Indonesia’s FDI record shows country still attractive
JAKARTA, July 25 — Foreign direct investment in Indonesia remained strong in the second quarter, showing the G20 member remains a magnet in a troubled global economy and that changes in business-ownership rules are not cutting investor appetites so far.
Between April and June, FDI rose 30.2 per cent year-on-year to a quarterly record of 56.1 trillion rupiah (RM18.8 billion), mostly supported by investment in mining and base chemicals, the country's investment board said on Wednesday.
Indonesia, bolstered by upgrades to investment grade status by two rating agencies, has drawn strong portfolio and foreign direct investment in recent years. Firms have been looking to tap abundant natural resources and booming middle-class spending in Southeast Asia's largest economy, which has been growing more than 6 per cent a year.
"We're confident there will be a larger increase and distribution of investment in the future," said new investment chief M. Chatib Basri.
In the first quarter of 2012, FDI rose 30.3 per cent from a year earlier to 51.5 trillion rupiah, led by mining. In the first half, FDI was up 28.1 per cent year-on-year to 107.6 trillion rupiah.
If the second half is as good as the first, Indonesia this year will comfortably top the record 175.3 trillion rupiah in FDI it reported for 2010.
Oil and banking not in data
Indonesia's data on FDI does not cover all sectors, as it excludes money invested in oil and gas activities as well as in banking.
So even if DBS Bank of Singapore succeeds in its proposed bid to buy majority control of Indonesia's PT Bank Danamon, that investment will not figure into the FDI data.
The investment board's new FDI number comes out a week after the central bank announced revised ownership rules for banking, in which new investors will only be allowed to take a maximum 40 per cent stake, down from 99 per cent previously, unless they get approval from Bank Indonesia.
Earlier this year, the government announced it would require foreign miners to sell 51 per cent of their mines within 10 years of production, a move rattling an industry that has driven recent investment flows in the world's largest exporter of tin and thermal coal. The sector accounts for 12 per cent of the GDP.
The second-quarter FDI data indicates there's been no tempering in international interest in investing in Indonesia.
Where else is more attractive?
"FDI rose because while many countries are deteriorating, where else to find an attractive and resilient country? There aren't many countries which are more insulated from crisis than Indonesia," said Wisnu Wardana, economist at CIMB Niaga in Jakarta.
Still, Wardana warned that the country must make the right moves to keep attracting investors.
"Indonesia needs efforts to improve infrastructure and fight corruption. If there's a decline in those efforts, then FDI could slow," he said.
Strong investment is expected to help Indonesia again grow more than 6 per cent this year in spite of flagging exports.
The central bank in early July revised down the upper limit of its economic growth forecast for this year to 6.2 per cent, from 6.5 per cent previously. Last year the economy expanded 6.5 per cent, the highest since 1996.
Ratings boost
The country got a fillip at the end of last year when Fitch Ratings upgraded it to an investment grade sovereign status on a par with India, but Europe's debt woes and a series of Indonesian government moves to limit foreign ownership have unnerved investors.
New investment is key to achieving the country's ambitious target of becoming a top 10 global economy by 2025 by selling more finished products rather than simply exporting raw materials, while improving its creaky infrastructure to achieve President Susilo Bambang Yudhoyono's target of 7 per cent annual economic growth. — Reuters
