FDI approvals down by 30.6% in January-April

Dadan Wijaksana, Jakarta

The country's struggle to recover from its investment slump took another hit on Tuesday, as the National Investment Coordinating Board (BKPM) reported another sharp drop in foreign direct investment (FDI) approvals in the first four months of the year.

The state agency said that US$2.3 billion worth of FDI was recorded during the January-April period, marking a 30.6 percent decline from the same period last year.

No official reasons were given by the agency for the decline in the figures, which should further expose the country's continued weak business climate, with investors complaining about various problems here considered detrimental to the government's efforts to lure investors.

Legal uncertainty, security fears, labor-related disputes and uncontrolled decentralization are at the top of a long list of issues that have hindered the return of fresh investment.

Nevertheless, efforts to turn things around have brought about little change, investment approvals consequently have been declining.

Before the 1997 Asian economic crisis, investment was one of the country's main economic engines. But now, it accounts for less than 10 percent of country's gross domestic product (GDP) -- with domestic consumption contributing more than 75 percent.

Various surveys and reports have predicted that the sluggish investment climate would likely continue at least until after the country had a newly assembled government later this year after the presidential election is final.

Elsewhere, the report said, the metal, machinery and electronics sectors had attracted the highest foreign investment, followed by hotels and restaurants, the textile industry and the construction sector during the period.

BKPM's report also showed that they had issued licenses for 120 FDI projects valued at $919.1 million as compared with 155 projects worth $749.5 million a year earlier.

Of the total, Japanese firms were the largest group of investors with 20 projects worth $851 million, followed by U.K. firms with 18 projects worth $672.1 million and South Korean companies with 61 projects at $148 million.

In total, the projects had the potential to absorb around 65,000 workers, both Indonesians and expatriates.

On domestic investment however, BKPM reported a 115 percent rise during the same period with approvals standing at Rp 12 trillion (about $1.4 billion).

The data on domestic investment should be encouraging as it may reflect a speedier restructuring pace in both the corporate and banking sectors.