Investment realization in Indonesia in the first quarter of 2015 totaled IDR 124.6 trillion (USD $9.7 billion), up 16.9 percent from the same quarter last year. Domestic direct investment climbed 22.8 percent (y/y) to IDR 42.5 trillion, while foreign direct investment (FDI) rose 14 percent (y/y) to IDR 82.1 trillion in Q1-2015. These data, released by the Indonesia Investment Coordinating Board (BKPM) on Tuesday (28/04), brought some positivity in Indonesia after listed companies’ weak Q1-2015 financial results led to concern and capital outflow.
BKPM Chairman Franky Sibarani was particularly pleased to see a high jump in domestic direct investment in Indonesia (climbing 22.8 percent year-on-year in Q1-2015). Moreover, the +14 percentage point (y/y) growth in FDI in Q1-2015 meant that foreign investment in Indonesia accelerated from the fourth quarter last year, when FDI growth was 10.5 percent (y/y). In 2014, foreign direct investment realization had been relatively weak due to Indonesia’s legislative and presidential elections. These elections brought severe political (hence economic) uncertainties to Southeast Asia’s largest economy.
Market favourite Joko Widodo, perhaps better known as Jokowi, eventually won the presidential election and - in line with his pledge during the presidential campaign - announced to create a better investment climate in Indonesia. Although there is still a long way to go to improve this climate (for example by improving the country’s infrastructure, legal system as well as curbing bureaucracy and corruption), Widodo implemented some new measures. In January 2015 he launched the integrated one-stop service at the BKPM which aims to smoothen and simplify licensing procedures for foreign investors. And Widodo signed a new package of tax incentives, offered in April, that aim to boost investment in the remainder of the year (and beyond). By limiting the country’s dependence on domestic consumption and instead make investment a pillar of economic growth, Widodo targets to reach economic growth of 7 percent (y/y) by 2019.
However, there are also concerns about the country’s ‘resource nationalism’ or protectionism. The Muhammadiyah, Indonesia’s second largest Islamic organization, has objected to Widodo’s reform agenda as it considers this agenda - which involves privatization or private control of Indonesian natural resources - to conflict with the country’s 1945 Constitution.
It is interesting to note that for the first time China was among the top ten of largest foreign investors in Indonesia. During the three-month period (January-March 2015), China invested USD $75.1 million in 200 projects across Indonesia, reflecting closer ties between China and Indonesia. And more is expected to follow as several weeks ago Widodo was in Beijing to witness the signing of preliminary commitments from several Chinese companies to invest in Indonesia.
However, the biggest investors in Indonesia remain Singapore and Japan with each investing a total of USD $1.2 billion in the first quarter of 2015, followed by South Korea, UK, USA, Malaysia and the Netherlands. Mining, food, and utilities industries were the largest beneficiaries of FDI realization in the first quarter of 2015.
The BKPM targets to attract a total of IDR 519.5 trillion (USD $40 billion) in foreign and domestic investment in 2015, up 14 percent from investment realization last year.
Foreign and Domestic Investment in Indonesia (in IDR trillion):
|Domestic Direct Investment||34.6||38.2||41.6||41.7||42.5|
|Foreign Direct Investment||72.0||78.0||78.3||78.7||82.1|
|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|
Source: Indonesia Investment Coordinating Board (BKPM)