Seafood plant delay reveals difficulty of operating in developing countries

Published on
May 9, 2017

Managers of the Indonesian subsidiary of a U.S. seafood company want to transform Indonesian seafood processing with a visionary plan, in which a percentage of profits from local fisheries centers is fed back into resource management and social benefits. But just as with any foreign company navigating a foreign bureaucracy in a developing country, they have run into red tape, inertia and outright resistance.

P.T. Bali Seafood International (BSI) is a wholly owned Indonesian subsidiary of North Atlantic, Inc., a Portland, Maine, U.S.A.-based supplier of sustainably sourced and socially responsible seafood. The subsidiary was established in 2009 to source Indonesian tuna and other fish for the U.S. market. It is now finishing construction of its first small processing plant in Sumbawa, on an island between Bali and Timor. The plant opening was scheduled for the end of March, but has now been pushed back.

CEO Gerald Knecht said, “Status at the moment is that construction is lagging. The lag is being driven by the unwillingness of the electrical utility to get their part of the job done. This is the most difficult part of implementing here in Indo[nesia]; lack of will or concern for the common good. We have now pushed out to May for production.”

The plant, when operational, will supply ice to artisanal fishing vessels, and by processing locally will eliminate the current quality losses during transport to distant processing locations via multiple middlemen.

In line with its sustainable and socially responsible philosophy, the plans go beyond the mere business side of seafood processing. Knecht is also proposing the establishment of a “TURF-Reserve” system. TURF stands for Territorial Use Rights for Fishing. An area of water running alongshore for 60 kilometers and extending 12 kilometers out to sea would be designated for the use of vessels licensed and based in ports in the area. A low-cost solar powered, passive vessel-tracking system would be used to ensure compliance. A further “reserve” area would extend seaward as a sanctuary for conservation. This differs from “catch shares” or “individual transferrable quotas” in that it regulates effort (number of vessels, tonnage and gear) rather than total allowable catch.

Additionally, some of the increased profits from better grading and cold-chain, as well as improved access to international markets, would come back to a nonprofit organization co-owned by BSI and the vessel-license holders. This organization, Sumbawa Fishing Management Company (SFMC), would provide micro-lending, education on such topics as best practices, finance and health, and encourage use of improved fishing gear.

These are all laudable goals, and it would seem that a developing country would welcome this type of investment. But it takes great perseverance to actually make it happen.

After an initial request in May of 2016 for electrical service, the electrical company took a long time inform the company of the connection fee, power rate and schedule. No reply was forthcoming until a high-level meeting was arranged in November.

Unfortunately, the electrical connection is not the only area where BSI has found operating in Indonesia less than smooth. The company has experienced a string of delays typical of operating in a remote location and in a developing country. Legal issues that arose relating to a planned water-well location were finally resolved by the local government taking over the location.

Permits and licenses have also been slow. The first step in investing in Indonesia is to get an investment permit and register the business. BKPM is a one-stop investment portal designed to help speed up approvals. In January of 2016, Indonesia’s Vice-President Jusuf Kalla officially launched the Three-Hour Investment Licensing Service at One Stop Services at the Indonesia Investment Coordinating Board (BKPM) office. He announced that these services, which previously took three working days, would now be completed in just three hours. In fact, BSI’s investment permit process took four months and multiple visits, while work permits for foreign staff took 16 to 17 months to process. A total of 91 permits of various types were required.

But all this does not mean that BSI has been inactive. The company is currently buying about 40 metric tons per month of mixed species, which it forwards to other companies for processing, and 30 vessel-tracking units have been deployed.

In the meantime, Knecht’s struggle to build a win/win business model continues despite the speed bumps.

“For a country that desperately needs direct foreign investment and fisheries development,” he said. “The job should be getting easier, not harder.”

Contributing Editor reporting from Osaka, Japan

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