Indonesia Seeks Saudi Arabian Investment in Agricultural Projects

Saudi Economic Survey | 23 June 2010

Indonesia\'s Minister of Agriculture Suswono

(Saudi Arabia) -- Indonesia's Agriculture Minister Suswono announced that his country has introduced new regulations in its investment law under which foreign investors will be allowed to have a maximum ownership of 49% in plantations producing staple foods.

"We have made amendments in the country's foreign investment law in a way removing hurdles in attracting foreign investors. One major factor for enacting the new law was Saudi Arabia's halting of investment projects worth billions of riyals in the country," he said while addressing businessmen at the Chamber of Commerce and Industry in Jeddah.

The minister paid a visit to the Kingdom on June 11- 13 as part of a major campaign to persuade Saudi Arabia into investing in agricultural business opportunities in Indonesia. Suswono met leading businessmen in the Kingdom to discuss agricultural business opportunities in Indonesia. Last year, the two countries signed an agreement to set up Saudi Indonesian Agricultural Investment Company with a capital of SR 1.8 billion. Several leading Saudi businessmen, including Al Muhaideb, Al Othaim and Al Batterji have agreed to take part in establishing the joint venture. They said that there have not been any Saudi agricultural investments in Indonesia. Even though Saudi investors made announcement about making investments worth SR 18 billion over the last two years, so far no investments have come to his country.

"Last year, Saudi Arabia's Bin Laden Group stalled plans for a $4.3 billion project to develop two million hectares of land in Indonesia. However, the project has not materialized yet," the minister said while noting that there were no Gulf Arab firms operating in the Southeast Asian country, but hoped to attract investors during his visit. "We still have some difficulties internally in arranging land for largescale farming, which are requested by foreign investors. This is due to environmental reasons to protect our rainforests," the minister said, adding that the government has since issued regulations for investment in large farming.

Earlier this month, changes were announced to the "negative investment" list of sectors off-limits to investors from overseas.

Indonesia is expected to produce 37 million tons of milled rice this year, which exceeds 35 million tons required to satisfy domestic demand, he said. Indonesia has more than 7.7 million hectares of unused land that is in need of development, Suswono said.

"There is untapped potential for agribusiness investment in Indonesia, particularly for food crops, industrial processing, horticulture and land stock industry," he said.

Gulf countries, who mainly rely on food imports, have been investing in farmland overseas to secure their food supply, but difficulty in regulations has led to delays in tapping Indonesian farming opportunities. Indonesia needs billions of dollars in investment to support its target of 7% economic growth by 2014.

During his visit, Suswono also revealed that Indonesia expected a 6% rise in its milled rice harvest this year, leading to a surplus of 2 million tons. The country is expected to produce 37 million tons of milled rice this year, which exceeds the 35 million tons required to satisfy domestic demand.

"The Saudi minister for agriculture expressed the readiness of his country to make investment in Indonesia, particularly in the rice development sector," the minister said.

To follow up the results of his visit to Saudi Arabia, the minister expected that the Indonesian Embassy in Riyadh would organize an investment meeting and formulate regulations on the investment. Besides that, the minister also proposed that the holding of a research on the development of `Basmati` type of rice because this rice type had better productivity and taste if planted in Indonesia rather than in other countries.

The minister said that in his meeting with leaders of the Council of Saudi Chambers of Commerce and Industry, they agreed the need to increase Saudi investment in the agricultural sector, particularly food, cattle breeding, fowl industry, cattle feed and fisheries. It is noteworthy that Agriculture Minister Fahd Balghunaim announced recently that the Kingdom wants to secure supplies for sugar, rice, wheat, malt and fodder with farmland investments overseas. Gulf countries, heavily reliant on food imports, have been buying farmland in developing nations to ensure food security after a spike in food prices. Saudi Arabia had abandoned its wheat cultivation program two years ago due to dwindling water resources and emerged as a major buyer of wheat from global markets. It is also trying, with the help of private Saudi investors, to secure farmland in Africa and elsewhere.

(c) 2010 Saudi Economic Survey
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