The allure of Indonesia for foreign investment

  • Indinesia - southeast asia's economic locomotive
  • The mighty indonesian consumer
  • The allure of indonesia for foreign investment

Foreign investment in Indonesia is playing a major role in the economy’s growth. Direct investments reached a record US$20 billion in 2011 and climbed 22% to 56.6 trillion rupiah last quarter from a year earlier, mainly supported by companies in mining, chemical, pharmaceutical, transportation and telecommunication industries, according to the Investment Coordinating Board.

This reflects the country’s attractiveness as an investment destination, given its wealth of natural resources, strategic location, political stability, skilled workforce, rapidly expanding middle class whose purchasing power is continuously increasing and fundamentally, its large market of 240 million people. Indeed, domestic consumption accounts for about 60% of Indonesian GDP, allowing the country to enjoy great economic stability.

The A.T. Kearney FDI confidence index — which involves a series of surveys of companies with annual global revenue of more than US$2 trillion and provides an assessment of the prospects of international investment flows — ranked Indonesia 21st in 2007, but an impressive 9th for most-attractive investment destination in 2012.

In terms of sources of foreign investment in Indonesia, Singapore constituted the largest with almost 24%, followed by Mauritius, Japan, the United Kingdom and South Korea in 2010. According to the Indonesian Central Bank (BI), the investment flows were oriented toward the manufacturing industry (about 40%), wholesale and retail trade (about 20%) as well as, structuring sectors such as transport, logistics and communication. The most popular sector for FDI, manufacturing, rose over the course of 2010 by 12% from 2009 and the first half of 2011 has seen a growth of 5-6%.1 Finally, the mining industry pulled in almost 15% of direct investments.2

In addition, the Indonesian authorities display some very high ambitions when it comes to development. Within 15 years, the government wants to have the country join the very small group of the world’s ten leading economies thanks to the launch of the “2011-2025 Masterplan for accelerating economic development”. This ambition relies especially on investments of US$470 billion on behalf of industrial development, greater openness of the economy and accelerated redeployment of information and communication technologies. President Susilo Bambang Yudhoyono is also increasing spending and wooing overseas funds to spur growth and create new jobs as more people enter the labour force. Indonesia is targeting foreign and local investment of about 500 trillion rupiah in 2014.3

1 Source: Global Business Guide Indonesia – 2011
2 Source: Publications of the Economic Section of the French Embassy in Indonesia (February 2011)
3 Source: “Indonesia Investments Rose Last Quarter on Mining, Transport”, Bloomberg, 22 October 2012
Overall source: Hong Kong Trade Development Council (February 2011)