When Canadian tech company Research In Motion this week revealed that a plant for its famed BlackBerry product would be established in Malaysia, government officials in its southern neighbour, Indonesia, were outraged.

The ire centred on the fact that the company had the gall to pass over Indonesia — where it sells 4 million units a year — and instead opt for a country with one-tenth the number. “Why did they choose to build in Malaysia?” asked Gita Wirjawan, the head of the government’s investment board, seemingly in frustration rather than genuine curiosity.

But mere anger was insufficient, apparently. Instead, what was needed was punitive sanctions, to teach RIM and other investors looking elsewhere a lesson. Tariffs were mooted by the investment board, and enthusiastically embraced by the country’s industry minister, M.S. Hidayat.

“I suggest we impose an additional value-added tax, or luxury tax, for such goods, so that people would choose to invest here instead,” he said.

Perhaps, though, the anger should have been directed elsewhere.

Like at the red tape and series of hoops the Indonesian government forced RIM to jump through in the company’s desire to increase its market share in the tech-hungry republic.

RIM had been in an ongoing dispute with the Indonesian government, who had required the outfit to establish a regional network aggregator data centre in Indonesia. And 40 customer-service centres. And also the ability for the Indonesian government to intercept message services.

All this came after the company relented to Indonesia’s desires for it to block access to explicit content that may have fallen foul of the country’s strict anti-p-rnography laws.

While RIM was maintaining a dignified silence on the reasons for its decision, there were strong suggestions that the burden Indonesia was seeking to impose was a factor in the decision to head to more investor-friendly Malaysia. “What investors need is legal certainty,” information technology consultant Iwan Rachmat said.

It was serendipitous that the RIM news broke on the day of the release of a World Economic Forum report ranking the economic competitiveness of countries, which found that Indonesia had slipped two places and was wallowing behind several south-east Asian peers. The report found that corruption was the most problematic factor in doing business, followed by corruption, inefficient government bureaucracy, inadequate supply of infrastructure and policy instability. And in a sign of Indonesia’s drift in recent times, for a fourth straight year its gross domestic product per capita fell further behind the cluster of countries termed “developing Asia”.

The lack of introspection from Indonesian government officials following the RIM news is disheartening, since it is their actions — and inaction — that is proving an impediment to improving the investment climate.

The prevailing attitude still appears to be one of chummy networks and political patronage, suggesting that in many ways the system in place under strongman Suharto has not changed significantly since he was ousted 13 years ago. The nation is still home to more than 100 state-owned companies, even after a program of rationalisation in recent years.

With many running at a loss and dependent on periodic government bailouts, these companies are always seeking a leg up, and this is where the state-centric nature of the economy is so damaging to the private sector — and consumers.

The state companies are not afraid to appeal to the government to tilt the regulatory playing field in their favour. Frequent are the accusations that products produced by local companies are being undercut by foreign rivals, an act of “unfair” competition that can apparently only be rectified by the government introducing tariffs, quotas, licencing or some other form of restriction. The government — simultaneously an umpire and an owner of one of the teams — is often amenable to the request.

For an example of the system at work, see this report on cheap imported salt, the bailed-out state-owned salt company Garam, and the lackeys in the chamber of commerce doing its bidding in calling for import restrictions.

(It is worth noting that the Minister for State Enterprises, Mustafa Abubakar, was last weekend medically evacuated from Indonesia to Singapore. The northward dash was because of the volume of well-wishers who would disturb Abubakar’s rest were he in Jakarta, his spokesman dutifully explained, presumably attracting little sympathy from Indonesians with little choice but to rely on the state’s patchy health-care system. One wonders whether the Indonesian health system might meet his standards were it to receive some of the trillions of rupiah he secures in bailouts for companies under his watch.)

For private-sector companies operating in Indonesia, the prospect of being too successful in competing with a state-owned company and therefore being given an enormous block of lead to carry in the corporate saddle-bag, is real.

While the circumstances were a little different for Research In Motion — there’s no state-owned enterprises in the sleek, s-xy smartphone industry — its decision demonstrates why Indonesia ought look in the mirror in working out why companies are a tad squeamish about making major investments here.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey