Consolidation has been the foundation of success
INCENTIVES FOR INVESTORS IN INDONESIA'S LARGEST RUBBER PRODUCER INCLUDE SURPLUS LAND, WITH THE POTENTIAL FOR EXPANSION NOT ONLY OF PLANTATIONS, BUT ALSO AGRI-BUSINESS FACTORIES

ON PLANTANTION VII rubber is cultivated on more than 70,000 acres, producing an output of more than 44,000 tons.

Plantation PT Perkebunan Nusantara VII (PTPN VII) is the largest producer and exporter of natural rubber in Indonesia.
An estimated 15 percent of Indonesia’s national rubber output is produced by the company, which is also the country’s leading exporter of rubber to overseas markets, including the United States, China and Japan.
The company produces rubber and tea – primarily for export – as well as palm oil and cane sugar for the domestic market.

Palm oil is PTPN VII’s biggest single source of revenue, contributing around 45 percent of its revenues. As palm oil sells at high prices on world commodity markets, it has been earmarked by the government as a promisingly lucrative, non-oil export commodity.
Recent years have seen a sharp rise in the production of palm oil at PTPN VII: output doubled in 2000 alone, helped by an increase in the volume of land under cultivation, an improvement in yield rates, and better productivity.

Growth is firmly on the agenda, with plans to boost production of both palm oil and rubber, as well as to increase the downstream output of products made from raw materials cultivated on the plantation.
The company, which has plantations in three provinces – Bengkulu, South Sumatra and Lampung – was formed in 1996 under a government plan in which 32 public sector estates were reorganized into 14 state-owned companies. Now, however, the idea that PTPN VII should be privatized is in the air, not least because of the need to seek out financial backers to invest in future projects.

J. SISWANTO President Director of Plantation VII

“We are now preparing ourselves to go public in 2003,” says PTPN VII President Director J. Siswanto, in a reference to what would be the first step towards an eventual transfer to full private-sector ownership. “If the government wants us to be fully privatized in 2005-06, we would be ready,” he says.
Mr. Siswanto argues that further expansion will require help from outside sources, and the company is looking for investors.
“We lack finance here,” he admits. “We really need partners to come and work with us.” Mr. Siswanto believes that the best way to encourage the involvement of foreign investors would be to set up joint ventures with local interests.
Incentives for potential investors include opportunities for expanding cultivation at the plantations. “One of our attractions to investors is the availability of land,” says Mr. Siswanto.

PALM OIl is the company’s single biggest single source of income, with output doubling in 2000, and contributes about 45 percent of its revenues.

There are plenty of opportunities to increase sales, he adds. “The market is still big, in terms of both national and international demand. If you invest your money here it will not be wasted because the potential and the market are still there.”
Openings for investment in the company exist across the full range of its activities, including not only the plantations, but also agri-business factories and related infrastructure. “Maybe the investors would like to join us either in the downstream sector or in the expansion of land under cultivation,” says Mr. Siswanto.
The company has more than 126,000 acres under cultivation, producing almost a million tons of palm oil fruit a year. It also has seven factories, which produce around 200,000 tons a year of palm oil and more than 50,000 tons a year of palm kernel oil.

More than 70,000 acres are used for the cultivation of rubber, of which the annual rate of output averages more than 44,000 tons.
It also operates several factories producing a range of rubber products, including concentrated latex for industrial purposes.
About 45 percent of PTPN VII’s output of rubber and related products is exported. PTPN VII also exports tea to countries including Malaysia, Pakistan, Iran, Egypt, Australia and Britain.

SUGAR plantations produce more than 90,000 tons of raw sugar a year, but investment is needed to improve the firm’s yield rates.

The company has sugar plantations covering more than 50,000 acres. Together, these plantations produce over 90,000 tons a year of raw sugar. Each year, factories owned by PTPN VII process this raw material into consumable sugar and molasses.
Mr. Siswanto says the company needs to improve its yield rates in sugar production – but, again, he emphasizes that this will require advice and assistance from other sources. “What we need is not only the money, but also the expertise,” he says.

While he acknowledges that Indonesia needs to bring in skills, knowledge and finance from abroad, Mr. Siswanto argues that this has to involve a two-way process. “If the foreign investors are here, the Western approach to management would be used, but we hope that they would understand the local people, too,” he says.
“We are using a mixture of Western and Eastern management,” he adds.
In exchange, he says, Indonesia and its people must take into account the needs and attitudes of the outside world, as the country adapts to the realities of living in an increasingly globalized economy.
“I always tell my employees that we need to act globally,” he says. “Don’t forget that Indonesia has a dual character. On one side, it’s still a traditional society, but on the other hand it’s already modern.”