Indonesia set to keep strong FDI growth

The growth of foreign direct investment (FDI) in Indonesia is predicted to remain high next year as the country will likely retain its economic strength amid economic problems beleaguering other competitors in attracting foreign investment to the region.

 “Seeing how such problems are unfolding in China and India, investors are now turning to Indonesia, which they deem as attractive because of our stable economic growth and huge domestic market,” Azhar Lubis, deputy chairman of the Investment Coordinating Board (BKPM), said on Wednesday.

In addition, Indonesia offered huge opportunities for companies wanting to expand their output, he said, citing the country’s large population of 240 million who currently remained largely dependent on imported goods to meet their needs.

China saw its FDI realization to fall 3.45 percent to US$91.7 billion in the January-October period, official figures showed this week, as foreign investors started to doubt the prospects of the country’s economy.

India, which is also seen as Indonesia’s main rival in attracting foreign investors, saw in the second quarter this year a 67 percent annual decline in FDI, which stood at $4.43 billion, as investors grew concerned about India’s alarming macroeconomic indicators, especially its high inflation.

FDI realization in Indonesia jumped to a new record high of Rp 56.6 trillion (US$587.41 million) in the third quarter of this year, surging 22 percent compared to a year earlier, BKPM data shows. Southeast Asia’s largest economy accumulated Rp 164.2 trillion in FDI in the first nine months of the year, keeping it on track to achieve its annual target of Rp 206.8 trillion.

The top five foreign investors based on country of origin are Japan, Singapore, South Korea, the UK and the US, according to BKPM data.

“Recent trends show that large companies originating from Japan and Korea are reducing their investment share in China to put more resources into Indonesia,” said Destry Damayanti, a local economist with the state-run Bank Mandiri.

Destry, however, warned that Indonesia had to fix basic obstacles to investing, such as the lack of supporting infrastructure, if it wanted to retain investment growth at the current level.

In Indonesia, FDI accounts for around 71 percent of total investments. The Central Statistics Agency (BPS) reported that investments accounted for 39 percent of Indonesia’s economic growth of 6.17 percent in the third quarter of this year, second after domestic consumption, which contributed 50.5 percent,

 “The contribution from investments may be higher than private consumption next year. We hope that it [investment] will become the major driver of Indonesia’s economy in the future,” Finance Minister Agus Martowardojo told reporters on Wednesday.

 Agus’ statement was echoed by Perry Warjiyo, Bank Indonesia’s (BI) director for economic research and monetary policy, who predicted investment growth reaching 12 percent next year, almost twice the consumption growth predicted by BI of 5.5 percent.

“Growth from investments is also good for us because it may boost our economic potential from around 6 percent at the moment to a level of 7 percent,” he said on Wednesday. (The Jakarta Post)