Foreign Direct Investment in Indonesia Rising Significantly

Foreign Direct Investment in Indonesia Rising Significantly
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By Martin Hahn

The question whether Foreign Direct Investment (FDI) is advantageous for a country is demonstrated by the experiences of many developing nations. The economic histories of South Korea, Malaysia, Thailand, China, and many other countries show that the presence of foreign companies will boost economic growth and generate jobs. Now, foreign direct investment in Indonesia is rising significantly and quickly becoming a favorite destination for business, manufacturing, and natural resource extraction.

According to a UNCTAD press release, the total inflow of foreign investment in the South East Asian region in 2011 rose 14 percent to $336 billion. This figure represents 22 percent of the total global FDI and it is substantially higher than the 12 percent achieved before the 2008 global financial crisis. East Asia has, up to this point, been an economic powerhouse, particularly in output and growth. However, South East Asia, including Indonesia, are quickly surpassing their Asian counterparts in rates of growth and investment. Even the poorer countries within South East Asia, such as Cambodia, received a healthy amount of investment last year.

Brunei Darussalam, Indonesia, Malaysia, and Singapore, which are the more affluent members of the ASEAN group of countries, experienced considerable rises in FDI inflows in 2011. Transnational corporations, or TNCs, have increased their rankings of Indonesia and have chosen this country to be one of the “top priority host economies.”

In the last two years the survey has been undertaken by UNCTAD, Indonesia managed to beat Germany, Thailand, Japan, and Malaysia as the “darling” of foreign investors. This means that foreign investors are continuously monitoring the economic development of Indonesia, which has been growing around 6 percent in the last few years, despite an overall global economic slowdown.

FDI realization in Indonesia jumped to a new record high of $587.41 million in the third quarter of this year, surging 22 percent compared to a year earlier. This data was release by the Investment Coordinating Board of Indonesia. Furthermore, the data showed that Indonesia, which is Southeast Asia’s largest economy, managed to accumulate Rp 164.2 trillion in FDI in the first nine months of 2012, keeping it on track to achieve its annual target of Rp 206.8 trillion. FDI in Indonesia represents around 71 percent of all investments, including that of the government and the private sector. The Indonesian Central Statistics Agency reported that investments accounted for 39 percent of Indonesia’s economic growth.

The Indonesian Investment Coordination Board reported that the investors are especially interested in the abundant natural resources present in the country. In addition, foreign investors are keen to exploit the domestic consumption of the Indonesia’s 240 million people, which is also boasting a rising affluent population. The trend in investment also reflects the government’s efforts to improve infrastructure within the country, which allows easier access to natural resources and the flow of goods.

However, a minimum wage increase in Jakarta, the nation’s capital, as well as long-standing government fuel subsidies is raising concern about whether Indonesia will remain attractive to foreign investors. It appears that investment will continue, although the astounding rates which have been reach up to this point may not be easily maintained if domestic trends continue. Economist point out that labor costs, at this point, will change only marginally in comparison to what companies would have to pay elsewhere, and would most likely not decrease investment significantly.

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