Sustainable Development Impacts of Investment Incentives: A Case ...

trade knowledge network
establishment of the chemical plants underground water had become murky. That said, some
respondents believed that it was in fact a local coral that had contaminated the water, and not pollution
caused chemical plants in their areas.
In general, however, members of the local community perceived such effects as within tolerable limits,
which in any case they had become accustomed to, and not a major source of serious health problems.
6 Policy Recommendations
Domestic and foreign investment is vital for the development of Indonesia’s economy. Foreign direct
investment as a source of foreign capital inflow is important in fostering economic growth. Efforts must
be made to increase both domestic and foreign investment. The Government of Indonesia has many
tasks to accomplish if it is to enhance its attractiveness to foreign investors. There is a need to improve
legal certainty and investment security guarantees, as well as the provision of public services and good
infrastructure. The GOI must create an environment that provides the best services to investors in order
to attract FDI to Indonesia.
Although investment incentives are not a key influence on the decision of foreign investors to invest in
Indonesia, they are still an important element in attracting FDI to Indonesia. In particular, there is a need for
incentives and policies tailored to promoting the development of inputs industries for the chemical industry,
which should help in elevating industrialization and, in turn, will raise Indonesia’s value added. Furthermore,
to increase the spillover effect generated by the chemical industry to the local community, human resources
must improve. Poor human resources within the local community hampers the capacity of employees to
derive many benefits they should from the operations of the chemical plants located in their areas.
Foreign-invested chemical companies in general outperform their domestic counterparts in protecting the
local environment in the areas surveyed. However, considering the fact that the PROPER category of many
companies still falls below Green, GOI should increase pressure on the chemical industry to build up their
waste processing facilities. Such a policy will enable the companies to achieve Green environmental quality
standards, thereby reducing the negative impact on the surrounding community. There is also need for
incentives tailored to encouraging better environmental quality in areas where chemical industries carry out
their operations. Environment incentives could include publishing the names of firms that have achieved
Green or Gold standard. In addition, the firms can show their status in their own promotional materials—
both to promote their business and to act as a mentor to other businesses.
7 References
Law References
Decree of the Minister of Finance No. Kep-289/MK/IV/4/1971 on Import Duties and Sales Tax
(Import) of Capital Goods Imported by Foreign Enterprises.
Government Regulation No. 17/1992 on Share Ownership in Foreign Enterprises.
Government Regulation No. 20/1994 on Share Ownership in Companies Established for Foreign
Investment.
Government Regulation No.32/1994 on Visas, Entry Permits, and Immigration Permits.
26
Sustainable Development Impacts of Investment Incentives: A Case Study of the Chemical Industry in Indonesia