Indonesia’s FDI to Hit 1.4 Pct of GDP in 2025: World Bank
Jakarta. Indonesia's foreign direct investment (FDI) could go up to 1.4 percent of its gross domestic product, or GDP, in 2025, according to a recent report by the World Bank.
The World Bank attributed this uptick to the job creation law and the government's industrial downstreaming strategy of processing raw minerals at home for greater added value.
"FDI is projected to gradually pick up as the Omnibus Law on Job Creation and the Indonesian government's agenda to develop the downstream mining and mineral industries are implemented, reaching 1.4 percent of GDP in 2025," the World Bank's study reads.
Indonesia's net FDI is projected to grow to 1.3 percent of the country's GDP this year from 1.1 percent in 2022. The World Bank has set the same 1.3-percent forecast for 2024.
According to the multinational lender, an open market is a recipe for Indonesia to reach high-income status by its centenary in 2045. Global experience has shown that countries that became high-income economies did so through investments generated by open markets.
The World Bank stated Indonesia has had "historically restricted market competition" through regulation, thus preventing productive firms and industries from growing. The job creation omnibus law is expected to remove some of these constraints, among others, by opening up previously restricted sectors for investors.
"There is a need to enhance competition to spur Indonesia's productivity growth. The job creation omnibus law liberalized private investments in the Indonesian economy," Satu Kahkonen, the World Bank country director for Indonesia and Timor Leste, said in Jakarta on Monday.
"They had a very large number of sectors that were closed or restricted for private investment. The law package released those restrictions in one go," Kahkonen said.
From now on, Indonesia needs to identify the specific constraints within policy areas or sectors that prohibit market contestability.
"Indonesia [would have to] remove the remaining restrictions to competition that are embedded in business regulations, procurement rules, international trade policies, labor market regulations, and financial sector rules," Kahkonen said.
The World Bank called Indonesia's financial sector omnibus law "a major reform step". This package of regulations is set to improve access to finance for micro, small, and medium enterprises (MSMEs), among others, by allowing state-owned banks to write off MSMEs' non-performing loans.
"Having access to financing is necessary for the private sector to flourish and invest. [...] Let's get both [of the omnibus laws] implemented so Indonesia can get the full benefits of those reforms," Kahkonen added.