Foreign direct investment, which is measured every three months, reached an all time high in the second quarter of this year as Indonesia becomes increasingly more attractive when compared to other emerging economies, the Investment Coordinating Board (BKPM) reports.
The figure reached Rp56.1 trillion (US$5.89 billion), up by 30.2 percent from Rp39.5 trillion in the same period last year.
Foreign direct investment made up 70 percent of total realized investment in the country for the given period, which stood at Rp79.6 trillion. Singaporean investors led the pack with investment totaling Rp7.2 trillion, followed by American and Australian investors with Rp6.7 trillion and Rp5.7 trillion respectively.
“Currently, foreign investors see Indonesia as the most profitable country in which to invest their money,” BKPM’s newly appointed chairman M. Chatib Basri told reporters at a press briefing on Wednesday.
“Economic uncertainties in the West have made foreign investors turn to emerging economies. However, China is currently seeing slower economic growth, India has to cope with higher inflation, and Vietnam has had uncertainty in its exchange rate; making Indonesia the economy with the most stable outlook and the highest return of investment,” he added.
In the second quarter, China’s economy expanded at 7.6 percent on a year-on-year basis, the slowest pace in three years. The International Monetary Fund (IMF) said that China “faces significant risks” because of the slowdown, urging the export-reliant economy to boost consumption to propel growth.
India, meanwhile, recorded its slowest economic growth in nine years with 5.3 percent, some of which was caused by the country’s stubbornly high annual inflation rate, which stood at 7.25 percent in June. The IMF has also trimmed India’s growth projections for this year from 6.5 percent to 6.1 percent.
Analysts said that foreign investors flocked to Indonesia mainly because of its robust annual economic growth, which stood at 6.3 percent in the first quarter of this year, the second-highest among G20 members after China.
“Indonesia’s macroeconomic indicators remain positive because its export sector only accounts for 28 percent of its gross domestic product. China and India, meanwhile, depend heavily on exports, which have been hit the hardest by the current global economic slowdown,” said Ahmad Erani Yustika, an economist at the Institute for Development of Economics and Finance (INDEF).
Despite saying that the BKPM “would have no problem” in reaching its investment goal of Rp283.5 trillion by the end of this year, Erani warned that the board had relied too heavily on foreign investors, which he argued made the economy vulnerable to external shocks.
“It is considered risky to have 70 percent of our investment coming from abroad. The safer proportion is at least 60-to-40 [60 percent foreign investors and 40 percent domestic investors],” he said, suggesting the BKPM exert additional effort in attracting domestic investors.
Indonesia’s soaring investment numbers could also be attributed to several policies introduced by the government to improve the country’s investment climate, such as tax holidays and tax allowances, which went into effect earlier this year, said Bank Central Asia (BCA) economist David Sumual.
“Beside such policies, the fact that Indonesia has secured investment-grade status from several rating agencies has made Indonesia more appealing in the eyes of foreign investors,” he said on Wednesday, referring to two top rating agencies, Fitch Ratings and Moody’s Investors Service, which upgraded Indonesia’s sovereign credit rating earlier this year.
Mining and pharmaceutical industries dominated foreign investment, recording Rp20 trillion and Rp 13.3 trillion in realized investments, respectively.
BKPM also noted that more than half of the investors still opt for Java, the country’s most infrastructure-ready island, to realize their investments. Java accounted for 54.9 percent of total realized investments in the second quarter this year, an increase from 46.9 percent in the same period last year.
“Java is the hub for manufacturing and industrial business, while other islands mostly accommodate businesses in commodity sectors. Today, there are fewer investors putting their money into commodity businesses because prices have fallen sharply,” BKPM’s Chatib said. (The Jakarta Post)