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FDI slows amid global uncertainty
(Source:BKPM)Indonesia saw a sharp slowdown in foreign direct investment (FDI) growth in the first quarter of 2014 due to lagging global economic recovery, while at the same time investors also held back from pouring more money in to the countryâs economy due to political uncertainty during an election year
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(Source:BKPM) (Source:BKPM)
(Source:BKPM)
Indonesia saw a sharp slowdown in foreign direct investment (FDI) growth in the first quarter of 2014 due to lagging global economic recovery, while at the same time investors also held back from pouring more money in to the country's economy due to political uncertainty during an election year.
The Investment Coordinating Board (BKPM) reported on Thursday that, in the first quarter this year, FDI realization grew only 9.8 percent year-on-year (y-o-y) to hit Rp 72 trillion (US$6.2 billion), a far cry compared to the 25.4 percent growth Indonesia posted a quarter earlier.
Total realized investment, however, still maintained double-digit expansion as it rose 14.6 percent to reach Rp 106.6 trillion, thanks to the robust growth of domestic direct investments (DDI), which rose 25.9 percent to Rp 34.1 trillion during the first quarter.
'There's definitely an impact from the lagging economic recovery at the regional and global level,' BKPM chairman Mahendra Siregar told a press briefing, when asked about the slowdown in FDI growth.
In the first quarter, Singapore and Japan were the two-largest investors with a total investment of $1,281 million and $951.9 million, respectively. The industries considered the most attractive among foreign investors were manufacturing and mining, which comprised 50.9 percent and 24 percent of total realized FDI, respectively.
In the wake of the implementation of the ban on exports for unprocessed minerals, BKPM deputy chairman Azhar Lubis said there were two new smelters under construction, a nickel-processing smelter in West Kalimantan, as well as a bauxite-processing smelter in North Maluku.
Last year, total realized investments in Indonesia reached historic-high of Rp 398.6 trillion, growing 22.4 percent y-o-y. The BKPM targeted 15 percent growth in investment this year.
'The slowdown in FDI was driven by the fact that foreign investors were still looking for clarity from the election result ' for the first quarter this year, I think they remained in 'wait-and-see' mode,' said Juniman, the chief economist of Bank Internasional Indonesia (BII).
'The slowing economy, which was caused by fiscal and monetary tightening, also affects our attractiveness among foreign investors,' he said on Thursday in a phone interview.
Investment is Indonesia's second-biggest economic growth driver after household consumption, accounting for 33 percent of its gross domestic product (GDP).
The country has targeted to post 6 percent GDP growth this year.
To attract more FDI, the government tabled a plan to revise its negative investments list (DNI), allowing foreign investors to have more ownership in certain industries such as airport and seaport management, telecommunications and pharmaceuticals.
But the plan has met political resistance due to nationalistic sentiment in the wake of the 2014 general election, with the DNI revision plan having yet to be officially signed by President Susilo Bambang Yudhoyono.
'The further liberalization of these key sectors [in the DNI revision] has been eagerly awaited but progress has been slow,' noted DBS Bank economist Gundy Cahyadi.
He argued that Indonesia required strong FDI growth to ease external funding concerns, especially as the country's balance of payments remained under pressure given the high current-account deficit.
'The current-account deficit would be less of a problem if it were financed by long-term inflows, such as FDI,' Gundy said.
