FDI bullish but more regulatory improvements needed

By : Rachmadea Aisyah
Source : The Jakarta Post

Jakarta   /   Wed, July 31 2019   /  02:26 am


Stakeholders have lauded Indonesia’s success in boosting investment realization in the first half of this year but said more effort was needed to ensure the sustainability of the growth.


Foreign direct investment (FDI) realization grew by 4 percent year-on-year (yoy) to Rp 212.8 trillion (US$15.2 billion) in the first six months of this year. Despite the seemingly sluggish growth, it was better than the achievement in the same period last year when it contracted by 1.1 percent yoy, the Investment Coordinating Board (BKPM) reported on Tuesday.


Foreign business representatives offered optimistic views on Indonesia’s investment climate until year-end despite external turbulence and notable regulatory drawbacks.


“Indonesia remains an attractive destination for FDI, mostly due to its large domestic market and relative political stability. The [presidential and legislative] elections passed pretty quietly and did not harm confidence,” Lin Neumann, managing director of the American Chamber of Commerce Indonesia (AmCham), told The Jakarta Post on Tuesday.


“On the other hand, the regulatory and legal environment remains difficult and complex and both are frequently cited as a source of concern for investors,” he went on to say.


Some of the difficulties he cited were in regard to the Patent Law, local-content restrictions, import quotas and work permits. In addition, investors expressed hope that more sectors would be opened to foreign ownership through the revision of the negative investment list (DNI).


United States investments slid to $631.7 million during January-June this year from $646.1 million recorded in the same period of 2018, making the country the seventh-largest country of origin for foreign investments.


However, Neuman stressed, the figure should have been much bigger as many US investors channeled capital through Singaporean firms, which have been the number one source of FDI for years.


“We have a good working relationship with the economic ministries and we expect that to continue under President Joko ‘Jokowi’ Widodo’s [second administration] [...] I am pleased to hear the President stressing reform and greater openness in his next Cabinet,” Neuman added.


British Chamber of Commerce (BritCham) executive director Chris Wren voiced a similar view.

“Investment overseas from the UK is hampered by both the uncertain global business climate and corporate preoccupation with Brexit [but] the Brexit issue has intensified resolve to research opportunities outside of Europe,” Wren told the Post separately. “Aligned to that, BritCham is of the very optimistic belief that the new President Jokowi Cabinet will be selected because they have both the skills and ambition to address the FDI challenges.”

The United Kingdom is Indonesia’s 17th largest foreign investor with investments worth $65.3 million in this year’s first half, down from $73 million in the same period of 2018.

He mentioned several issues that continued to hamper investment, such as regulatory complexity, imbalances in labor law and a small talent pool, among other issues.

The overall investment realization in the country reached Rp 395.6 trillion during the first half of 2019, up by 9.4 percent yoy.


The increase was higher than the 7.4 percent growth recorded in the same period last year as investors resumed business expansion following a time of wait-and-see prior to the elections.


BKPM head Thomas Trikasih Lembong said he would maintain a double-digit overall investment growth target this year following the positive results. Earlier in May, he set the target of 13 percent.


“I am optimistic that this recovery trend in investments will continue,” Thomas told a press briefing on Tuesday. “Several large-scale investors such as the crown prince of the United Arab Emirates, Softbank and Hyundai have lined up to discuss investments with the President.”


The strengthening FDI will eventually support the rupiah’s value against US dollar, Bahana Sekuritas economist Satria Sambijantoro said. He projected the currency would reach 13,500 per dollar in 2020.