KUALA LUMPUR: Malaysian investors should not get over-excited about investing in Indonesia but attempt to attract middle-income Indonesians to invest here, said KRA Group CEO Karim Raslan.

“First things first, caution. Do not invest. Do go there and spend more time to look at things because frankly it is a much more challenging environment. Don’t get over-excited because it is a very difficult terrain there,” he said at the CIMB Private Banking Investment Conference 2010 here on Wednesday.

Speaking on “how will the rest of the Southeast Asian members benefit from the boom in Indonesia”, Karim said this was not the best time to enter the Indonesian market, as the Indonesian government itself was dampening expectations, coupled with massive challenges in doing business in Indonesia given issues such as the tax system, infrastructure and labour laws.

Instead, he said Malaysians should not see Indonesia as a cheap source of labour — maids and construction workers  — but as a source of buyers for properties in the Klang Valley, healthcare, hospitality and education.

“We should, in essence, be duplicating the type of policy, programmes and promotions that Singapore has been so successful in doing for the past 20 years. Bring onshore into Malaysia Indonesian demands,” he said.

Karim said there was a massive expansion of the middle-class in Indonesia whose psyche was “to bank, buy property, get educated and get healthcare abroad”. According to him, many Indonesians deposit their money in Singapore not seeking returns but as a security measure.

“Can you imagine how much could be banked into the Malaysian banking system? I have not seen any promotion of any Malaysian bank in this regard in Indonesia and this is critical.

“Indonesians need to know that they can open bank accounts here. Malaysians also need to realise that Indonesians are not just labourers and maids,” he added.

Karim also said that while Malaysia had the policy platform for foreigners to buy properties and use the banking system, there was no coordination.
“There is no systematic approach. We are looking at the opportunity of tapping the Indonesian market by actually promoting and selling the things that we are best at doing, which are hotels, housing and providing healthcare.

“These are proven Malaysian strengths,” he said, adding that Malaysia must look beyond Jakarta as the middle-class were scattered all over Indonesia.

Karim said Melaka and Penang were doing the right thing to tap into the Indonesian middle-class market.

He said Melaka Chief Minister Datuk Seri Mohd Ali Rustam, Sabah Chief Minister Datuk Musa Aman and Penang Chief Minister Lim Guan Eng were beginning to recognise the opportunities for their states and were becoming very aggressive in trying to capture the opportunities even if Kuala Lumpur was fixated with Jakarta.

“Mohd Ali is pushing for more people to come in from Pekan Baru, another oil and gas town with a population of 700,000. If you go to Melaka on a weekend, it is full of Indonesians. If you go to Penang, it is full of Indonesians because the people from Medan find it cheaper to travel to Penang.

“The opportunity is there but I have not seen our policymakers making a concerted effort to tap it, said Karim.

He also said Indonesia was set to lift the exit fee for its citizens next year. Currently, any Indonesian travelling abroad is required to pay 2.5 million rupiah although taxpaying Indonesians are exempted. The policy was put in place in 1998 as a means to increase revenue for the government but it will be scrapped next year.

“Can you imagine the pent-up demand in Indonesia to travel? The numbers are going to be enormous,” said Karim, adding that the impact on Hong Kong was phenomenal when China opened its doors for its citizens to travel.

This article appeared in The Edge Financial Daily, July 9, 2010.