Growth Pace of Foreign Direct Investment in Indonesia is Slowing
The Indonesia Investment Coordinating Board (BKPM) announced that growth of foreign direct investment (FDI) in Indonesia has slowed in the first nine months of 2014. In the first three quarters Indonesia saw the influx of IDR 228.3 trillion (USD $18.7 billion) worth of FDI, a 14.6 percentage point increase year-on-year (y/y). However, this growth pace is much lower than the 21.3 percent point growth of FDIs in the first nine months of 2013. In US dollar terms the decline was even greater as the rupiah has been depreciating.
Although the growth pace is slowing, total investments (which includes both domestic and foreign direct investments) still managed to reach a record high at IDR 119.9 trillion in the third quarter of 2014.
Apart from Indonesia’s slowing economy, evidenced by a GDP growth pace of 5.12 percent (y/y) in the second quarter of 2014 (the slowest quarterly growth pace since the fourth quarter of 2009), investors have also been waiting for political uncertainties to diminish. This year, Indonesia organized legislative and presidential election. Both elections showed a fragmented outcome and thus triggered concerns about political stability in Southeast Asia’s largest economy. Therefore, investors preferred to wait & see first for political developments. FDIs may improve in the fourth quarter as the new government will be inaugurated soon. Generally, foreign investors have high hopes for the Joko Widodo-led government as he is considered ‘investment-friendly’. Widodo has repeatedly emphasised that infrastructure development is one of the most important matters to reach his target of +7 percentage point GDP growth. Enhancing infrastructure in Indonesia is vital as logistics costs are high thus causing low competitiveness of Indonesian businesses. Improved infrastructure will therefore attract foreign direct investments. Widodo also stated to establish an integrated transportation system and increase the much-needed electricity supply across the country. Lastly, Widodo is expected to raise prices of subsidized fuels shortly after his inauguration on 20 October 2014. According to the latest speculation, prices of gasoline and diesel will be raised by 50 percent.
Indonesia’s mining sector attracted most investment in the January-September 2014 period (USD $3.8 billion) despite several drastic changes in the country’s mining sector (stipulated by the new 2009 Mining Law) such as the ban on exports of mineral ore, limited foreign ownership, as well as a new licensing system.
Singapore was the largest investor in Indonesia during the first nine months of 2014, followed by Japan, and the Netherlands. Japan, last year's top investor in Indonesia, ceased to be among the top investors as most Japanese investments in the automotive sector have reached completion. Mahendra Siregar, Head of the BKPM, said that Japan was the top investor in Indonesia in 2013 due to large investments in the automotive sector.
The BKPM targets a 15 percentage point increase in FDI this year, and an 18 percent increase in 2015 for both foreign and domestic investments.
The statistics of BKPM do not include investments in oil & gas and banking.
Foreign and Domestic Investment in Indonesia (in IDR trillion)
| 2014 |
||||
| Q1 | Q2 | Q3 | Q4 | |
| Domestic Direct Investment | 34.6 | 38.2 | 41.6 | |
| Foreign Direct Investment | 72.0 | 78.0 | 78.3 | |
| Total Investment |
106.6 | 116.2 | 119.9 | |
| 2011 |
2012 | 2013 | ||||||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
| Domestic Direct Investment | 14.1 | 18.9 | 19.0 | 24.0 | 19.7 | 20.8 | 25.2 | 27.5 | 27.5 | 33.1 | 33.5 | 34.1 |
| Foreign Direct Investment | 39.5 | 43.1 | 46.5 | 46.2 | 51.5 | 56.1 | 56.6 | 65.5 | 65.5 | 66.7 | 67.0 | 71.2 |
| Total Investment |
53.6 | 62.0 | 65.5 | 70.2 | 71.2 | 76.9 | 81.8 | 83.3 | 93.0 | 99.8 | 100.5 | 105.3 |
Source: Indonesia Investment Coordinating Board (BKPM)