Thu, 22 Jun 2006

FDI up slightly in first five months

The Jakarta Post, Jakarta

Actual foreign direct investment (FDI) in Indonesia rose by 5.1 percent during the first five months of the year compared to the same period last year, the Investment Coordinating Board (BKPM) reported Tuesday.

The board said that FDI increased to US$3.13 billion involving 377 projects between January and May this year from $2.98 billion involving 321 projects in the same period of 2005.

According to the BKPM, which is tasked with licensing and promoting new projects, investment in the electronics, machinery and metal sector accounted for 23 percent of the total FDI.

The new projects provided jobs for 114,114 workers during the first five months of this year, up from 49,428 jobs in the same period last year.

However, the value of newly approved FDI during the same period dropped to $3.66 billion from $5.47 billion previously.

The government has been struggling hard to attract foreign investment to Indonesia so as to increase growth to between 6 and 7 percent per year and create enough new jobs to put a significant dent in the country's unemployment figures. An estimated more than 40 million people are fully unemployed or underemployed.

The government announced a package of policies in February aimed at improving the investment climate. Last week, Coordinating Minister for the Economy Boediono reported on the progress made to date in the implementation of the policy package, with 23 of the 85 planned measures already in place or completed.

The government is, however, struggling with regard to a number of crucial measures, including amending the labor legislation, reducing local taxes, and lowering charges in the telecommunications and transportation sectors.

On Tuesday, Manpower Minister Erman was quoted as saying that the government would not proceed with its plans to overhaul the country's labor legislation following widespread protests from labor unions. Should such protests persist, this would further erode investor confidence.

The decline in the value of newly approved FDI in the January-May period of this year suggests that foreign investors remain reluctant to put fresh money into Indonesia.

Corruption, red-tape and convoluted bureaucracy, and woefully deficient infrastructure are the biggest obstacles to increased foreign investment, which reached a peak of $39.66 billion in 1995.

The BKPM also revealed that actual investment by local investors jumped by 55 percent to Rp 10.47 trillion involving 78 projects during the first five months of the year from Rp 6.72 trillion involving 89 projects during the same period last year.

The electronics, machinery and metal sector and the food processing sector attracted the most attention from investors.

However, these investments only provided 37,783 jobs, down from 54,073 during the same period last year.

Meanwhile, the number of new projects planned by local investors more than doubled to Rp 56.82 trillion from Rp 20.9 trillion previously.

The agency's figures excluded investments in the oil and gas industry, banks and non-bank financial institutions, and the capital markets as business licenses for these sectors are issued by other government agencies.

Actual direct investment (January-May 2006)

Foreign investment

Major sector Investment Project

- Metal, machinery and electronics US$735 million 49 - Paper and Printing US$437 million 6 - Textiles US$349 million 23 - Automotive US$316 million 13 - Trade and repair US$281 million 97

Favored destinations Investment Project

- West Java US$1.01 billion 94 - Jakarta US$394 million 143 - East Kalimantan US$377 million 1 - Central Java US$327 million 19 - Banten US$315 million 37

Domestic investment

Major sector Investment Project - Metal, machinery and electronics Rp 3.02 trillion 10 - Food Rp 2.01 trillion 10 - Miscellaneous services Rp 1.59 trillion 5 - Food crops and plantations Rp 1.50 trillion 7 - Wood Rp 540 billion 7

Favored destinations

Province Investment Project

- Banten Rp 3,02 trillion 8 - Jakarta Rp 2.54 trillion 18 - Riau Rp 1.65 trillion 5 - Central Kalimantan Rp 774 billion 3 - Lampung Rp 607 billion 1

Source: BKPM