Investment to grow by 15 percent: World Bank
Investment to grow by 15 percent: World Bank
Leony Aurora, The Jakarta Post/Jakarta
The World Bank expects investment in Indonesia to grow by 15
percent this year, but warns that further measures to improve the
investment climate must be taken to maintain the momentum.
The bank's economist William Wallace said that at the moment
there was an excess demand from customers, forcing producers to
look for new investment to boost their production capacity to
meet and cash in on the rising demand.
"Once the demand is met, it (investment) will settle back down
if the investment climate doesn't improve," he said on the
sidelines of a seminar held by the Hong Kong and Shanghai Banking
Corporation (HSBC) on Friday.
To maintain investment and lure bigger investors -- in mining,
oil and gas, infrastructure and the like -- in 2006 and beyond,
the government needs to improve the system this year.
Indonesia is in dire need of infrastructure to support the
flow of investment into the country. The government has estimated
that it would need a whopping US$150 billion in new investment
for infrastructure projects over the next five-year period, of
which 55 percent is expected to come from foreign investors or
loans from donor countries.
The HSBC views that investment in Indonesia has now reached to
a point where it would likely be more sustainable.
From the demand side, capacity utilization is rising and
factories have started to produce goods again. Profit
expectations from companies are also rising following the
increasing demand from the people.
HSBC head of sales and global marketing Radianto Kusumo warns,
however, that the country should not rely too much on investment
as the main drive behind Gross Domestic Product (GDP) growth.
"In 2004, investment contributed approximately 2.2 percentage
points to the total GDP growth of 5.9 percent," he said. The rest
was contributed by consumption from the government and consumers,
both domestic and foreign.
"This is an ideal balance," he added. If investment
contributed more than 50 percent of the GDP growth, people would
wonder whether the demand would catch up with the excessive
investment.
In Indonesia's pre-crisis economy -- which saw massive
investment from foreign and domestic players -- investment
contributed between 4 and 5 percentage points of the between 7
percent and 8 percent growth, or more than 50 percent.
The World Bank forecast, in its latest report, that
Indonesia's economy would grow by 6 percent on average between
2006 and 2009.
Other macroeconomic indicators are also encouraging, as seen
in the declining trend in the state budget deficit from 1.8
percent in 2003 to 1.2 percent in 2004, and an estimated 1
percent this year.
Wallace said that Asian countries, including Malaysia, Taiwan,
and China, had shown apparent interest in Indonesia. "They're
more comfortable with the operating environment here," he said.
"If they continue to make profit, the Europeans, Americans,
and the Japanese will follow with bigger projects," he added.