Japanese investment in Indonesia has declined drastically in 2014 due to concern about the stability of Indonesian politics. Investment realization tumbled to USD $2.7 billion in 2014 from USD $4.7 billion in the previous year. The investment climate of Indonesia in 2014 was plagued by concern about the ‘political year’, referring to the legislative and presidential elections that were organized and the uncertainty they brought about as it was a tight race between market favorite Joko Widodo and controversial candidate Prabowo Subianto.

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The economy of Indonesia expanded 5.02 percent year-on-year (y/y) to IDR 8,354 trillion (USD $664 billion) in 2014, the nation’s slowest annual growth pace since 2009, according to the latest data from Statistics Indonesia (BPS). As such, GDP growth failed to achieve the central government’s 5.5 percentage point growth target that was set in the 2014 State Budget. Indonesia’s economic growth has been slowing since 2011 when it still posted a 6.5 percentage point growth rate (y/y). However, growth is expected to rebound from here.

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Indonesian Trade Minister Rachmat Gobel said that the continuation of economic cooperation between Indonesia and Japan, as set out in the Indonesia-Japan Economic Partnership Agreement (IJEPA), is to be reviewed soon by both countries. Gobel met Japan’s Prime Minister Shinzo Abe and Japan’s Minister of Economy, Trade and Industry Yoichi Miyazawa in Tokyo today. In the IJEPA it was mentioned that cooperation between both countries can be reviewed after the bilateral free-trade agreement had been in effect for five years.

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On Monday (08/12) the World Bank released the December edition of its Indonesia Economic Quarterly, entitled ‘Delivering Chance’. In the report the World Bank cut its forecast for economic growth in Indonesia next year to 5.2 percent (y/y), from 5.6 percent (y/y) in the July edition of its flagship publication, due to weaker investment growth and sluggish exports. Indonesia’s GDP growth in 2014 is projected at 5.1 percent (y/y), slightly below the World Bank’s previous estimate of 5.2 percent.

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Government investment service agency Indonesia Investment Coordinating Board (BKPM) targets IDR 524 trillion (USD $42 billion) worth of investments in 2015, a 15 percent growth from estimated investment realization this year (IDR 450 trillion). BKPM is optimistic that after the ‘political year’ of 2014 (due to the legislative and presidential elections) the new government will push for the implementation of various infrastructure projects such as toll roads, harbours and airports, thus making Indonesia more attractive to foreign investors.

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As the number of foreign tourists rise rapidly and there is increasing demand for conferences, exhibitions and business meetings, Indonesia will see a massive inflow of investments for the construction of hotels and condominium hotels (condominium hotels combine features of apartments and hotels). In 2015, the value of new (condo) hotels projects is estimated at IDR 38.5 trillion (USD $3.2 billion), up 57.3 percent from last year. Locations that attract tourists and locations close to education centers are the primary choice.

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Global rating agency Fitch Ratings affirmed Indonesia’s Sovereign Credit Rating at BBB-/stable outlook (investment grade status) on Thursday (13/11). This rating affirmation by the credit rating agency can be regarded as international recognition of prudent fiscal policy in Southeast Asia’s largest economy amid global uncertain times. Policy responses pursued by both the government and central bank of Indonesia have been well received by Fitch Ratings and managed to safeguard economic stability.

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On 19 October 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve economic topics such as the performance of Indonesian stocks and the rupiah, foreign direct investments, an update on the coal mining sector, tax, the cement industry, palm oil, steel industry, and more.

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Newly elected presidential pair Joko “Jokowi” Widodo and running mate Jusuf Kalla, the pair that will guide Indonesia for the next five years starting from October 2014, propose to raise the target for economic growth in Southeast Asia’s largest economy from 5.6 percent to 5.8 percent in 2015. Furthermore, the pair would like to set a stronger average rupiah rate at IDR 11,600 per US dollar over 2015 (from IDR 11,900 as set in the Revised 2015 State Budget). Several reasons are behind these ambitious targets.

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According to the Indonesia Investment Coordinating Board (BKPM), Singapore is the largest foreign investor in Indonesia. In the first half of 2014, Indonesia received USD $3.4 billion worth of investments from Singapore. In total, foreign companies invested IDR 150 trillion (USD $12.9 billion) in Indonesia during the first six months of 2014. This is the highest amount of foreign investment that Indonesia has ever managed to attract in a six-month period. It also diluted fears that the legislative and presidential elections would cause a temporary slowdown.

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Indonesia's balance of payments registered a deficit in the first quarter of 2016. Based on the latest data from Indonesia's central bank (Bank Indonesia), the deficit stood at USD $287 million in Q1-2016, down from a USD $1.3 billion surplus in the same quarter last year. The balance of payments deficit was the result of the nation's Q1-2016 capital and financial transaction surpluses (USD $4.17 billion) not being able to cover the current account deficit (CAD). Indonesia's Q1-2016 CAD shrank to USD $4.67 billion, or 2.14 percent of the nation's gross domestic product (GDP).

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The new negative investment list 2016 is not yet issued by Indonesian President Joko Widodo. However along with the launch of the tenth economic policy package, the government is currently processing the new draft of this list. Although not yet issued, in this column we discuss the most likely changes to be implemented in the new negative investment list 2016. The current draft regulation removes 35 business fields form the negative investment list. Besides that, more business fields are reserved for small and medium sized companies (local companies).

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Until 19 March, a Belgian mission - led by Princess Astrid, accompanied by four ministers and 301 participants (including 127 company representatives) - visits Indonesia in an effort to strengthen bilateral economic cooperation between both nations and boost foreign direct investment from Belgium into Indonesia. According to the Belgian Embassy, the ongoing mission in Indonesia is the fifth - and largest ever - economic mission conducted by Belgium in Southeast Asia's largest economy. Belgium is the fifth-largest investor from the European Union (EU).

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Although the palm oil industry of Indonesia is resented by many for the negative impact it has on mother nature (for example the seasonal forest fires that occur on parts of Sumatra and Kalimantan), it also constitutes a vital industry: across the globe crude palm oil (CPO) is used for the production of a wide variety of products from food, cooking oil to cosmetics or biodiesel. Indonesia is the world's largest producer and exporter of CPO. This column is the first installment in a series, written by Senior Consultant William Yang, that discusses Indonesia's palm oil industry, particularly the different business models, the risks, and how to invest safely in this industry.

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In order to improve communication and avoid language barriers, the Indonesia Investment Coordinating Board (BKPM) plans to open a special service desk for Chinese investors. BKPM, the investment services agency of the Indonesian government, sees language barriers between Chinese investors and Indonesians as a major obstacle; one that blocks foreign direct investment from China into Indonesia. The new desk, specifically for investment from China or Hong Kong, should improve communication hence improving realization of China's investment plans.

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When the Indonesian government unveiled Ministry of Manpower Regulation No. 16/2015 in July, foreign companies in Indonesia became nervous. The regulation required that for every foreign worker (expat) in Indonesia, 10 locals would need to be hired. Although the regulation would not work retroactively, while new foreign companies in Indonesia would be allowed to hire low-paid non-permanent staff (such as office boys or drivers), the regulation met resistance from international chambers of commerce.

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World Investment Report 2015 menyatakan bahwa masuknya investasi asing langsung (FDI) ke Indonesia bertumbuh 20% year-on-year (y/y) menjadi 23 miliar dollar Amerika Serikat (AS) pada tahun 2014. Maka pertumbuhan FDI di Indonesia melewati pertumbuhan FDI yang dicatat di Singapura (+4% y/y menjadi 68 miliar dollar AS) dan Vietnam (+3% menjadi 9,2 miliar dollar AS), menimbulkan optimisme bahwa Indonesia - negara dengan perekonomian terbesar di Asia Tenggara - akan terus menjadi tujuan investasi yang menguntungkan di Benua Asia untuk investor asing di tahun-tahun mendatang.

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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.

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The Indonesia Investment Coordinating Board (BKPM) announced that foreign and domestic direct investment realization in Indonesia totalled IDR 463.1 trillion (USD $37 billion) in 2014, a 16.2 percent increase from the previous year and exceeding the target that was set previously. This is a positive result as 2014 was expected to be a rather bleak year in terms of direct investment amid political uncertainties triggered by the (fragmented results) of the country’s legislative and presidential elections.

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The obligation for foreign companies to perform a divestment of part their shares to Indonesian companies has raised already much discussion among foreign investors. Before the enactment of BKPM regulation number 5/2013 on Guidelines and Procedures on Licensing and Non-licensing of Capital Investment as amended by BPKM regulation number 12/2013 (BKPM Regulation), divestment was required for all foreign companies (PMA) in Indonesia. The new regime of the BKPM Regulation removes this obligation, even though there are still sectors in Indonesia which require foreign companies to divest, such as the mining sector.

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