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Reforms, vaccination to lead to investment boost in 2021: BKPM
The overall investment realization grew by 2.1 percent year-on-year (yoy) to Rp 826.3 trillion (US$58.8 billion) and was higher by around 1.11 percent than the target.
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ore investment is expected to materialize in Indonesia this year, as reform and hopes of a receding pandemic, boost expectations, while the government approaches bona fide companies, such as Tesla, to invest in the country.
The Investment Coordinating Board (BKPM) reported on Monday that Indonesia recorded a growth in overall investment realization last year despite the global economic downturn caused by the COVID-19 pandemic.
The overall investment realization grew by 2.1 percent year-on-year (yoy) to Rp 826.3 trillion (US$58.8 billion) and was higher by around 1.11 percent than the target.
Domestic direct investment (DDI) realization increased by around 7 percent yoy to Rp 413.5 trillion, while that of foreign direct investment (FDI) dropped by 2.4 percent yoy to Rp 412.8 trillion.
“The contribution of [domestic investment] was extraordinary during the pandemic,” BKPM head Bahlil Lahadalia said in a virtual briefing on Monday. “They are the defense line for the overall investment realization during the pandemic.”
While FDI realization declined, he added, the decline was less severe than the global average, which reflected investor confidence in the country.
Investment expenditure accounted for around 30 percent of Indonesia’s gross domestic product (GDP), the second-largest contributor after consumer spending. It contracted 6.48 percent yoy in the third quarter as the whole economy shrank 3.49 percent.
The latest investment realization data come as the government prepares the draft government regulations to implement the Jobs Creation Law, which is aimed at improving the country’s ease of doing business to lure investment.
Thus far, the government has released 20 out of 44 draft government regulations for the jobs law. The government is planning to sign all the government regulations in February, according to Bahlil.
With the jobs law and the mass vaccination program to fight the COVID-19 pandemic, the government is upbeat about the outlook for this year’s investment realization.
“These two things are enough to make us quite optimistic that our investment realization in 2021 will be better,” said Bahlil. “The global perception is also improving, as reflected by some huge investments that have started coming to Indonesia.”
The government has set the overall investment realization target for this year at Rp 858.5 trillion, higher by around 5.05 percent than last year’s target. However, President Joko “Jokowi” Widodo wanted the agency to book Rp 900 trillion in investment realization, he said.
American electric car manufacturer Tesla and German chemical company BASF are planning to expand their businesses in Indonesia, according to Bahlil. Tesla was expected to send this month a team to Indonesia to follow up a phone conversation between Jokowi and CEO Elon Musk in December.
Meanwhile, Chinese battery manufacturer Contemporary Amperex Technology Co. Limited (CATL) has committed to investing $5.2 billion and South Korean electronics company LG to invest $9.8 billion.
The investment realization outlook for this year is expected to be far better than last year, but it hinges on the government’s pandemic handling, regardless of the COVID-19 inoculation program, according to Andry Satrio, the head of the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance (Indef).
“It is one of the main keys that could make foreign investors regain confidence in Indonesia,” Andry told The Jakarta Post on Monday.
“They will assess our performance in handling this pandemic. If investor confidence is strong enough, so will investment be,” he stressed. “If [the pandemic] has not subsided, there will only be investment plans.”
Bahana Sekuritas economist Satria Sambijantoro expected the investment expenditure in GDP to grow this year after bottoming out in 2020, supported by the relaxation in the negative investment list and a huge budget for infrastructure spending.
"The Jokowi administration tends to prioritize recovery based on investment," Satria told the Post in a phone interview on Monday.
With a projected annual growth of 5 percent and 10 percent for domestic investment and FDI realization, respectively, the investment expenditure is also expected to grow this year, according to Bank Permata economist Josua Pardede. The growth will benefit from an uptick in both domestic demand and exports.
"As the economic activities return to normal after the pandemic, the growth of investment [as a GDP component] is expected to improve in 2021," Josua said.
