EU: Indonesia's main investor and trading partner

EU: The largest investor in Indonesia

Mature economic links exist between Indonesia and the European Union (EU). These deep roots to bilateral economic relations have proven their value during the current economic crisis. In 1998, Indonesia experienced a net outflow/withdrawal of Foreign Direct Investment (FDI). Europe, however, was the only part of the world from which the flow of FDI into Indonesia remained positive.

It is not surprising, therefore, that according to Indonesia's Investment Coordinating Board, the EU is the largest investor since the board started collecting data in 1967, with a total value of approved investment projects up to end-November 1999 of US$42.9 billion, not including oil and gas and banking sectors (Japan $35.2 billion, the U.S. $10.4 billion). According to Bank Indonesia data, Europe has been responsible for almost half (46 percent) of total investments in Indonesia over the period 1995- 1998.

Traditionally, European investments have been directed mainly to the sectors of food, food processing, chemicals, health care and banking, usually with the primary purpose of servicing the domestic market. In recent years, following liberalization, EU investors have become interested in the service sectors, concentrating on utilities (electricity, gas and water) and logistics (transportation, storage and communications). Since the mid-1990s, EU companies have also become a major presence in consultancy and other service industries.

The hotel and restaurant sector has also received the keen attention of small and medium scale investors from Europe. This is not surprising as more visitors come to Indonesia from the EU each year than from the U.S. and Japan combined. Statistics show that they also stay the longest and spend the most.

EU: Indonesian's second largest trading partner

In the period from 1985 to 1998, the EU's share in Indonesian exports and imports has been steadily growing. As a result, the EU has become the second most important destination of Indonesia's exports (after Japan), and the largest source for Indonesia's imports.

The deep economic and monetary crisis that struck Indonesia in 1997 has had major implications for bilateral trade. As a result, the trade balance made a drastic swing in favor of Indonesia.

EU imports from Indonesia are higher now than they were before the start of the economic crisis, and EU investment in Indonesia has increased despite the turbulent situation confronting the country.