However, there is also a positive side to this story. According to information from the Indonesia Investment Coordinating Board (BKPM), investment commitment by Japanese firms has increased significantly in the period between 22 October 2014 (shortly after the inauguration of President Joko Widodo) and 10 January 2015. Reportedly, four Japanese companies will invest a combined total of USD $1.32 billion into Indonesia over the next couple of years in the automotive, surfactant, cattle breeding and theme park sectors. However, the BKPM refrained from mentioning the names of these four Japanese companies.

Traditionally Japanese investment into Indonesia focuses on the automotive sector. Nearly half of the new total investment commitment mentioned above is to be invested in Indonesia’s automotive sector. BKPM official Himawan Hariyoga said that USD $600 million will be used by a Japanese automotive firm to establish a manufacturing facility in Bekasi (West Java). Another Japanese company will invest USD $260 million to construct a surfactant factory (to produce raw materials for soaps and shampoos). The third company will use approximately USD $430 million to build a theme park in Jakarta (where people’s purchasing power is strongest) and invites local investors to partner in the establishment of this park. Lastly, the fourth firm, pledged to invest USD $25.8 million for a cattle breeding facility in West Java.

Apart from these four companies, the BKPM confirmed that dozens of companies from Japan and South Korea have expressed their seriousness to invest in Indonesia (this - potentially - would involve a combined total of about USD $25 billion).

Japan is one of the top investors in Indonesia. In the past five years, Japan invested a combined total of USD $12.1 billion in Indonesia, roughly 90 percent of which was invested in Indonesia's manufacturing industry. However, total approved Japanese investment amounted to USD $23.7 billion in the same period, implying that roughly half of approved investment failed to be realized. This situation is due to several bottlenecks in Indonesia which include a high degree of bureaucracy, land acquisition difficulties, and weak legal certainty.

Based on a survey conducted by the Japan External Trade Organization (JETRO), Indonesia was ranked fourth (after Cambodia, India and Bangladesh) in terms of favorite investment destination for Japanese companies across Asia in the foreseeable future. This survey, which was conducted between 10 October and 14 November 2014, involved 4,700 Japanese companies operating in Asia. Indonesia is regarded an attractive investment destination due to the country’s steady GDP growth, large population (250 million) and rising purchasing power.

The Joko Widodo administration places great priority on foreign direct investment (FDI) as a pillar for future economic growth. In that context, the integrated one-stop service center was launched at the BKPM earlier this year. This new service aims to speed up and simplify the licensing procedures for investment projects.

Previously, the BKPM had announced that investment realization in Indonesia climbed 16.2 percent (y/y) to IDR 463.1 trillion (about USD $36.8 billion) in full-year 2014, surpassing the government target that was set at IDR 456.6 trillion.

Foreign and Domestic Investment in Indonesia:

in IDR trillion                 2014
  Q1   Q2   Q3   Q4
Domestic Direct Investment  34.6  38.2  41.6  41.7
Foreign Direct Investment  72.0  78.0  78.3  78.7
Total Investment
106.6  116.2 119.9 120.4


in IDR trillion                 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)

Further Reading:

Investment Realization in Indonesia in Q4-2014 and Full-Year 2014
BKPM Press Release on Investment in 2014