Sat, 19 Aug 2006

FDI inflows remain disappointing

Urip Hudiono, The Jakarta Post, Jakarta

Foreign investment still appears to be in the doldrums, with the second half of the year starting off to a 24 percent decline in direct foreign investment compared with the same period last year.

Realized overseas investment by the end of July only amounted to a disappointing $3.71 billion involving a total of 563 projects, the Investment Coordinating Board (BKPM) reported earlier this week, as compared to 567 projects worth $4.9 billion a year earlier.

This represents a reversal of the 12 percent growth in actual FDI achieved during 2005's first seven months compared with the same period of 2004.

The alarm bells had already been sounded in the first half of the year, when realized overseas investment rose by barely 5 percent to $3.5 billion.

The good news from the BKPM's latest investment figures is that realized FDI projects between January and the end of July created a total of 154,335 jobs as compared to 94,336 in the same period last year.

Actual domestic investment between January and July, meanwhile, grew by 18 percent to stand at Rp 11.46 trillion (US$1.2 billion) involving 104 projects, compared with Rp 9.69 trillion involving 137 projects during the same period last year.

Foreign investors have mainly been putting their money into the metal, machinery and electronics sector (61 projects valued at $816.4 million), the paper and printing sector (11 projects valued at $439.3 million) and the textile sector (16 projects valued at $375.3 million).

Meanwhile, local investors promoted 16 projects worth Rp 3.14 trillion in the metal, machinery and electronics sector, 12 worth Rp 2.05 trillion in the food processing sector, and 16 worth Rp 1.6 trillion in the services sector.

In total, actual overseas and domestic investment up until the end of July stood at Rp 45.22 trillion, a 16 percent decline from the same period last year. Overall realized investment provided jobs for a total of 198,029 workers, significantly higher than last year's 160,421.

The government is hoping for Rp 132 trillion in realized investment this year, although it sees total investment growing by only 7.7 percent this year -- another decline from the 9.9 percent growth recorded in 2005 and 14.1 percent in 2004 -- although hopes are high for an 11.8 percent rebound in 2007.

The BKPM's data excludes investment in the oil, gas and mining industries, the banking and finance sector, and the capital markets, which are handled by other government agencies.

Corruption, red-tape and woefully deficient infrastructure have been undermining Indonesia's efforts to lure back overseas investment, which peaked at $39.66 billion in 1995, before collapsing to $13.64 billion following the 1997-1998 Asian financial crisis.

Investment looks set to remain slow for the rest of 2006, with investors thinking twice before expanding their businesses in Indonesia's potentially huge market given that purchasing power is still low as a result of high inflation and interest rates.

The government recently announced a package of policies to tackle the problems in the investment sector, but had only managed to complete 23 of the 85 outlined policies as of the end of May.