Jakarta – The government's hopes of achieving higher growth this year on the back of increased investment has suffered a setback, with official figures showing a slow start to the year for both foreign and domestic investment approvals.
The Investment Coordinating Board (BKPM) announced Wednesday that foreign direct investment (FDI) approvals for the first month of the year amounted to only US$463.2 billion (112 projects), in stark contrast to the $872 billion (1,226 projects) recorded during the same month of 2005.
A similar downward trend was also evident in the domestic investment figures, with proposed investments declining to Rp 359.8 billion ($38.7 million) involving only 8 projects, compared to Rp 1.89 trillion for 15 projects last year.
Overseas investors mostly applied for investment licenses in the construction sector (3 projects valued at $288.9 million), and the commercial sector (42 at $31.9 million), with one application worth $27.2 million in the food processing industry. Local investors, meanwhile, were primarily interested in the transportation, warehousing, communications, chemical, pharmaceutical, and timber processing industries.
January's low level of investment approvals appears to reflect uncertainty among investors about Indonesia's business climate, which would be in line with the latest surveys by Bank Indonesia and the Central Statistics Agency (BPS), which show that the business community still sees tough going ahead amid high inflation and interest rates, at least until the second half of the year.
The government may, however, take some solace from the fact that actual FDI realizations in January soared to US$1.31 billion (91 projects), compared to $118.4 billion (57 projects) for the same month last year. Meanwhile, realized domestic investments tripled in value to Rp 2.58 trillion (27 projects), from Rp 783.4 billion (17 projects) in January last year.
In total, realized foreign and domestic investments provided employment for 42,782 workers, compared to 8,172 workers in the same period last year.
The government is hoping that realized foreign and domestic investments will grow by 11.1 percent this year from last year's combined value of Rp 113.5 trillion.
The BKPM figures exclude investments in the oil, gas and mining industries, banking and non-bank financial institutions, and the capital markets. Licenses in these sectors are issued by other government agencies.
Total investment grew by only 9.93 percent last year, compared to 15.71 percent in 2004, thus reducing 2005's overall economic growth to 5.6 percent from the government's target of 6 percent.
The government is targeting growth of 6.2 percent this year, and has recently announced various incentives designed to improve legal certainty and provide financial guarantees so as to encourage greater private sector involvement in infrastructure development.