Indonesia Attracts More Foreign Direct Investments in 2017

Foreign direct investment in Indonesia last year grew 8.5 percent more compared to 2016, thanks to upgraded global credit ratings and easier regulations, the Investment Coordinating Board, or BKPM, said on Tuesday (30/01). (SP Photo/Joanito De Saojoao)

By : Adinda Normala | on 10:35 AM January 31, 2018
Category : Business, Economy

Jakarta. Foreign direct investment in Indonesia last year grew 8.5 percent more compared to 2016, thanks to upgraded global credit ratings and easier regulations, the Investment Coordinating Board, or BKPM, said on Tuesday (30/01).

Indonesia received Rp 430.5 trillion ($32.34 billion) in FDI throughout 2017, excluding investments in the banking and oil and gas sectors. In 2016, Indonesia attracted $29 billion in FDI, an increase of 8.4 percent from the previous year.

Singapore remained the largest source of investment into Southeast Asia's largest economy last year, followed by Japan and China. The biggest beneficiary of FDI in 2017 was the mining sector, followed by utilities, machinery and electronics, industry estate and pharmaceuticals.

Despite higher levels of FDI, the head of the investment board, Thomas Lembong, said the country must improve to compete with neighboring countries to win over investors.

"We are still losing to neighboring countries, such as the Philippines, Vietnam and Thailand. We must keep improving the investment climate," Thomas Lembong said.

Meanwhile, domestic direct investment, or DDI, grew 21.3 percent to Rp 262.3 trillion from 2016. Those investments were mainly directed to the food, telecommunications, construction, utilities and plantation sectors.

Combined FDI and DDI totaled Rp 692.8 trillion last year, surpassing the government's target of Rp 678.8 trillion, constituting an increase of 13.1 percent from the previous year.

BKPM used a rupiah exchange rate of 13,400 per US dollar, as stated in the 2017 state revised budget.

Indonesia also secured investment grade ratings last year from all three major debt-rating agencies: Fitch Ratings, Standard & Poor’s and Moody’s.

Standard & Poor's granted a long-awaited investment grade status to Indonesia in May, granting the country the coveted status from all three major credit rating agencies for the first time since 1997. Fitch Ratings upgraded Indonesia’s long-term sovereign debt rating to "BBB with a stable outlook," reflecting the country's improving resilience against probable global financial shocks.

Improving the investment climate is a focus for President Joko "Jokowi" Widodo, who is trying to get the annual economic growth rate up to 7 percent from the current 5 percent.

Final Quarter

In the final quarter of 2017, Indonesia received Rp 112 trillion in FDI, rising 10.6 percent on an annual basis, increasing at a lower rate than in the previous quarter.

During the July-September period, Indonesia attracted Rp 117 trillion, a 12 percent increase from the same period in 2016.

Strategies

This year, the investment board targets to attract Rp 795 trillion from both foreign and domestic investments, meaning investments are expected to grow only 10.4 percent compared to last year's figures.

"The figure is based on projects that have been registered to the BKPM database, we are being realistic," Thomas said, adding that the board is optimistic to reach the 2018 target due to a new presidential regulation on ease of doing business.

The presidential regulation pushes the central and regional governments to cooperate in a system called "online single submission" that allows investors to complete registration more easily. The system is set to take place in April.

The regulation will also force ministries and government agencies and regional governments to establish their own task forces to monitor and facilitate incoming investments related to their respective sectors.

According to Thomas, neighboring countries managed to attract more investments than Indonesia as regulations in the latter tend to overlap between central and regional government agencies, confusing investors.

"We must take steps to harmonize the overlapped policies and rules between the central and regional governments to catch up with our neighbors," Thomas said.

Reducing over-complicated regulations is one part of the government’s 16 policy packages that have been released starting from September 2015.

The policy packages have so far managed to move up Indonesia's position in the World Bank's ease of doing business list. Indonesia now ranks 72 out of 190 countries assessed, up 19 places from its spot on the bank's previous list. The president's target is for the country to reach rank 40 by 2019.

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