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.
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
|Domestic Direct Investment||34.6||38.2||41.6||41.7|
|Foreign Direct Investment||72.0||78.0||78.3||78.7|
|in IDR trillion|| 2011
|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)