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Japan recession unlikely to affect FDI in RI
Japanâs fall into recession has triggered speculation that its investors will refrain from investing in Indonesia
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apan's fall into recession has triggered speculation that its investors will refrain from investing in Indonesia. Surprisingly, though, both Japanese and Indonesian business players have dismissed such
speculation.
Indeed, they expressed their belief that Japanese foreign direct investment (FDI) would grow even further in Southeast Asia's biggest economy in the next few years, as was previously expected.
Japan, the world's third largest economy, shrank 1.6 percent in the third quarter on dwindling housing and business investment after a sales-tax hike, confounding analysts' expectation of a pick-up after a steep drop in the previous quarter.
In the financial market, Japanese household investors for the first time on Friday began to convert their cash into Indonesian bonds tied to the rupiah-yen exchange rate as unprecedented stimulus from Japan's central bank continues to push down the yen, according to Bloomberg.
Japanese External Trade Organization (JETRO) president director Kenichi Tomiyoshi said the appetite of Japanese businesspeople to invest in Indonesia was still strong and could surge even higher, unaffected by the country's economic troubles.
Overseas investment, including in its main subject Indonesia, has for several years been considered vital to generating growth among Japanese firms, particularly in the context of a declining and aging population at home.
'Demand in Asian markets surges rapidly, so Japanese firms must expand their production capacity. Indonesia, along with Thailand and Vietnam, will be their focus,' Tomiyoshi said.
There has been a shift in the targets of investment from major manufacturing sectors such as automotive to a wide range of fields, such as consumer goods and services including leasing, insurance and machinery maintenance, according to JETRO, which provides consultancy to Japanese investors.
Indonesia, the world's fourth most populous country with around 250 million people, has replaced China as the top destination for Japanese FDI in the next five years, according to a report from the Japan Bank for International Cooperation (JBIC) released last year.
Cheap labor and the growth potential of the local market have been the main factors giving the country its edge in the eyes of the hundreds of Japanese firms operating in Asia, the public financial institution and export credit agency said.
'FDI is conducted based on long-term investment planning, so negative gross domestic growth [in Japan] itself will not stop the inflow of investment to Indonesia,' said one Japanese businessman, who asked to remain anonymous.
Similarly, existing Japanese companies would continue their investment in Indonesia as long as its investment climate continued to be favorable, he added.
Indonesia's economy, however, is struggling with deceleration, growing by only 5.11 percent up to the third quarter, its slowest rate since 2009. President Joko 'Jokowi' Widodo is facing huge challenges from poor infrastructure to legal uncertainty.
The head of the Indonesian Chamber of Commerce and Industry's (Kadin) permanent committee for Japan, Sony B. Harsono, expressed his optimism that Japanese firms would invest further in the country.
'Indonesia has had a smooth transition from the last government to the new one and the fuel-price hike has proven that the present administration has the situation under control. This makes Japanese people, like anyone else, confident to do business and invest here,' he said.
A broad array of major infrastructure projects, including roads, railways, seaports, water drainage and power plants, could attract immediate Japanese investment, particularly in light of the government's plans to address the major planning bottleneck in the country, according to Sony.
In the past five years, FDI from Japan expanded by an average 30 percent, statistics from the Investment Coordinating Board (BKPM) show.
Investment amounted to US$4.71 billion last year, nearly double 2013's figure, driven by huge automotive expansion. From January to September, investment totaled $2.04 billion.
BKPM deputy chairman for investment monitoring and implementation Azhar Lubis shared Sony's view, saying that investment from Japanese firms would rise along with the new available opportunities opened by the government's plans for the future.
Azhar added that currently, Japanese firms invested in processing agriculture, such as palm oil, and mineral products, including nickel and bauxite.
'Many factors, such as the government's plan to increase power generation, can help to attract continued investment in these areas,' he said.
A consumer goods firm from Japan is currently considering building an oleochemical plant in Dumai, Riau, while some miners are looking at building smelters locally. Showa Denko K.K. has already built a chemical-grade alumina refinery jointly with state-owned mining firm PT Aneka Tambang (Antam) in Tayan, West Kalimantan.
