Indonesia's Ranking Drops in the 2026 FDI Confidence Index - Babel Insight
Indonesia’s position in the global investment map faces a new test following its ranking drop amid the tight competition in Southeast Asia, although investor optimism towards domestic prospects remains high.
The Kearney FDI Confidence Index 2026 report shows Indonesia at 13th place in the emerging market category, down one position from the previous year. This decline occurs as competing countries like Thailand and Malaysia record ranking increases in line with their aggressiveness in attracting high-value-added investments.
This situation highlights the increasingly strong competitive pressure in the region, especially as Asian countries compete to attract the relocation of global supply chains and investments in strategic sectors such as semiconductors, electric vehicles, and green energy.
Amid this pressure, investor sentiment towards Indonesia remains relatively solid. As many as 87% of investors state they remain optimistic or even more optimistic about Indonesia as an investment destination.
This optimism is primarily supported by the size of the domestic market and the availability of labour. Indonesia, with a population of nearly 288 million people, is seen as offering demographic advantages that are hard to match in the region.
In addition, the wealth of natural resources, particularly nickel, serves as the main attraction. In 2025, the basic metals sector recorded the highest direct investment realisation or foreign direct investment (FDI) of US$14.6 billion, followed by the mining sector at US$4.7 billion.
Domestic investment performance also reflects this trend. Investment realisation in the first quarter of 2026 reached Rp498.79 trillion, equivalent to 100.36% of the government target, with a year-on-year growth of 7.22%. The composition between FDI and domestic investment is relatively balanced.
Kearney Indonesia’s President Director Shirley Santoso states that Indonesia needs to strengthen regulatory certainty, encourage technological innovation, and accelerate infrastructure development so that the potential it has can truly be translated into consistent investment flows.
The regional competition pressure and demands for structural reforms will determine whether investor optimism momentum can be converted into sustainable FDI flows in the coming years.
“To maintain and increase its attractiveness, Indonesia needs to emulate neighbouring countries by strengthening regulatory certainty, accelerating energy transition efforts, and deepening regional cooperation, while continuing structural reforms to transform the country’s potential into consistent investor confidence; including improving transparent governance, technology and innovation, as well as infrastructure development,” she explained in a statement on Friday (1/5/2026).
Nevertheless, the report emphasises that Indonesia’s attractiveness is not yet fully supported by strong structural factors. Governance and transparency aspects remain the lowest considerations for investors compared to other factors such as labour and natural resources.
On the other hand, rising geopolitical risks and global industrial policy competition are also reshaping investment directions. As many as 84% of investors assess industrial policy as an important factor in determining investment locations, while nearly 90% see risks due to overlapping policies between countries.
In this context, Indonesia is seen as being at a crucial point. Efforts in industrial downstreaming, regulatory reforms, and investment incentives are already underway but need to be accelerated to maintain competitiveness amid the aggressiveness of neighbouring countries.