The City of Balikpapan and the World Bank Private Sector Development. jointly organized: PRIVATE SECTOR FORUM

Transcription

1 The City of Balikpapan and the World Bank Private Sector Development jointly organized: PRIVATE SECTOR FORUM June 4, 2002 Balikpapan, East Kalimantan Opened by: The Mayor of Balikpapan, Mr. Imdaad Hamid and World Bank Representative, Mr. Bernard Drum Moderator: Development Assistant II, Mr. Kadir Hak Private Sector Speakers: Infrastructure: Mr. Alimuddin Mustafa Regulation, License and Levy (Retribusi): Mr. Parris Paulus, Ms. Giat Wahyu Human Resources Development and Labor Relations: Mr. Kamillus Tegun and Ms. Sri Mulyati Access to Finance: Mr. Jorry Tampa and Mr. Suratman Community Outreach: Mr. Suta Vijaya and Mr. Jos Soetomo

2 Balikpapan is a business city and therefore the private sector must be involved in the decision making process - Mayor of Balikpapan, Mr. Imdaad Hamid [1] The Regional Business Forum was initiated recognizing the significant impact that regional autonomy (otonomi daerah) has on business operations in the regions Mr. Bernard Drum of the World Bank explained the rationale of the Forum in his opening remarks. Balikpapan is the first pilot city in Indonesia outside Jakarta to hold a Private Sector Forum supported by the World Bank. The intention of this Forum, Mr. Drum emphasized, was to promote an open dialogue between the private sector and the local government on opportunities for improving the business environment. He informed that a national level Forum has already been held successfully in November 2001 following the meeting of the Consultative Group on Indonesia (CGI) and a second meeting will be held on June 11, prior to mid-term CGI review. However, as decentralization proceeds it is becoming increasingly important to work directly at the local level, with the local government and businesses, focusing on local issues. Mr. Drum reiterated that the growth of businesses of all sizes: large, medium, small and micro, will be critical to improving the standard of living of the people in Balikpapan as well as elsewhere in Indonesia, and the strength and sustainability of this growth will depend on the existence of a conducive business environment. [2] The Mayor for the City of Balikpapan, Mr. Imdaad Hamid, welcomed and supported this open dialog. He said he had already started monthly meetings with Kadin and he would like to broaden these meetings by involving smaller size businesses as we had done in this Forum. He also shared with the Forum some insights on the priorities of this local government. A special budget Rp. 20 billion is being set aside for poverty alleviation programs with the focus on identifying the needy (ID card for the poor) and training them to be able to join the work force. The Mayor pointed out that Balikpapan has long been an attractive destination for migrants, however, if good urban management is not maintained, the current favorable business environment may get eroded. Hence, the Mayor stressed that urban planning is key and since Balikpapan is a business city, it is even more vital that the private sector is involved in the decision making process. He was confident that collaboration would bring win-win solutions. Furthermore, he hoped that future forums would be held to discuss specific issues such as infrastructure. He also touched on the issue of helping the community whereby he would like the companies to focus their assistance within their own locality, instead of more widely. He said that the Pemda, in general, already covered health and education for the poor, so additional aid should be focused on areas of need, otherwise, in his words, the poor would lose their fighting spirit. Finally, the Mayor acknowledged the irony that Balikpapan is among the six energy cities in the world that have problems with power and water. But he is optimistic that these problems can be overcome and his vision for Balikpapan shared by participants of the Forum is to be the master in its own domain. 1

3 Issues raised by the Private Sector [3] In preparation for the Forum, a small World Bank team had visited Balikpapan for one week to meet with the business community and local government officials to identify the main issues faced by the city of Balikpapan. The team met with over one hundred and fifty people in total and summarized their opin ions in the background paper distributed at the Forum. Five main issues were identified and presented by nine private sector speakers representing businesses of all sizes. These issues are: (i) shortages of infrastructure (electricity, water, port facilities, and to some extent, roads), (ii) too many regulations, permits and levies (retribusi), (3) human resource constraints and labor relations difficulties, (4) lack of access to finance, and (5) the need for more community outreach. [4] The first private sector speaker was on infrastructure. A Kadin representative, Mr. Alimuddin Mustafa, said that problems with infrastructure have discouraged potential investors in Balikpapan and he mentioned a specific urgent problem - the bad road condition to the industrial estate of Kariangau. The speaker also pointed out that lack of port facilities in Balikpapan had led to many ships switching their consignments to Samarinda consequently raising their transfer costs to Balikpapan. In addition, he said that service delivery needs great improvement to enable the city to compete following the ASEAN Free Trade Agreement (AFTA). [5] The second group of issues - on regulations, licenses and levies (retribusi) - was presented by two speakers. Mr. Parris Paulus began by stating that poor regions issue local regulations (perda) to increase their regional income (PAD) while rich regions are more concerned with ownership status. He raised the subject of corruption and how it has worsened since regional autonomy and is even spreading to the lower levels of bureaucracies. Mr. Paulus was also concerned about the lack of law enforcement against harassment by local community activists aimed at businesses that were perceived to be not employing an adequate number of local residents (putra daerah). [6] Ms. Giat Wahyu from Plaza Balikpapan, emphasized that Balikpapan is a service city. Hence business licensing is very important and she suggested that the newly established one roof system still needs a lot of improvement. She explained that ideally, one roof means the agency building a database that would not require duplication of documents for every license applied for. Her concern was that the longer time needed is not only inconvenient, but also expensive. Businesses are being forced to pay minta tolong fee (asking for help) to expedite the process. On retribusi, she gave the example that her own business is charged with retribusi for the use of its power generator while she argued that the equipment is in fact a necessity and not for luxury for the business given the frequent power cut-offs in the city. She urged that the local government should instead be rationalizing the existing local regulations such as building permits and fees. In addition, she suggested that local government create a website that provides information on the allocation and availability of land. 2

4 [7] Human resources development is vital for Balikpapan. The representative from the Forum Communication for Businesses in East Balikpapan, Mr. Kamillus Tegun, spoke about the lack of skilled personnel for industries due to insufficient formal and informal training centers. At present, some companies form working relationships with technical schools by providing apprenticeships for the students and then later by giving them the opportunity to participate in the companies recruitment processes for permanent jobs. He emphasized the need for training to be focused on the demands of the local market. Industrial disputes were reportedly low apart from the issue of employment of putra daerah raised earlier by Mr. Paulus. [8] Speaking for small scale businesses, Ms. Sri Mulyati, the owner of a salted duck-egg business, thanked the Pemda for their existing support in obtaining credit, housing and other services. But she also sees the need for small scale businessmen and women to get more apprenticeships and training so that they can learn from the bigger companies in the same line of business as well as for training in management and accounting. Ms. Mulyati echoed the views of many other small businesses when she said that in obtaining loans from banks, trust should be key and often the ongoing business is the only collateral they have. Despite the lack of physical collateral, small businesses deserve opportunities to borrow to finance their activities. [9] Access to finance is a problem for local businesses big and small in Balikpapan. Mr. Jorry Tampa reminded the Forum that banks and businesses cannot operate without each other. He highlighted four major issues. First, working capital and investment are extremely difficult to obtain since banks collect funds but do not redistribute. Second, many banks exist in Balikpapan but the credit ceilings of these regional branches are very low. Proposals over a certain limit need to be referred to a larger regional office (Kantor Wilayah) and/or the central office where decisions can take from one to three months. Local businesses complain that the system is causing them to lose opportunities. Third, there is the issue of collateral as discussed in the background paper. Finally, it is widely perceived that most of the banking funds deposited end up in Jakarta and for that reason, tenders are seldom won by local businesses. [10] In addition, Mr. Tampa made the point that obtaining bank guarantees is virtually impossible for businesses because of the rigid procedure that requires 100% cash deposit. Some companies have to use alternative ways such borrowing from loan sharks and leasing companies, or directly from overseas. The last option is risky because of exchange rate fluctuations. Therefore more lending from local banks will be key for business growth. The speaker argued that while the banks are allowed to have up to 110% loan to deposit ratio, their ratios at present are maximum 50% and the rest of funds are in SBIs because banks choose to play safe. Mr. Tampa suggested that if local bank officers are deemed incompetent, headquarters offices should relocate some of their HQ staff to the field. [11] Mr. Suratman made a presentation on the same topic with the focus on access for small businesses. He also said that the banks loan to deposit ratio is too low and said that it is not a valid excuse to say that East Kalimantan does not have the capacity to absorb. On the contrary micro-businesses are using loan sharks and community revolving funds (arisan) - with high 3

5 interest rates but no collateral - for their financing needs. Mr. Suratman said that the intermediary role of banks is not working mainly because the banks are too conservative and held back by unrealistic rules. He stressed that the banks need to develop innovative methods in lending by taking into account the factors of trust, relationship and understanding the businesses. [12] Mr. Suratman illustrated success stories of a number of institutions lending to small businesses. BPR in Bontang started with Rp. 50 million seed capital, now its lending has reached Rp. 10 billion comprising thousands of borrowers and has 4 offices that provide jobs to 115 people. Its lending methodology is door-to-door calls on farmers, small traders and contractors with average loans of around Rp. 1 million. Their non-performing loans (NPLs) are less than 5%. A similar story was told concerning Cooperative Bahumas Kosgoro that started with Rp. 10 million and now has seen its assets grow to no less than Rp. 2 billion. [13] Mr. Suta Vijaya from UNOCAL and Mr. Jos Soetomo, a private businessman, talked about social aspects how companies can help their surrounding community. UNOCAL s motto is to improve the life of people wherever we work. The company has a number of community programs and a long-standing experience in the country. Mr. Soetomo reiterated that Balikpapan s diversity is unique and it is a good thing an asset. He strongly urged that this type of forum should be made regularly and this is an encouraging start. [14] The presentations were followed by a short discussion. A number of questions focused on the high expectations from participants that the World Bank would solve the problems presented at the Forum. Mr. Bernard Drum explained that the World Bank has already supported Balikpapan, and that the city may possibly be the recipient of a grant that would assist in the development of small and medium enterprises (SMEs). However, although the World Bank is ready to help within its means, for any assistance to be sustainable Balikpapan s local government and private sector will have to take the lead in dealing with the constraints identified during the Forum. To its credit, Balikpapan is already ahead of many other regions in creating a favourable business environment and it has great potential to develop even further. In closing, Mr. Drum thanked the Forum for participating in this dialog, and confirmed that the Bank would take the opportunity to pass on the message to others that Balikpapan is a good place to do business. ******* 4