THE promise of new political leadership and a market too huge to ignore should make Indonesia a ready target for Singapore businesses and investors (See past trade and investment volumes) - but ghosts of the past may not fade so easily, especially for larger companies.
While there is a little more optimism about prospects there, Singapore businesses are watching and waiting to see if reforms succeed, mindful of how some prominent deals have been scuppered by regulatory and legal surprises in the past, observers say.
"There is a genuine sense of optimism that President Jokowi can bring in some helpful changes given his track record at the municipal level," said OCBC economist Wellian Wiranto. "The road ahead is not easy and any improvement won't be instantaneous, as the man himself has repeatedly stressed, however." President Joko Widodo was sworn in as Indonesia's president in October.
Indonesia's third-quarter GDP (gross domestic product) growth fell short of expectations earlier this week, weighed down by weak commodity exports due to restrictive trade policies and lower prices. Though private consumption held up, investment growth weakened. But economists were largely optimistic about the economy's outlook.
"We think growth will strengthen next year on lower global oil prices and an investment recovery, as both foreign direct investment and infrastructure investment pick up," said Bank of America Merrill Lynch economist Chua Hak Bin.
Singapore's businesses are not expecting rapid and sweeping economic changes to follow the political ones, said Singapore Business Federation (SBF) chief executive Ho Meng Kit. "It is a huge country that needs to embark on further reforms. Successful reform is not guaranteed."
Mr Wiranto agrees that investors are "still giving Jokowi the benefit of the doubt for now, and continue to wait for concrete measures". One major litmus test, he thinks, would be whether the new president will undertake fuel subsidy reforms despite slow economic growth.
Said SBF's Mr Ho: "Many businesses will watch and wait, to learn more about the policies of the new leaders. They are mindful of the past experience of some of our investments."
Last year, thwarted by regulatory hurdles, DBS walked away from its 16-month long, US$6.5 billion bid to buy Indonesia's Bank Danamon. Jakarta authorities had capped foreign ownership of local banks to 40 per cent. Foreign stakes any higher would require central bank approval and Bank Indonesia said that approval of DBS's intended 67 per cent stake in Danamon would hinge on whether Singapore allows Indonesia's state-controlled banks more access here.
There was also Indonesia's anti-monopoly and competition regulator's controversial ruling in 2007 that Temasek Holdings had violated business competition law - a drawn-out saga that ended only in 2011 after Temasek lost its final appeal and paid a 15 billion rupiah (S$1.6 million) fine.
Temasek subsidiaries ST Telemedia and SingTel then had stakes in two major Indonesian telcos, Indosat and Telkomsel, which the Business Competition Supervisory Commission said meant Temasek had over 50 per cent of Indonesia's cellular market. It slapped fines on Temasek, eight of its affiliates and Telkomsel, and ordered Temasek to sell off either of the indirect stakes it held in Telkomsel and Indosat within two years. ST Telemedia sold its Indosat stake to Qatar Telecom in 2008.
"The wariness is in some ways still warranted, given that a climate of nationalistic sentiment remains relatively pervasive on the ground," said Mr Wiranto. "The new government has quite a lot of items on its agenda as it is, and would not risk wasting its limited political capital on anything that can potentially turn into a backlash. They won't ratchet up the nationalistic agenda necessarily, to be sure, but it is unlikely that they would be overtly embracing perceived foreign interests, as well."
Any unwanted regulatory attention is more likely to fall on prominent foreign businesses rather than small and medium enterprises (SMEs) though. "Size does matter. In this case, the smaller businesses can be off the radar screen and enjoy lower risk of exposure," said Mr Wiranto.
Even so, AllAlloy Dynaweld is one local SME that has had to delay expansion plans in Indonesia due to regulatory changes. It was about to enter into a joint venture with an Indonesian partner, when new foreign investment rules were rolled out this year restricting foreign ownership of companies in certain sectors to 33 per cent, managing director Victor Khaw said.
"But now we are forging ahead with a new plan. We don't know how it will pan out . . . but we can't let these changes dictate our own movement," said Mr Khaw.
Indeed, past regulatory hurdles have not deterred SMEs, which are usually quick to find solutions, being smaller and more nimble, said Kurt Wee, president of the Association of Small and Medium Enterprises.
He is positive about the new political leadership in Indonesia: "I feel that the new President is minded to improve the country's economy, eradicate corruption and manage diversity issues. As such, the business operative terrain will evolve in a positive way, enabling companies to compete on a more level and hopefully more transparent playing field."
But even without the recent political changes, Singapore SMEs' business interest in Indonesia would have gained momentum, he said. "Indonesia is just too large a market to ignore," he added.
The latest DP SME Development Survey this year showed that 44 per cent of the 2,800 Singapore SMEs polled already do business in Indonesia, making it the most popular overseas market for local SMEs. That same survey also ranked Indonesia as the market that the second-largest number of SMEs intend to venture into.
Singapore's direct investments into Indonesia have risen steadily over the years, though the pace of growth slowed from the most recent peak of 26.1 per cent in 2009 to 6.81 per cent in 2012. The latest available figures, for 2012 year-end, put Singapore's direct investment stock in Indonesia at S$37.3 billion. Total trade between Singapore and Indonesia also fell 5.8 per cent to S$74.8 billion last year, from S$79.4 billion in 2012.
In terms of the industries that will offer Singapore's businesses opportunities, Mr Wee said SMEs that have a foot in Indonesia's oil and gas supporting industries are already seeing growth, with Indonesia's major plans to expand its refinery industries.
Mr Wiranto thinks the new administration's eagerness to open up Indonesia's huge maritime economic potential could open up many opportunities to Singapore businesses too.
"From infrastructure build-up of sea ports across the vast archipelago, to shipping lines to better connect different regions, as well as fisheries industry to better feed the country's quarter-billion people, these are some areas where Singapore businesses can step in and help - as well as benefit from," he says.