Indonesia’s FDI inflows fall short of target

JAKARTA: Foreign direct investment (FDI) into Indonesia in 2019 fell short of the target, but the country’s investment board chief is confident plans for regulatory changes will boost investors’ interest in Southeast Asia’s largest economy.

Indonesia booked a total of $28.2 billion incoming FDI, excluding investment in banking and oil and gas sectors, according to the Investment Coordinating Board (BKPM) data released yesterday. This represented 87.5% of target and a drop from 2018’s $29.3 billion.

Boosting FDI is among President Joko Widodo’s top priority to create jobs, but inflows have been weak due to slowing global growth and as investors adopted a wait-and-see approach during last year’s general elections.

While new BKPM chief Bahlil Lahadalia did not provide a reason for the fall, he struck an optimistic tone for 2020, saying plans for the so-called “omnibus bills” would boost FDI.

The bills, aimed to replace dozens of overlapping laws seen as obstacles to investment, would pave the way for corporate tax cuts and relaxation of labour rules.

The BKPM’s target for 2020 is to get 886 trillion rupiah ($64.96 billion) of investment, around 55% of which would be from foreign companies.

“My intuition says, based on what we’ve done so far to stalled investments and revision to some laws ... we will surpass this target, including for FDI,” Lahadalia said.

Lahadalia said he was tasked by the president to remove hurdles blocking investment commitments. He claimed to have cleared some, including land problems with Lotte Chemical Corp’s $4.2 billion plant and Hyundai Motor Co’s fiscal incentive request for its $1.6 billion investment.

“Investors see certainty in the direction of fiscal policy and infrastructure and other processes,” UOB Indonesia’s economist Enrico Tanuwidjaja said, adding political stability and the “omnibus bills” should boost FDI this year.

FDI into the resource-rich country had been weak at the start of 2019, though it recovered towards the end. It rose 6.4% on-year in the October-December quarter in rupiah terms to 105.3 trillion rupiah, or $7 billion using the BKPM’s conversion.

Chinese investment boosted the number, with mainland China and Hong Kong being the top sources of FDI in the final quarter with a combined total of $2.57 billion. Throughout 2019, China was the second biggest source after Singapore.

The BKPM did not provide names of companies for individual investment, but said the biggest beneficiaries in 2019 were utilities, warehousing, transport, communication and base metals.