The World Investment Report 2015, which was published on Wednesday, said Indonesia booked about $23 billion in foreign direct investment last year, up 21 percent from $19 billion in 2013.
The growth, according to the report, was “driven by a significant increase in equity investment” in Southeast Asia’s largest economy.
China topped the list with $129 billion in foreign direct investment, surpassing the United States.
The report noted a rise in international investment in infrastructure in the Southeast Asia region, especially with “intraregional FDI being a major driving force in East and Southeast Asia.”
“A growing part of investment in infrastructure originates from within the region, with Hong Kong, China, Japan, Malaysia and Singapore among the most important sources of both investment and operations,” the report said.
Djisman S. Simanjuntak, a senior economist at the Centre for Strategic and International Studies (CSIS) Foundation, stressed that Indonesian authorities needed to take advantage of China’s growing economic clout in their quest for greater foreign direct investment in the country.
“If Indonesia really wants to see investment go up, it has to go to East Asia rather than the rest of the world,” he said.
“East Asia is where we can expect a major source of FDI and the number one is China.”
As of March, foreign direct investment in Indonesia – excluding investment in the banking, oil and gas – grew 14 percent to Rp 82 trillion ($615 million) from the same period last year, dominated by investment from Singapore, Japan and South Korea.
Investment from China, on the other hand, only contributed 1.1 percent to Indonesia’s total foreign direct investment in the first quarter, according to data from the BKPM.
“We haven’t yet managed to convince Chinese investors,” Djisman said.
The World Investment Report 2015 comes at a time when President Joko Widodo’s administration is ramping up efforts to lure foreign investment to support the government’s 7 percent economic growth target for the next five years.
The Investment Coordinating Board (BKPM) is targeting about Rp 518 trillion in investment this year, a 12 percent climb on 2014, with more than 60 percent coming from foreign investors.
The UN report revealed, however, that strong investment growth may not repeat itself in the future, as Indonesia’s position among top prospective investment destinations for multinational enterprises fell significantly. This puts more pressure on the government to quickly reform the country’s investment rules.
Shinta Widjaja Kamdani , the head of international relations at Indonesia’s Employers Association (APINDO), said one of the biggest deterrents for potential investors was Indonesia’s uncertain legal environment — an age-old issue that businesses in Indonesia have long lamented.
“The government needs to understand that we are not the only country seeking investment,” she said, mentioning Vietnam as a possible competitor.
“You don’t say you want to attract investment, but don’t come up with regulations to support it.”