Investment realization in Indonesia's capital city of Jakarta fell to IDR 51.2 trillion (approx. USD $3.8 billion) in full-year 2016, down from IDR 55 trillion worth of investment in the preceding year. Foreign direct investment (FDI) in Jakarta was recorded at IDR 41.5 trillion in 2016, while domestic direct investment (DDI) reached IDR 9.7 trillion. What explains this overall decline of investment in Jakarta?
In 2016 investors were plagued by plenty of uncertainties, including China's "hard landing", the unsure direction of commodity prices, looming further monetary tightening in the USA, sluggish economic growth in the European Union, Japan and USA, the surprising Brexit case, and the victory of Donald Trump in the 2016 US presidential election. For investors these were all reasons to wait and see first before deciding to engage in investment.
Moreover, in Indonesia itself ethnic and religious tensions heightened in the last couple of months of 2016. A series of large demonstrations, organized by conservative Muslims, were held in Jakarta. The protesters demanded the arrest of Jakarta Governor Basuki Cahaya Purnama (better known as Ahok), the Christian, ethnic Chinese governor who, allegedly, insulted the holy book of the Islam. In early November 2016 it led to violent confrontations between Indonesian police and protesters.
This could explain why direct investment in Jakarta only reached IDR 2.2 trillion in December 2016, down significantly from IDR 10.7 trillion of investment realization in the same month one year earlier.
Ahok's blasphemy trial is still ongoing and a verdict is expected later in the first quarter of 2017. Part of the investor community may want to wait for the verdict before engaging in direct investment in Jakarta. Whatever the verdict, there are serious chances of unrest: if the Jakarta Court finds Ahok not guilty, then there could emerge more demonstrations organized by angry Muslim hardliners. But if the Court finds Ahok guilty of blasphemy, then outrage could be even bigger among those Indonesians who support the pluralist society and secular politics (as well as lots of negative international press).
Meanwhile, the gubernatorial election will be organized in Jakarta in February 2017. Ahok is among the three candidates in this election and therefore there remain risks of suddenly rising ethnic and religious tensions in Jakarta over the next two months.