Indonesia Offers Schemes to Attract Investment in Sugar Industry
The Indonesian government prepared a number of new incentives to encourage investment in integrated sugar mills (which include sugar plantations). Through these incentives the Industry Ministry targets to attract four new investors in Indonesia's sugar industry each year. The two main schemes within its incentive package involve imports of raw sugar and tax breaks for imports of machines.
Panggah Susanto, Director General of Agro Industry at the Ministry of Industry, said tax holidays and tax allowances have so far had limited success to entice domestic and foreign investors because such tax incentives are rather insignificant when compared to the full investment a company needs to make. Moreover, investors complain about the bureaucratic hurdles in Indonesia that are time-consuming and costly.
Susanto further stated that there is actually a lot of interest among private investors to establish sugar mills in Indonesia. Not the least because Indonesia has to cope with a sugar deficit, meaning it needs to import a lot of sugar to meet domestic demand, hence there should be plenty of domestic demand. But due to Indonesia's tough investment and business climate they are reluctant to realize their ambition. That explains why only five new sugar mills have been constructed in Indonesia since 2009.
To encourage investment in integrated sugar mills that include sugar plantations the Indonesian government will need to work hard and offer attractive incentives according to Susanto. One of the special offers that is included in a new government regulation signed by President Joko Widodo involves allowing investors of integrated sugar mills to import raw sugar for a maximum of seven years (if the mill is located outside Java) or a maximum of five years (on Java), or three years (for existing mills). Previously, the government only allowed raw sugar imports when investors were still in the trial stage of their mills.
Susanto added the government needs to support investors when they encounter difficulty with the acquisition process for the sugar plantation. Land acquisition is among the biggest obstacles in Indonesia's investment climate.
Production and Import of Raw Sugar into Indonesia:
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
| Production (in million ton) |
2.59 | 2.34 | 2.55 | 2.48 | 2.21 | 2.70¹ |
| Import Volume (in million ton) |
2.30 | 2.20 | 2.80 | 3.10 | 3.20 | 3.40² |
¹ Government target
² Government quota
Source: Bisnis Indonesia