FOR ADVERTORIAL purposes

FOR ADVERTORIAL purposes

A stable investment partner for Indonesia

Investors from the EU have traditionally shown a strong interest in Indonesia. Reforms in Indonesia's Foreign Direct Investment (FDI) regulations, which took place in 1994, triggered a substantial increase in investment activity by EU companies.

From 1995-1998, Europe (including EFTA and Eastern Europe) was the largest foreign investor in Indonesia. This predominant position has been maintained over a longer period of time: since 1967, when FDI flows were first measured, the EU has consistently been the largest investor in Indonesia according to the Indonesian Investment Coordinating Board (BKPM).

This confirms the deep-rooted economic and other historic ties that exist between Europe and Indonesia. As such, Europe has proven to be among the most stable and reliable partners of Indonesia, both in trade and in investment.

Even so, the economic and monetary crisis did have an adverse impact on overall FDI. Many projects, especially those involving large infrastructure works, were canceled or postponed. Investors reacted to increased uncertainties by adopting a cautious and wait-and-see approach.

Despite this adverse scenario, European investment flows kept coming, although at a smaller scale. In the crisis year of 1998, and while Indonesia experienced an overall net FDI outflow, the EU was the only part of the world with a net FDI inflow into the country, of approximately US$600 million.

Research indicate that a structural characteristic of EU investment in Indonesia is its focus on the domestic market as final destination for products and services. This distinguishes European investors from their Asian counterparts, who have concentrated more on developing export-oriented industries, such as garments and consumer electronics.

For their part, American investors can be found mostly in the oil and gas sectors.

Evolution

The evolution of European investment in Indonesia will largely depend on the implementation of recent policy measures approved by the Indonesian authorities. The tendency towards increased openness to foreign investment is expected to continue. There is also the hope that under the new government, the regulatory environment for FDI will improve.

Two main areas of concern remain. The first one is the growing importance of China as destination for European investment. This is a growing trend that will likely be reinforced by the recent accession of this country to the World Trade Organization. In the short term this could lead to a displacement of European and Western investments towards China at the expense of other Asian countries. However, in the medium term, the increasing integration of the Asian economies could also be a factor for additional investment in countries like Indonesia.

The second issue of concern is linked to the current international situation following the Sept. 11 attacks. These events came at a time where the major world economies were only starting to recover, and have reinforced the uncertainties faced by foreign investors.

A gradual stabilization of the international political climate and the recovery of the global economic growth will certainly help the redirection of investment flows towards the emerging economies in South East Asia.