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Indonesia's FDI growth highest in decades, but outlook 'bleak'

Source
Jakarta Post - October 26, 2022

Vincent Fabian Thomas, Jakarta – Foreign direct investment (FDI) jumped 63.6 percent annually to Rp 168.9 trillion (US$10.81 billion) in this year's third quarter, hitting a multi-decade high, but a global economic slowdown casts a dark shadow over next year's outlook, the government has cautioned.

Singapore accounted for the lion's share of incoming FDI with $3.8 billion, or 32.5 percent of the total, followed by China (mainland), Japan, Hong Kong and Malaysia.

Meanwhile, domestic direct investment grew at a slower annual rate of 22.5 percent to Rp 138.9 trillion, bringing overall third-quarter direct investment to Rp 307.8 trillion.

The metals and metal goods industry (excluding machinery and equipment) attracted 14.3 percent of the investment, followed by transportation, warehousing and telecommunications at 10.6 percent; housing, industrial estate and office buildings at 9.4 percent; and mining at 9.2 percent.

Investment Minister Bahlil Lahadalia said on Monday that the latest figures had made the government positive about achieving its Rp 1.2 quadrillion full-year investment target, as 74.36 percent of it had been realized in the first through third quarters.

"God willing, we can achieve the 2022 target. How? We have data containing [details] on investment [projects] that have progressed to 60 or 70 percent [of completion], which we will pursue until the end of this year," Bahlil told reporters during a briefing.

Indonesia, like many other countries, is facing a deteriorating global economy, with recent projections pointing to weaker-than-expected economic growth in 2022 and 2023, while inflation is at multi-decade highs in many countries.

Faster-than-anticipated monetary tightening by many central banks had also increased economic risks for developed and emerging economies alike, as well as firms and individuals, as borrowing becomes more costly.

The government has reiterated its investment target for this year, despite the risks, but Bahlil admitted that next year might be a different story, as the worldwide global economic downturn might show a stronger effect in Indonesia.

"Honestly, next year is rather bleak, as seen in the 2023 economic [projection]. This is very serious," Bahlil said.

Moreover, 2023 has been called a "political" year as parties prepare for the 2024 general elections, which Bahlil said would prompt some businesses and investors to hunker down with a wait-and-see stance.

President Joko "Jokowi" Widodo has asked the ministry to up its investment target by 16 percent to Rp 1.4 quadrillion, but Bahlil has announced no revision. He did claim that the ministry had prepared measures to attract investors, including some "sweeteners".

Ajib Hamdani, who heads the Economic Policy Analysis division at the Indonesian Employers Association (Apindo), concurred with the investment minister's cautious stance.

"All of these risks will produce negative sentiment. Some investors will prefer to wait and see," Ajib told The Jakarta Post on Monday.

"We are also waiting to see how the power transition will take place. We hope there will be nothing that negatively affects the economy," he added.Josua Pardede, chief economist at private lender Bank Permata, explained that this year's investment target remained achievable, but only if the global economy did not deteriorate further.

As for next year's target, Josua said it would likewise depend on the trajectory of the global economy – with all its uncertainties.

A weaker global economic growth projection would affect investors focusing on export-oriented industries, as they would become wary about a possible slowdown in global trade.

Meanwhile, soaring interest rates would make borrowing more costly, possibly keeping investors from realizing planned projects.

"In general, most investors will tend to withhold their investment until the economy improves," Josua told the Post on Monday.Bank Mandiri economist Faisal Rachman said on Monday that there was still a chance that investment would maintain its upward trend, mainly driven by a continued recovery in domestic demand amid improved public mobility following the easing of coronavirus restrictions.

The structural and bureaucratic reform agenda could produce benefits for investment in high-output-multiplier sectors like manufacturing and construction, while ongoing reforms in the downstream natural resource sectors would also play a role, he said.

Source: https://asianews.network/indonesias-fdi-growth-highest-in-decades-but-outlook-bleak

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