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Jakarta Post

Job creation low despite increase in investment

Although realized new investment surged significantly in the first half of this year, job creation remained relatively low

Linda Yulisman (The Jakarta Post)
Jakarta
Wed, July 29, 2015

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Job creation low despite increase in investment

Although realized new investment surged significantly in the first half of this year, job creation remained relatively low.

Investment for green field projects climbed by 28.6 percent to Rp 196.9 trillion (US$14.62 billion) during the first half, this year year-on-year (yoy), representing 75.8 percent of overall investment, which hit Rp 259.7 trillion during the period, according to recently-released statistics from the Investment Coordinating Board (BKPM).

Foreign investors held a dominant presence, spending Rp 146.6 trillion, while domestic firms cashed in Rp 53.3 trillion.

The bulk of foreign direct investment (FDI) totaling Rp 30.33 trillion was spent to build infrastructure facilities in transportation, warehousing and telecommunication sectors, followed by spending in the mining sector (Rp 25.65 trillion) and base metals (Rp 11.36 trillion).

Meanwhile, the highest expenditure by domestic investors which reached Rp 10.51 trillion was to build power plants, gas and water facilities, followed by those channeled in the food processing sector (Rp 8.03 trillion) and transportation, warehouse and telecommunication sectors (Rp 5.93 trillion).

Total realized investments rose by 16.6 percent to Rp 259.7 trillion yoy during the Jan.-June period.

Foreign direct investments accounted for Rp 174.2 trillion, or 67 percent of the total.

BKPM deputy director for investment monitoring and implementation Azhar Lubis said on Tuesday that the sizeable investments for new projects signaled investor confidence in Indonesia'€™s economic growth prospects.

'€œWith such confidence, they were willing to materialize their business plans as approved in investment permits,'€ he told The Jakarta Post in a text message.

Indonesia'€™s economy grew 4.71 percent in the first quarter of 2015, the slowest pace in nearly six years, following a general election in the previous quarter that prompted investors stay in '€œwait and see'€ mode.

The new administration under President Joko '€œJokowi'€ Widodo has pledged to boost investment, the second main driver of growth in Southeast Asia'€™s economy, to offset weaker consumption and falling exports. He expects to draw investments of up to Rp 3,518 trillion in five years, an increase of by 7 percent, during his term that will conclude in 2019.

Jokowi has personally led several business missions overseas, including to major economic partners Japan and China, since he took office in October last year to woo investors. He has also tried to improve the ease of doing business and the domestic investment climate, such as by simplifying procedures to secure investment permits.

Center of Reform on Economics (CORE) Indonesia executive director Hendri Saparini considered the increase in investment was normal as optimism about business prospects always accompanied a new administration.

'€œCompared to other countries, Indonesia is quite good as an investment destination because of, for instance, political stability. We have all the needed natural as well as human resources,'€ she said, but noted lack of execution to optimize presently available resources.

Despite the considerable pick up in overall investment in January-June period that comprises totally new investment and expansion projects, the data also highlighted another concern, a modest rise in labor absorption.

In contrast to marked uptick in investment, it created jobs for 686,174 workers, up by only 12.31 percent from the past year, according to BKPM.

Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani raised his concern over low employment creation from the new investments, saying that it was not on track with the government'€™s target of massive job creation in order to reduce inequality and income gaps.

'€œThe 12.6 percent rise is still moderate and that is attributable to our difficulty in attracting investment in the labor-intensive sectors ['€¦] We surely need extra efforts to bring back investment in these areas,'€ he told the Post.

Labor-intensive sectors could address a large pool of unskilled labor in the country and reduce the high employment rate, Hariyadi added. (fsu)

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