Is Indonesia Still a Magnet for Foreign Investment?

Foreign direct investment (FDI) in Indonesia remains highly attractive, yet its performance faces numerous challenges and obstacles. FDI continues to be a key pillar of the national economy, but various obstacles and challenges ahead may hinder its performance. For Indonesia, FDI not only serves as a funding source but also acts as a catalyst for job creation, technology transfer, industrial competitiveness, and expanded access to global markets. Beyond direct economic benefits, FDI strengthens Indonesia’s integration into global value chains (GVCs) and promotes the adoption of modern management practices domestically. It also enables domestic industries to connect directly with international markets as their products become part of global production networks. Countries without strong foreign investment appeal risk falling behind in global supply chains and being isolated from global innovation trends. In this context, global investor confidence serves as a key indicator of economic health and political stability. So how is Indonesia’s investment performance now, and how strong is investor confidence in the country? Is Indonesia still a magnet for foreign investment on the global stage? Investment is a key pillar of national economic growth. The government has set a target of Rp 13.032 trillion in investments over five years (2025-2029) to drive 8% economic growth by 2029. These investment targets reflect a consistent medium-term upward trend, with 2026’s target of Rp 2.175.26 trillion marking a 14.2% increase from 2025’s Rp 1.905.6 trillion. Economically, increased investment has translated into a 10.4% rise in labour absorption compared to 2024, with 2.71 million jobs created. In 2025, domestic investment (PMDN) reached Rp 1.030.3 trillion, a 26.6% year-on-year increase, while foreign direct investment (FDI) stood at Rp 900.9 trillion for the year. Despite the substantial figures, its share of the national economy is no longer as significant as in previous years. The FDI figure rose just 0.1%, far from last year’s surge, continuing a pattern of stagnation seen in recent years. Sectorally, foreign investment in Indonesia has been dominated by basic metal industries, metal products, non-machine goods, and equipment over the past five years. This sector has topped the rankings in six of the last ten years, followed by mining. This pattern reflects a strong orientation towards resource-based and upstream industries. Geographically, last year’s investment realised a relatively balanced distribution between Java and outside Java, with Java contributing 48.7% and the rest of Indonesia over 50% overall. However, foreign direct investment (PMA) remains heavily concentrated in Java, accounting for 72.28% of the national total. This highlights the ongoing challenge of geographical investment distribution, particularly for FDI. Despite improving performance, investor confidence still requires enhancement. According to Kearney’s 2026 FDI Confidence Index, Indonesia faces new challenges in the global investment landscape. While investor optimism about domestic prospects remains relatively high, the country’s ranking has dropped amid intense competition among Southeast Asian nations. Kearney’s Investment Confidence Index is an annual report mapping the most attractive markets for global corporate investors over the next three years. This year’s report captures investor sentiment amid global uncertainties driven by geopolitical volatility, industrial policy expansion, and rising technological competition. Kearney’s report states that in the 2026 developing markets ranking, Indonesia is 13th with a score of 1.537, down one place from the previous year. However, it still outperforms Vietnam (16th, 1.520) and the Philippines (18th, 1.463). Meanwhile, competitors such as Thailand and Malaysia have climbed the rankings through aggressive efforts to attract high-value investments. Thailand rose from 10th to 6th, while Malaysia moved up from 11th to 7th. This underscores intensifying competitive pressures across Asia, with nations vying to attract global supply chain relocations and investments in strategic sectors such as semiconductors, electric vehicles, and green energy. According to the same report, Thailand is known for skilled manufacturing labour in sectors like automotive and food processing, while Malaysia excels in high-value-added industries such as semiconductors and technology. Conversely, investor sentiment towards Indonesia remains relatively robust. 87% of investors remain optimistic or more so about the country as an investment destination, citing labour talent and skills (28%) and natural resources (28%) as key factors. With a population of nearly 288 million, Indonesia is seen as having an unmatched demographic advantage. Its natural resource wealth, particularly nickel, remains a key