Jayanty Nada Shofa, Jakarta – A top brass at the Bank of America recently said that Indonesia should have no problem attracting trillions of rupiah of investments, including from foreign investors, as long as the government remains consistent with its policies.
The government is mulling raising the investment target to between Rp 1,900 trillion and Rp 2,000 trillion (around $123 billion to $129.6 billion) in 2025, when Prabowo Subianto already assumes the presidency.
This marks quite a huge jump from the already ambitious investment target of Rp 1,650 trillion set for 2024. The government has crossed the halfway mark target with a total of Rp 829.9 trillion already collected as of the first half of this year. About 50.8 percent came from foreign direct investments (FDI).
"At Bank of America, we look at Indonesia as an attractive investment destination," Mira Arifin, the Indonesia country executive at Bank of America, told the Jakarta Globe.
According to Mira, the Rp 2,000-trillion investment targets are likely to be achievable, but only if Indonesia can be consistent with its policies. The larger investors typically do not want the government to suddenly come up with new policies years after they decided to set up a factory in Indonesia.
"With that target, I think yes, if the policies are easier and consistent.... When it comes to FDI, it is important to make sure that what we [investors] agreed on in the beginning is maintained for the next 10-20 years.... The large investments will require the government's commitment. Each of them [the investments] will have their own negotiations," Mira said.
Mira gave an example of the policy inconsistency in the electric vehicle (EV) sector – a critical investment destination which Indonesia has been heavily promoting in recent years.
"We have seen in the EV space when they [investors] had to build factories, but suddenly there are import tax relaxations on EVs [in Indonesia] so that's how BYD and all that comes in. If you were Hyundai or LG, you would probably ask them to push back a little bit or ask for a headstart with its initial investment during Covid-19," Mira said.
South Korean automaker Hyundai officially launched a manufacturing plant for its electric cars in Cikarang in 2022. The company – alongside Seoul-based battery maker LG Energy Solution – also has built Southeast Asia's first EV battery cell plant in the West Javan industrial regency of Karawang.
But years after Indonesia convinced Hyundai into building a factory, the government decided to loosen import restrictions for completely built-up (CBU) or completely knocked down (CKD) electric four-wheelers.
In 2024, the Finance Ministry issued a regulation that would exempt CKD and CBU vehicles from paying luxury goods tax.
A CBU refers to imported vehicles that are shipped in one piece without the need to be reassembled in Indonesia. CKD vehicles get shipped in parts so they will have to be reassembled at the destination country.
This could give more time for the other EV players who have yet to set up a factory, including Chinese automaker BYD. However, the Finance Ministry states that the tax exemption will last until the end of this year. Businesses must also commit to eventually manufacturing EV in Indonesia with production expected to begin no later than the end of 2027.
"Of course, the Indonesian government requires BYD to set up a factory which is fair in that part. But I think Hyundai is not happy with the luxury tax relaxation part," Mira said.
BYD is planning to invest $1.3 billion in a manufacturing plant in Indonesia. The local production would likely start by early 2026. BYD electric cars entered the Indonesian market in January.
The EV sector has become a major talking point whenever the government makes its pitch to foreign investors. Indonesia has been itching to have more EVs on its roads to cut down its emissions. Indonesia –blessed with abundant mineral reserves– also wishes to take advantage of its natural wealth. The government reported that investors had put around Rp 80.9 trillion in the Indonesian nickel smelting industry throughout the first half of 2024. The country recorded Rp 6 trillion worth of investments in the EV battery sector over the same period.
Government data showed that the FDI totaled Rp 421.7 trillion in January-June 2024. Indonesia's top three foreign investors were as follows: Singapore ($8.9 billion), China ($3.9 billion), and Hong Kong ($3.8 billion). Followed by the US ($2 billion) and Japan ($1.8 billion). Since joining the 2024 election, Prabowo had promised that he would carry on Jokowi's policies. However, only time will tell how his investment-related policies will actually turn out once he assumes office in October.