Satria Sambijantoro, Jakarta – Indonesia is on course to meet its annual investment target as overall investment growth has been maintained at above 20 percent in the third quarter, with robust growth in domestic direct investment (DDI) compensating for the slowdown in foreign direct investment (FDI).
The Investment Coordinating Board (BKPM) reported on Wednesday that total investments had jumped 23 percent year-on-year to top Rp 100.5 trillion (US$8.9 billion) in July-September, the highest ever recorded, despite the capital outflows and financial market turbulence that took place during that period.
"This is an important signal that Indonesia, amid the bleak global economic outlook, remains a major destination for investment," BKPM chairman Mahendra Siregar told a press briefing.
The increasingly greater role of local investors meant that Indonesia would be more resilient to external shocks, he said, referring to the fact that FDI growth – which accounts for two-thirds of total investment – had slowed to a three-year low of 18.4 percent, compared to the 33 percent DDI growth.
Japan was the biggest contributor to FDI in Indonesia, accounting for 19 percent of total foreign investments, mainly because of the increased investment by Japanese automotive and electronics firms.
Total investment realization in the third quarter generated at least 411,543 jobs, though the number could reach at least 1.2 million given the fact that investments have at least a quadruple multiplier effect on job creation, according to Mahendra.
With three months left before the end of the year, the country had realized Rp 293 trillion of investments, meaning that the country was on track to meet its annual investment target of Rp 390 trillion, he said.
The new BKPM chairman, who was just elected this month, targeted to realize Rp 450 trillion of investments next year, a 15 percent increase compared to this year.
Investments account for around 25 percent of Indonesia's gross domestic product (GDP), which is the second-biggest growth driver after household consumption.
World Bank senior economist for Indonesia Ashley Taylor, warned that the lack of clarity over certain domestic policies and regulations related to trade and investment "have recently tested investor confidence".
"Reassuring investors and markets that the financial market turbulence seen over recent months is prompting greater focus on coordinated policy reforms, will be decisive in encouraging much-needed foreign direct investment," he said in an email.
Although election-related uncertainties could temporarily depress its FDI inflows, Indonesia remains attractive among foreign investors due to its economic stability, manufacturing competitiveness, rapid urbanization providing higher paying jobs, as well as a rising middle-class that represents a large consumer base, according to international ratings agency Standard & Poor's (S&P).
"We believe FDI will remain strong in the medium term, particularly in manufacturing and services, areas not affected by policies that are perceived as 'anti foreign investor'," Agost Benard, a primary credit analyst with S&P, said in response to questions from The Jakarta Post.
"There has also been steady progress in addressing shortcomings in governance, one of the key deterrents to investment," he added.
The BKPM data shows that manufacturing and services are the two most attractive sectors among foreign investors coming into Indonesia, with the two jointly accounting for 76 percent of total FDI in the January-September period.
"The fact that our investments are concentrated in the two sectors is in line with our strategy and priority to boost added value industry and climb up the value chain," Mahendra said. "More added value means that more skilled and semi-skilled jobs will be generated, something that we should focus on in the future."