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View all search resultsInsight: Foreign direct investment is not coming to Indonesia — really?
In nominal terms, FDI flows to Indonesia in 2018 increased by US$7.8 billion compared to the annual average flows in 2008 to 2016, higher than the increase in India and Vietnam over the same period ($6.5 and $6.2 billion, respectively). So, why the perception that FDI is not coming to Indonesia?
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Regulatory framework for FDI: Financial Services Authority (OJK) chairman Wimboh Santoso (center) speaks at the first Next Indonesian Unicorn (NextICorn) Summit in Nusa Dua, Bali, accompanied on stage by Investment Coordinating Board (BPKM) chairman Thomas Lembong (left) and Bank Indonesia’s head of Payment Systems Policy Onny Widanarko. Wimboh spoke on the regulatory framework for foreign direct investment (FDI) in the digital economy. (JP/Zul Trio Anggono)
T
he economic topic receiving the most attention in the last few days has certainly been that of foreign direct investment (FDI) thanks to the World Bank, which brought this issue to President Joko “Jokowi” Widodo’s attention.
One of the key messages was that FDI is simply not coming to Indonesia. The evidence cited was that 33 investors have exited China since June due to the escalating trade war. Most shifted their investment to Vietnam and, crucially, none came to Indonesia.
Since attracting FDI is one of President Jokowi’s priorities, his reaction to this was swift: All ministries involved in facilitating FDI had to address the problem fast. Intrigued by the news coverage, I did some online research on the issue. To my surprise, it barely hit the headlines in China and Vietnam, but there was a huge amount of coverage on President Jokowi’s reaction. This prompted me to dig deeper to get to the heart of the matter.
First of all, it is a key fact that total FDI in Indonesia is still rising. After an absence from the FDI destination list for a few years after the 1997-1998 Asian financial crisis, Indonesia was back in the top 10 destinations following the 2007-2008 global financial crisis, thanks to reforms during the government of former president Susilo Bambang Yudhoyono, as well as improved domestic economic growth prospects.
President Jokowi continued the FDI-friendly policy when he took office in 2014 and FDI flows to Indonesia continued to increase. In nominal terms, FDI flows to Indonesia in 2018 increased by US$7.8 billion compared to the annual average flows in 2008 to 2016, higher than the increase in India and Vietnam over the same period ($6.5 and $6.2 billion, respectively). So, why the perception that FDI is not coming to Indonesia?
Most FDI to Indonesia in the last few years has been channeled to nonmanufacturing sectors. The top five destinations of FDI in Indonesia have been renewable energy, mining, chemical, real estate and metals. After that, the sectors of choice were services such as hotels, information technology and finance. Only at number 10 does a manufacturing sector — the automotive industry — figure.
Broadly speaking, foreign direct investment (FDI) to manufacturing in Indonesia has been shrinking in the last few years, whereas foreign investment in Vietnam’s manufacturing sector has been surging. Somehow, foreign investors see Indonesia’s strengths lying outside manufacturing.
