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The Economist: Indonesia under Joko Widodo, top 5 investment destination in ASPAC
China tops the list
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China tops the list. Prospective investment as of May 2015 reached US$150 billion.
Indonesia remains a favorite for investors from Asia. High interest in investing in the country comes especially from China, Japan, South Korea and Taiwan. This was revealed by the Investment Coordinating Board (BKPM).
In fact, data from The Economist shows that in 2015 Indonesia holds the second position as world investment destination, losing only to China.
Table: Rating Score of Investment Priority
Data on the value of foreign direct investment (FDI) are provided by the United Nations Conference on Trade and Development (UNCTAD). Throughout 2014, FDI to Indonesia reached $22 billion, putting Indonesia in the fifth place for investment in Asia.
What are the supporting factors for this situation?
A big population and a large proportion of people of productive age are the two main factors that put Indonesia in its position as a priority country for investment. Data from the Population Reference Bureau 2014 shows the Indonesian population ranks the fourth in the world with an average population growth of 21 percent in the last 10 years.
In addition, based on World Population Prospects released by the UN, Indonesia will enjoy a 'demographic bonus' in the period of 2015-2030. A demographic bonus refers to a condition in which the population of productive age outnumbers the non-productive population, thus, having the potential of stimulating a country's level of consumer spending.
Graph: Projection of Indonesia's demography
The growth of the productive-age population will significantly impact income per capita. Data from the World Bank show that GDP per capita in Indonesia in 2014 had tripled since 2000. The increase is especially noticeable compared to the conditions experienced by several ASEAN member countries whose growth had been less than double.
Head of the BKPM, Franky Sibarani said that 40 percent of the ASEAN population and 36 percent of economic activities in the region were in Indonesia. 'So, they, the investors, see Indonesia as the gateway to the ASEAN market.'
Rangga Cipta, an economist from PT Samuel Sekuritas Indonesia, said three factors could cause a country to switch their imported goods from another country to Indonesia. 'The first one is price of goods in Indonesia, which can be cheaper than that in other countries. The next one is the quality can be better. The last one is a trade agreement that is usually followed by a country's exports.'
Rangga added that Indonesia had potential in those three factors with its major human resources.
Graph: Development of income per capita 2000-2014
The BKPM noted that the potential investment in Indonesia as of May 2015 had a total value of $150 billion. Of this amount, $5.2 billion falls into the category of 'serious'' with most of the investment sectors belonging to import substitution and labor-intensive industries.
Director of the Institute for Development of Economics and Finance (INDEF), Enny Sri Hartati said the global trend in investment had shifted from the north to the south. So, at present investors invested not only in the capital markets of developed countries but also in the real sector.
After the investment bubble in China and in India, investors are now shifting their sights to ASEAN. Compared to Malaysia, the Philippines and Vietnam, Indonesia has greater potential.
Unfortunately, Indonesia has the most problems of de-bottlenecking due to convoluted bureaucracy and licensing process.
So, what steps have the government taken to address the problem?
The government has been trying to trim down the steps in the licensing process so that it will not be as complex as before (Read also PTSP article).
Another measure taken by the government is that by the BKPM. The coordinating body has formed Indonesia Investment Promotion (IIPC) whose function is to target the marketing efforts to potential countries, such as the U.S., UK, South Korea, Japan and Singapore. These four countries have expressed major interest in investing in the country. The data released by the BKPM as of May 2015 show the investment value of several countries. China leads with an investment value reaching $80.4 billion; Japan with $5.01 billion plus another Rp 300 billion ($22.2 million); South Korea's investment value stands at $9.7 billion; and Taiwan at $30 million.
Graph: BKPM promotional program map
Amid the ongoing strong investor interest in the country, Franky is directing the BKPM to focus on the five countries with the biggest interest in investing. They are Singapore, Japan, South Korea, China and Taiwan.
In the period of 2010-2014, Indonesia maintained its position in the top 10 countries for major investment among Asia's developed/developing countries, as reported by the Financial Times. Singapore puts Indonesia as the country's second-largest investment destination with an investment value of $5.5 billion. Japan has invested $18.08 billion in the country and Indonesia is the fourth-biggest investment destination. China puts Indonesia in the top three countries for investment with an investment value of $11.06 billion For South Korea, Indonesia is its sixth-biggest country for investment with an investment value of $3.47 billion. And Taiwan has Indonesia in its fifth spot with an investment value of $2.4 billion.
'So, those five countries, which are aggressively investing their capital worldwide have their focus on Indonesia. It is then recommended that Indonesia make these countries as its investment marketing focus,' Franky said.
To invite investors to the country, the BKPM prioritizes the import substitution sector. On May 6, the government issued Government Regulation No. 18/2015 on tax allowance or tax breaks for investors interested in developing their business in the area. Other priority sectors for the BKPM are the spare parts industry; power plants; the fish and produce processing sector; and shipbuilding. These sectors are expected to support domestic consumption and help reduce dependence on imports. (AD | np)
