Economic View

On leveraging investment to support sustainable and equitable growth

To what extent did the Covid-19 pandemic impact investment in Indonesia, and which areas of the archipelago saw the highest levels of investment?

BAHLIL LAHADALIA: Despite the pandemic, Indonesia exceeded its target of Rp817trn ($56.1bn) of investment in 2020, reaching Rp826.3trn ($56.8bn). Inflows were almost equally balanced between foreign direct investment (FDI) and domestic direct investment (DDI): FDI accounted for Rp412.8trn ($28.4bn), or 49.9%, of the total, while DDI comprised Rp413.5trn ($28.4bn), or 50.1%. Even as FDI decreased by at 42% worldwide in 2020, Indonesia saw a drop of just 2.4%, highlighting the potential for investment to enable inclusive growth across the archipelago.

Areas beyond Java enjoyed marginally higher levels of investment than the archipelago’s most populous island in 2020: they received Rp417.5trn ($28.7bn), or 50.5% of the total, while Java took in Rp408.8trn ($28.1bn). Indeed, the provinces around Java no longer rank among the top-five destinations for investment in the country. West Java led with $4.8m in investment – or 16.7% of the total – while the capital region around Jakarta placed second, at $3.6m. North Maluku received the third-largest FDI, at $2.1m, followed by Central Sulawesi, with $1.8m. 

What strategies can be implemented to encourage investment and accelerate economic recovery?

LAHADALIA: BKPM has prioritised key performance indicators in our efforts to boost investment: executing more large deals; improving Indonesia’s ease of doing business ranking; facilitating the participation of local companies in large projects, especially micro-, small and medium-sized enterprises (MSMEs); promoting sector-specific inflows from targeted markets; and encouraging DDI, especially in MSMEs. These build on efforts to maintain investment flows during the pandemic, with BKPM helping companies continue operations and expand their investments, while facilitating deals and promoting new investment. 

The November 2020 signing of the Regional Comprehensive Economic Partnership by ASEAN members and their dialogue partners further expanded opportunities for financing in Indonesia. The country will now have access to a larger market, as member countries account for one-third of the world’s population and 29% of global GDP. In terms of maintaining competitiveness, Indonesia’s focus on downstream natural resources – primarily nickel and other minerals used for batteries – has strengthened its position in the global supply chain, particularly in light of the green revolution that is currently under way. Moreover, Indonesia enhanced its investment climate with the November 2020 enactment of the Omnibus Law on Job Creation. 

Which segments have the greatest potential to attract investment and encourage sustainable growth?

LAHADALIA: BKPM aims to transform Indonesia from a country that largely exports raw commodities into one that leverages downstream processing to support value-added production. The body is channelling investment into priority areas, especially export-oriented and labour-intensive industries such as pharmaceuticals and health equipment, automotive, electrical products, construction, energy and mining. Downstream nickel activity is emerging as a major investment opportunity: global players, including Contemporary Amperex Technology and LG Chem, have made, or expressed an interest in making, investments in the country. Additionally, infrastructure development is ongoing across the archipelago, primarily in eastern Indonesia. One example of this is the development of an integrated seaport and fishing port in Ambon, located in Maluku, as part of a bid to turn the region into a centre for fisheries.

BKPM has prioritised collaboration with MSMEs, and has matched 56 FDI and DDI companies with 196 local MSMEs in several sectors. To support smaller firms further, BKPM has ensured that every beneficiary of investment incentives – whether tax holidays, tax allowances or exemptions from import duties – works with MSMEs and entrepreneurs to encourage the even distribution of funding across the archipelago, create jobs and enable a swift recovery. This in turn will lay the foundations for robust economic growth in the coming years.