Entrepreneurs put their faith in Bali

Foreign multinationals may be shelving new investments in Bali pending the outcome of this year's national elections but an emerging breed of entrepreneur claims the financial returns are worth the pain and frustration of legal and political uncertainty. These small-scale investors are sinking money into everything from bars and restaurants to magazines and pearl farms. Their aggressive, confident approach has surprised Bali's business leaders, who had expected fears of political unrest surrounding the April parliamentary and July presidential elections, as well as new visa laws affecting tourism, would deter new investment in the island. 'Despite all the problems Bali's having, there are new restaurants and shopping centres and villas being built all over the place,' said Jack Daniels, an American who has been doing business in Indonesia for three decades and set up one of Bali's biggest tour and adventure companies six years ago. 'There's a lot of faith in the brand equity of Bali.' This entrepreneurial injection into the island's economy, of which tourism accounts for more than 85 per cent, came as international corporations continued to show caution, said Gede Wiratha, the president of Bali's Chamber of Commerce and Industry and the island's hotel and restaurants association. Seven major hotels had postponed new five-star operations in Bali until next year due to fears of political unrest, Mr Wiratha said, and figures from the National Co-ordinating Investment Board show foreign direct investment across Indonesia fell 24 per cent year on year in January. While Bali's tourism figures are finally recovering from the lows experienced after the deadly October 2002 bombing attack in Kuta, new visa regulations introduced in February had dampened the pace of growth, observers said. Bali Tourism Authority figures show foreign tourist arrivals rose 25 per cent in February from a year ago but slowed from January's 56 per cent growth. In revenue terms, tourism remains well below pre-bombing levels. 'Before the bombing, foreign tourists were spending US$140 to $180 per day in Bali and the length of stay was 10 to 11 days,' Mr Wiratha said. 'Now, they spend US$80 to $90 per day on average and stay only seven days.' Nevertheless, he said, the sheer financial appeal of investing in the island - with an average profit margin of 35 per cent to 45 per cent and a lending rate about half that - was enough to convince many entrepreneurs to take a gamble. 'For my money, Bali is one of the safest areas in Indonesia and the potential financial returns are too attractive to overlook,' said businessman David Schonell from Perth, Australia. Mr Schonell, 36, is awaiting final approval from the government to open a A$2 million (HK$11.9 million) pearl farm in western Bali in June. Even eight months of wrangling with the bureaucracy and consulting with 350 local fishermen and 79 families - all of whom have signed forms declaring no objection to the project - have not been enough to discourage him. 'We realise with this election coming up that a lot of government departments are doing their posturing for voting and it's making our approvals very difficult to obtain,' Mr Schonell said. 'But I don't think we'll be affected by any political turmoil.' The farm is forecast to operate on a unit cost of about A$15 per oyster, about 30 per cent less than the average rate for Australian pearl farms. Mr Schonell expects his business to make its first operating profit of about A$600,000 in 2006. He forecasts this figure to increase to $3 million in 2007. While Mr Schonell's project will rely on the export market, Bali's No1 investment sector remains tourism. Seminyak, a fashionable resort area 4km north of the neon lights, street markets and bumper-to-bumper traffic of Kuta, has been one of the fastest growing areas over the last year. The upsurge in the number of new villas, restaurants and bars prompted English-born Sophie Digby, 39, to enter into a partnership with a friend to launch a glossy magazine in December last year - a bid to capture Seminyak's advertising market. 'There's a general level of investment coming into Bali that merits a window, a shopfront,' Ms Digby said. 'So far, we are performing 30 per cent above our initial expectations and we plan to start distributing The Yak to Hong Kong and Singapore starting in May.' The Yak's main market targets are high-income earners, mostly expats from around Asia, who spend anywhere between US$150 and $300 per day on accommodation in Bali. Courtenay Werleman, who six months ago invested 220 million rupiah (HK$199,500) in opening a bar in Sanur, 12km east of Kuta, is equally optimistic on the island's business outlook. He forecasts that Lava Lounge's average monthly turnover will increase by between 50 per cent and 70 per cent during the island's peak tourist season - from June to September. Forty per cent of the bar's customers are tourists, the rest are locally based expatriates. He also expects profit margins to rise slightly from the current 40 per cent. 'One of the appeals of opening a bar in Bali is that the margins are so attractive, largely because overhead costs are almost negligible,' said the 30-year-old Australian from Sydney. 'I never went into this thinking I'd make a lot of money but I went into it confident that, if you've got any nous at all, it will be near impossible to lose money on an investment here,' he said.