Foreign Investment Expected to Decline
Indonesia is likely to have a tough time sustaining foreign investment growth this year due to tight liquidity and fierce international competition amid the economic slump, a report from the country’s investment promotion agency says.
Last year, the country recorded total direct investment - both domestic and foreign - of Rp 154 trillion ($17.13 billion), 20 percent higher than in 2007, the Investment Coordinating Board, or BKPM, said in the report, which was released last week.
Accounting for over 80 percent of total investment last year, foreign direct investment, or FDI, increased by 43.8 percent from a year earlier to $14.87 billion, supported by strong investment in the transportation, warehousing and communications sectors, which jointly accounted for $8.53 billion.
By contrast, domestic investment fell 41.6 percent to Rp 20.36 trillion from a year earlier.
The agency’s figures exclude investment in the oil and gas, banking and insurance sectors.
“It’s going to be very hard to match last year’s achievements,” said David Sumual, an economist at PT Bank Central Asia Tbk. “There’s a very real possibility that investment could actually contract as both potential domestic and foreign investors are faced with tight liquidity in the financial markets.” These liquidity conditions make it more difficult for investors to raise funds.
His comments were echoed by John A. Prasetio, chairman of the APEC Business Advisory Council Indonesia, which advises the government and the business community on developments in the region.
“Foreign companies here may find that their head offices are putting off investments here due to the problems they face at home as a result of the global crisis,” Prasetio said.
Another challenge, he said, is increasingly stiff competition from other Asean member countries.
“Foreign-owned companies in Malaysia, Thailand and Vietnam are now aggressively trying to persuade their principals, which also operate in Indonesia, to relocate their plants from Indonesia to the subsidiaries’ countries,” Prasetio said.
However, he acknowledged that Indonesia’s natural resources remained a major attraction for foreign investors.
Muhammad Lutfi, the chairman of the BKPM, said on Tuesday that Indonesia would probably miss its domestic and foreign investment targets or this year.
The initial target was $20 billion, but Lutfi said that the most the country could hope to attract in the current circumstances would be in the region of $17 billion.
Last year, the country recorded total direct investment - both domestic and foreign - of Rp 154 trillion ($17.13 billion), 20 percent higher than in 2007, the Investment Coordinating Board, or BKPM, said in the report, which was released last week.
Accounting for over 80 percent of total investment last year, foreign direct investment, or FDI, increased by 43.8 percent from a year earlier to $14.87 billion, supported by strong investment in the transportation, warehousing and communications sectors, which jointly accounted for $8.53 billion.
By contrast, domestic investment fell 41.6 percent to Rp 20.36 trillion from a year earlier.
The agency’s figures exclude investment in the oil and gas, banking and insurance sectors.
“It’s going to be very hard to match last year’s achievements,” said David Sumual, an economist at PT Bank Central Asia Tbk. “There’s a very real possibility that investment could actually contract as both potential domestic and foreign investors are faced with tight liquidity in the financial markets.” These liquidity conditions make it more difficult for investors to raise funds.
His comments were echoed by John A. Prasetio, chairman of the APEC Business Advisory Council Indonesia, which advises the government and the business community on developments in the region.
“Foreign companies here may find that their head offices are putting off investments here due to the problems they face at home as a result of the global crisis,” Prasetio said.
Another challenge, he said, is increasingly stiff competition from other Asean member countries.
“Foreign-owned companies in Malaysia, Thailand and Vietnam are now aggressively trying to persuade their principals, which also operate in Indonesia, to relocate their plants from Indonesia to the subsidiaries’ countries,” Prasetio said.
However, he acknowledged that Indonesia’s natural resources remained a major attraction for foreign investors.
Muhammad Lutfi, the chairman of the BKPM, said on Tuesday that Indonesia would probably miss its domestic and foreign investment targets or this year.
The initial target was $20 billion, but Lutfi said that the most the country could hope to attract in the current circumstances would be in the region of $17 billion.