INDONESIA DRAWS US$19B FDI IN 2011

By : DEBRA CHONG (TMI)

INDONESIA’S foreign direct investment (FDI) hit a record US$19.3 billion (RM59.8 billion) last year, the highest in the region, and is expected to rise another 25 per cent this year despite the gloomy global economy.

In contrast, Malaysia only pulled in about US$10 billion (RM31 billion) last year, same as Vietnam, considered among the other top growing economies in Southeast Asia.

Indonesia, with a population of 237.6 million, attracted about as much investment as India and just under one-fifth that went into China, making it Southeast Asia’s biggest economy, Singapore’s Straits Times (ST) reported today.

As at October last year, total approved foreign investments in Malaysia stood at RM26.4 billion.

Approved foreign investments in Malaysia are primarily in the electrical and electronics industry, accounting for RM7.2 billion; metal-based products (RM2.4 billion); food processing (RM1.8 billion); chemical and chemical products (RM1 billion); transportation apparatus (RM902.4 million); petroleum products, including petrochemicals (RM520.8 million); and fabricated metal products (RM520.7 million).

Indonesia’s biggest investor last year was Singapore with US$5.1 billion, trailed by Japan and the US with US$1.5 billion each.

Slightly more than half of those inflows went to its capital Jakarta and the nearby West Java and Banten provinces. The rest was spread across the archipelago.

A fifth of the Indonesia’s FDI went into transport, storage and communications. Another fifth went into the mining sector.

“The key to raising investments in the future will be regulatory reform,” Indonesia’s trade minister Gita Wirjawan was reported by ST as saying today, about his country’s boom.

The Singapore daily reported him adding that Indonesia’s growth was due to “a series of improvements in the investment climate” at the central and local government levels, including better marketing efforts.

Gita, who also heads Indonesia’s investment coordinating board (BKPM), was reported saying its labour laws, which have been slammed by employers as being too rigid, could be amended.

ST reported observers saying Indonesia’s economy is largely domestic driven and that the country must dismantle more hurdles to doing business, such as poor physical and legal infrastructure and red tape.

The daily said FDI inflows into Indonesia came on the back of multinationals seeking cheaper labour with China rising up the value chain.

Investors were also drawn to Indonesia’s relatively untapped natural resources.

Indonesia’s National Economic Committee chief, Chairul Tanjung, was reported saying recent credit upgrades could pull in even more investments, notably in the infrastructure sector.

ST reported that motorcycle and car makers from Honda and Toyota to General Motors have announced plans to bump up their operations there.

It reported Standard Chartered economist Fauzi Ichsan saying consumer sectors like retail banking and pharmaceuticals were expected to rise as Indonesia’s middle class grows.

University of Indonesia economist Muhammad Chatib Basri has also written about his country’s economic boom, noting half the population are under 30 years old.

He wrote in this month’s issue of policy magazine, Strategic Review: “We need growth above eight per cent through 2030... If we fail, we will leave our grandchildren only serious poverty and unemployment in 2050.”