forward, providing we don't have rampant inflation, it's good news. It's going to be cheaper producing there."
Courtaulds, the chemicals and textiles firm that runs a toothpaste tube factory in Indonesia in conjunction with Unilever, is also quite calm.
"We will obviously lose when translating profits back to Britain. But, providing the economy can be sorted out, it's not all bad news because we are a domestic supplier," said company economist Donald Anderson.
For Unilever, which has been present in the country for 64 years and which produces consumer products such as soap and shampoo for the Indonesian market, the financial crisis has thrown up another unexpected problem - illegal smuggling of its products to other parts of Asia where they are now more expensive. As well as undercutting the company in other markets - especially China and Malaysia, where Unilever also has manufacturing operations - the increase in smuggling also means stocks are short in Indonesia.
In 1997 Unilever's turnover in Indonesia totalled $700m. The company is in a good position to take advantage of the Asian financial crisis.
"When things settle there will be a number of ailing companies. We will certainly be looking around for alliances and acquisitions, and I am sure there will be others doing the same thing," said Desmond Dempsey, commercial director for Unilever Indonesia.
The Dutch, Indonesia's former colonisers, have already jumped in with the purchase by Nutricia, Europe's biggest baby food maker, of a 50 per cent stake in Indonesia baby food maker Sari Husada for 328.9bn rupiah (pounds 23m).
"A lot of companies, British and otherwise, are having a close look at the new opportunities," said one Jakarta-based analyst.
"Over the next six months we will see a lot of people sneaking in and buying stakes in local companies. The big worry for anyone picking over the rubble is not to get something saddled with massive debt."
Business opportunities have also increased for British security and parcels delivery firm Securicor, the biggest security company in Indonesia.
"The possibility of social unrest is making people nervous about their operations," said one company employee - who didn't want to be named.
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