Erfan Maruf, Jakarta – Investment in Indonesia has become more efficient at generating economic output over the past two years, but its ability to create jobs has weakened, according to Bank Central Asia (BCA) Chief Economist David Sumual.
David said a declining Incremental Capital Output Ratio (ICOR) indicated that investment was generating more economic growth for each unit of capital deployed.
"Investment continues to grow positively and has become more efficient in driving growth over the past two years, as reflected in the declining ICOR trend," David said Tuesday.
A lower ICOR generally indicates greater capital efficiency because less additional investment is required to generate an additional unit of economic output.
But David said that improvement has not been matched by investment's capacity to generate employment.
According to his analysis, every $1 million in investment created an average of 26.2 jobs during the 2015-2019 period. That figure fell to 16.5 jobs per $1 million from the fourth quarter of 2024.
The divergence suggests that Indonesia's investment challenge is no longer simply about attracting more capital, David said, but also about ensuring that investment produces broader employment benefits.
Indonesia recorded Rp 1.9312 quadrillion ($108.3 billion) in realized investment in 2025, exceeding the government's full-year target. Investment reached another Rp 1.0106 quadrillion in the first half of 2026, equivalent to 49.5% of the government's Rp 2.0413 quadrillion target for the year.
Official data show that investment realization in the first half of 2026 increased 7.2% year on year and generated 1.45 million direct jobs, up 15% from the corresponding period of 2025.
Job creation shows signs of recovery
David said the latest figures nevertheless point to an improvement in investment's employment impact.
In the first half of 2026, every $1 million in investment generated an estimated 25.3 jobs, he said, a significant recovery from the previous level of 16.5.
The improvement suggests that the decline in investment-related job creation is not necessarily permanent, although it remains to be seen whether the rebound can be sustained.
David said Indonesia's economic growth has also accelerated over the past two years, supported by public-sector spending and private-sector participation in the government's priority programs.
At the sectoral level, he said growth has been concentrated in industries benefiting from government programs, including agriculture, food and beverages, trade and construction.
"Unfortunately, this concentrated pattern means the benefits of growth are not being enjoyed broadly across society, particularly in terms of job creation," David said.