Investment Key to Industrial Competitiveness
JAKARTA — Foreign direct investment (FDI) does more than bring capital; it determines Indonesia’s position in global supply chains. Therefore, industry players and economists urge the government to accelerate regulatory reforms and strengthen national manufacturing competitiveness to avoid losing out in global investment competition.
Warih Andang Tjahjono, Advisory Board of the Industrial Engineering Community at Bandung Institute of Technology (ITB), said Indonesia’s manufacturing contribution to GDP is currently around 18-19 per cent, lagging behind developed industrial nations like Japan, South Korea, China, and Germany, where it ranges from 27 to 40 per cent. ‘Strong nations are underpinned by robust manufacturing. We still have a significant gap, which is a major challenge ahead,’ he said during a discussion on industrial investment held in Jakarta on Monday (25 May 2026).
He argued Indonesia must expedite industrial and investment policy implementation to achieve President Prabowo Subianto’s 8 per cent economic growth target. Strengthening the manufacturing sector and boosting FDI are deemed key.
According to Warih, Indonesia’s economic growth structure remains heavily reliant on domestic consumption. To become a developed nation, the country needs stronger investment and export-driven manufacturing.
Warih also stressed that FDI is not just about foreign capital inflows but is crucial for Indonesia’s integration into global supply chains. ‘FDI isn’t just about money coming into the country. The most important thing is Indonesia becoming part of the global supply chain,’ he said.
He noted that foreign investment enables domestic industries to connect directly with international markets, as products become part of global production networks.
Investment competition is intensifying, not only among ASEAN nations but also with other developing countries in the Global South such as Brazil, India, the Middle East, and Africa.
He noted Indonesia’s investment appeal in the Global South lags behind Brazil and some other nations. Therefore, Indonesia must enhance investment promotion efforts and strengthen its image as a safe and competitive destination.
The government needs to accelerate regulatory reforms and streamline licensing to improve the business climate and investment appeal. ‘All countries are competing to be investors’ top choice. We must show Indonesia is a good place for investment,’ he said.
Meanwhile, Anne Patricia Sutanto, General Chair of the Indonesian Garment and Textile Association (AGTI) and Trade Head of the Indonesian Employers’ Association (Apindo), said Indonesia’s textile and garment exports in 2025 showed improvement, albeit limited. ‘Textile and garment exports last year nearly reached $12 billion. In January 2026, sector trade increased, with exports growing 16.71 per cent year-on-year,’ she said.
However, global uncertainties, particularly in trade and energy, continue to shadow the domestic textile industry. Anne noted the upstream textile sector heavily relies on energy supply, while the downstream sector is labour-intensive and sensitive to production costs.
Anne stated that national industrial competitiveness still lags behind other ASEAN manufacturing nations. Therefore, domestic industries need smart policies aligned with industry dynamics and global trade conditions.
Businesses also highlighted high administrative and import documentation burdens. Anne called for improved inter-ministerial coordination to ensure trade, industry, and fiscal policies do not conflict.
Indonesia should leverage free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP), ASEAN Free Trade Area (AFTA), and BRICS economic cooperation to expand export markets.
However, she noted trade agreement benefits would not be optimal if domestic business costs remain high. ‘We must be competitive in logistics, distribution, energy, and export financing. If quality is the same but prices are higher, consumers will choose cheaper products,’ she said.
She also stressed the importance of regulatory reform and licensing simplification through the Online Single Submission (OSS) system. Anne said businesses need data-driven, industry-relevant regulatory certainty.
‘Ministries must share data to ensure regulations are not experimental but based on actual industry needs,’ she said.
Anne added that inter-ministerial data integration is crucial to ensure import restrictions apply only to products already producible domestically. ‘If Indonesia does not produce those goods but restricts imports, the policy becomes a burden on the public,’ she said.
Teuku Riefky, a researcher at the Economic and Social Research Institute (LPEM) of the Faculty of Economics and Business at the University of Indonesia (UI), said Indonesia’s economic structure faces serious issues due to labour shifts without productivity gains. This has rendered investment no longer the primary driver of national economic growth.
Riefky explained that the largest contribution to Indonesia’s GDP currently comes from the manufacturing and services sectors.