Paradigm shift in the culture of Indonesian investment

Paradigm shift in the culture of Indonesian investment

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Story detail:
Date: 5th April 2016
Type: Feature
Countries: Asia, Indonesia
Tags: energy, green growth, green investments, incentives, Measurement, Reporting and Verification (MRV), partnerships, private public partnership, specific financing mechanisms

Indra Darmawan, Director of International Business Cooperation of BKPM - Indonesian Investment Board and Mochamad Indrawan, CDKN’s senior strategic advisor for Indonesia report on the debates at the ‘Tropical Landscape Summit’. This second in a two-part feature explores the 4 Ps, and the shifting paradigms evident nearly a year after this summit.

Indonesia is moving toward green growth and along the way opening up to increased international investments.  One such interface, the ‘Tropical Landscape Summit: A global investment opportunity’ by Indonesia Investment Coordination Board (BKPM) and UN-ORCID was held in Jakarta in April 2015.  The goal of the Tropical Landscape Summit was to promote opportunities for green investment in Indonesia, with an aim to foster multi-stakeholder dialogue towards enabling framework and incentives.  Issues explored included investment potentials, land based issues, sustainable cities, PPP (private public partnership) and the fourth P (people), as well as youth, and women.  Eventually the workshop brought paradigm shift in ways not anticipated before. While the first part of this feature discussed investment potential, land based issues and sustainable cities, this second part will focus on the 4 Ps and discuss the current situation.

Public Private Partnership

The current ratio of government and private sector investment, at 4:1, calls for increased private sector role.  For instance, in the sector of infrastructure development, where close to US$ 400 billion is needed, only 40 percent can be met with the Government of Indonesia's budget.

The government and private sector have traditionally worked in silos. Now they have begun to talk in the same language to consider finance and risk for the long term, and discuss how to better support the national leadership.   Private sector has the finances, but needs to understand that sustainability is not a risk, but an opportunity.  Restoration of degraded land has a great potential for the private sector to contribute, and can happen if regulative barriers are removed.

Multifaceted finances and risks continue to be the main stake.  For instance, long term financing of renewable energy is cheaper than fossil fuel energy; but needs a guarantee for credit risk.   Further reform towards green public procurement such as tariff trade barriers is called for.

Ben Ridley, Director of Sustainability, Credit Suisse pointed out that the need for private sector participation is evident in the development of conservation finance.  If there is a good opportunity such as green bonds (private sector financing mechanism to protect forests,), markets will be established. Microfinance with conservation credentials may be also be considered.

The fourth P

While Public Private Partnership is important, there is a fourth P that is often forgotten. People! We often make assumptions.  Many of us do not consider the culture of the people we are supposed to care for.  Yet, if businesses come to invest they must understand the local culture first, even the need for an afternoon siesta! So was the comment of Bustar Maitar, campaigner, Greenpeace SEA, and Abdon Nababan, Secretary General of AMAN – Indonesian Alliance of Traditional Communities.

Experiences from tsunami rehabilitation and reconstruction in Aceh showed that PPPP is difficult, but PPPP is also a must, and can be done.  Proper project cycle management including planning and monitoring is needed can help achieve this said Kuntoro Mangkusubroto, Chairman, ITB School of Business and Management, and former Head of UKP4 – Presidential Delivery Unit for Development Monitoring and Oversight.

Youth and women

Young people deserve a better future, hence there is a need for an  inter-generational dialogue with custodians of the future.   Indonesia must be prepared to receive demographic bonus in 2020.  An example of a green school in Bali which focuses on adapting the local wisdom of Bali, respects local culture, tradition and environment, while practicing organic gardening and edu-tourism was discussed by Ni PutuTirka Widanti, Yayasan Kul-kul.  Even a younger person can lead urban initiatives such as campaigning for greater public involvement in ecosystem sustainability stressed Adeline Tiffanie Suwana, 2014 ASEAN Champion of Biodiversity.  Social media provides a great space for the youth, and should be used more intensively.

Jeannette Gurung, Executive Director, WOCAN -  Women Organising for Change in Agriculture & Natural Resource Management presented the importance of ensuring just benefits for women. According to a recent FAO study, women’s access to decision making and assets can lead to 20 – 30 percent increases in agricultural productivity.  Yet, conservative investments in agriculture and environment fail to close the gap.   For instance, only 2 % of development funds reach women and only 9 % go to women’s organisations.  One way to redress to situation would be to apply a low cost measurement tool that tracks changes in empowerment in a quantified, verified way, and incentivises companies and agencies seeking sustainability.  A W+ standard is now available, that will help assign due benefits to women, e.g. a palm oil company may want to be certified for the W+.

Challenging the assumptions

Bambang Brodjonegoro, RI Minister of Finance in his closing remarks said that the Summit recognises the importance of policy reform.  On one side, Indonesia is committed to the greening of infrastructure, but a tug of war remains between the short and longer term priorities,.  H.E. Mr. Felipe Calderon, former President of Mexico and Chair, Global Commission of the Economy and Climate stressed that the World is aware of the false dilemma, whereby promoting economic growth is considered averse to fighting climate change.  One should not shy away from thinking that green does not need to be more expensive.

One year on: A shifting paradigm

It is evident now that one single workshop contributed to changing knowledge and behavior for the better.  Nearly a year after the workshop, paradigm shifts were felt in the Indonesia Investment Coordination Board (BKPM) that are attributed to the workshop.  Knowledge acquisition on the need and process for sustainability, as well as adopting a more critical stance toward smart investment was experienced by BKPM and investors.

Environmental protection measures such as pollution control were always thought to be ‘red-tapes’.  Together, BKPM and investors have increasingly deliberated on the means for sustainability.  For instance, importing of second hand machinery is now screened against imported components and products that pose safety and health hazards.

Today the BKPM has increased its commitment to educate both investors and regional governments on the benefits of green economy.   The regional government have even made requests to be trained.

A key lesson from this shift in attitude is that the change for sustainability needs a strong network.  Since BKPM is the policy maker, investors as well as associations such as the Indonesian Chamber of Commerce come to BKPM for facilitation and coordination.   A strong network is essential in bringing government, private sectors and all elements of civil society together towards the same vision for sustainability.   The most recent endeavor by BKPM is to engage with pesantrens (Islamic boarding schools) in East Java who are in a position to provide locally sourced labour who will help maintain the quality of the local environment in the local industrial complexes.


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