Foreign Investment in Indonesia Up 49% in First Half

Foreign investment in the Indonesian economy has grown significantly during the first half of 2010. (AFP Photo/Adek Berry)
Foreign Investment in Indonesia Up 49% in First Half

Indonesia. Indonesia experienced a surge in foreign direct investment in the first half of the year, creating expectations that the total for the year may exceed earlier forecasts, the Investment Coordinating Board announced on Wednesday.

Investors from Singapore, Hong Kong and the United States topped the list, with most of the capital coming from expansion of existing operations, according to Gita Wirjawan, chairman of the board, also known as the BKPM.

FDI totaled $7.8 billion during the first half of the year, an increase of 48.7 percent over $5.3 billion recorded during the same period last year, the BKPM said.

Gita said he expected the full-year FDI figure to reach $13.1 billion in 2010, an increase of 25 percent from last year’s realized investment of $10.5 billion. Previously, the government projected FDI to increase 15 percent this year.

The first-half figure for this year topped the $6.5 billion invested in the same period of 2008, prior to the outbreak of the global financial crisis.

The transportation, warehousing and telecommunications sectors combined to attract 40 percent of the total FDI in the second quarter, while the mining sector attracted 17 percent during the same time.

Gita said expansion of existing facilities was complemented by new investment in the textile and footwear sectors, especially factory relocations to Indonesia from Vietnam and China.

“It indicates a rising trust in Indonesia’s investment environment among both local and global players,” he said, adding that Indonesia’s competitive wages were a major attraction.

Rising wages in China and political uncertainty in Thailand are seen as contributing to investment in Indonesia, which has low wages, abundant natural resources and a huge domestic market.

The Indonesian Footwear Association (Aprisindo) told the Jakarta Globe last week that six footwear manufacturers would relocate from China and Vietnam to Indonesia this year, investing a total of $550 million. Aprisindo chairman Eddy Widjanarko told the Globe that he expected another 20 such relocations next year.

Carmaker Nissan last month outlined plans to double its production capacity and more than quadruple its sales in Indonesia by 2013, adding that it would consider making the country its export hub for Southeast Asia.

Gundy Cahyadi, an economist with OCBC Bank said: “In general, the total investment growth in the first half does suggest that investment climate has improved in Indonesia. Certainly, this strong number is partly caused by the low basis effect from the financial crisis that was still prevalent in early 2009. But no doubt the fact that investors are returning to look into Indonesia is a positive for the growth outlook.”

But Gundy added that investors would continue scrutinizing domestic policies and the success of the government’s reform agenda.

Enrico Tanuwidjaja, a regional economist at OSK-DMG Group in Singapore, said the encouraging investment data strengthened the group’s forecast for Indonesia’s economy to achieve 6 percent growth this year.

“It is encouraging also to see more investment, both domestic and foreign-origin, fall into the transportation area and our hope is for the investment to improve upon the efficiency of cross-provincial transportation system so as to reduce the transportation costs and consequently lower food prices” and the prices of other related items.

Gita was optimistic that the FDI figure would continue growing strongly for the year.

“There are $10 billion of investment that could be pledged and signed in the second half, mostly from abroad, like Asia and Europe,” he said.

Local investors seem to share their foreign counterparts’ bullish view, as they reportedly invested Rp 21.9 trillion ($2.4 billion) in the first half, dwarfing the Rp 1.9 trillion in the same period a year ago.

Total investment in the first half rose to Rp 92.9 trillion, up 40 percent from the year-earlier period. In 2009, total investment reached $14.9 billion.