Layoffs and Rising Costs Threaten FDI Outflow from Indonesia
The Indonesian Employers Association (Apindo) warns that layoffs in the manufacturing sector are increasingly leading to foreign direct investment (FDI) outflow from Indonesia.
Apindo’s Labour Affairs Chairman Bob Azam stated that recent factory closures and layoffs are no longer solely driven by market weakness but are increasingly part of multinational companies’ regional operational consolidation.
“This is no longer just portfolio outflow but sectoral outflow,” Bob Azam told KONTAN on Monday, 25 May 2026.
Bob cited foreign companies that previously operated in multiple countries now reducing production bases and consolidating operations in a single nation.
“Companies that once operated in five countries are now streamlining to two or even one,” he said.
Apindo considers this a serious threat, as FDI manufacturing firms have significantly contributed to job creation and national exports.
Meanwhile, manufacturing industry pressures are intensifying due to rising production costs. Bob noted that imported raw materials account for over 50% of total manufacturing costs, making the rupiah’s depreciation highly detrimental to business sustainability.
Besides rupiah depreciation, the industry faces rising energy prices, loan interest rates, and global raw material price surges. “Imagine facing four pressures at once,” he said.
Bob added that the situation is exacerbated by delayed tax refunds, import raw material quota restrictions, and rising non-productive operational costs.
“Companies will choose nations that are more competitive, with lower taxes, interest rates, and labour costs,” Bob said.
Apindo forecasts that layoff risks will persist in coming months, particularly in manufacturing sectors reliant on imported raw materials and high energy consumption.
Vulnerable sectors include labour-intensive industries and manufacturers with multi-country operations.
To curb deindustrialisation, Apindo urges the government to swiftly deregulate and review regulations deemed burdensome to businesses.
Bob highlighted that manufacturing’s contribution to Indonesia’s GDP has declined over two decades, from around 30% to 19%.