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April 14, 2008 Source: www.AsiaEcon.org Investment potential in Indonesia is higher than ever, and is evident in many different areas.

April 14, 2008

Source: www.AsiaEcon.org

Investment potential in Indonesia is higher than ever, and is evident in many different areas. Indonesia’s abundant natural resources, labor potency, and high domestic demand are all factors making Indonesia attractive to investors, in addition to providing a large and attractive market for goods and services of foreign multinationals. Investment has been and continues to grow, maintaining an upward trend. Total foreign direct investment in Indonesia between January and September reached RP 125.94 trillion, which is a 170 percent increase from 2006. This is expected to continue with Indonesia’s potential.

Indonesia is working diligently on giving equal treatment to foreign and domestic investors, giving them equal rights to export financing, which appeals to more investors and therefore attracts more investors. Export financing is very important for local industries who do not want to borrow from banks for fear of high borrowing interest rates. With the new bill currently under deliberation, foreign investors also receive this benefit too, making it much more appealing to them to invest in Indonesia.

The number of investors from Hong Kong that are relocating their businesses to Indonesia is a prime example of the attractiveness of investing in Indonesia. The investors heard of a rich investment climate and came running. This is beneficial for the Indonesian economy— attracting 10 percent of the businesses in Hong Kong to Indonesia would create around one million job opportunities. This will be especially easier for Indonesia with the numbers of Hong Kong businesspeople assertively trying to expand overseas. In addition to the potential of high investment in Indonesia, the new labor regulations in China, plus other unfavorable factors, are driving investors out of China and Hong Kong. Hong Kong is ranked fourth in investment in Indonesia in 2005, with USD 125.4 million, up from USD 20 million in 2004.

South Korea has joined other countries in investing in Indonesia. South Korea expanded its investments in Indonesia from labor intensive investment to high technology industries. South Korea’s investment in Indonesia has risen to USD 895 million in 2007 from USD 320 million in 2002. South Korea has 1,200 companies operating in different sectors of Indonesia, giving Indonesia over 500,000 new workers.

However, South Korea, among others, is worried about the strength of the high investment opportunities in Indonesia. Indonesia is seen as “high-risk” to industry investors because it is a developing country with political instability. As a developing country, its investors also have to worry about nationalization, confiscation, discriminatory government action, and breach of contract. Also, decentralization creates a potential distress—more company revenue is demanded when the authority of central and local governments conflict.

Despite these concerns, investment in Indonesia still has high potential, attracting many foreign investors. In 2007, investment counted for 24.8 percent of Indonesia’s GDP, which accelerated Indonesia’s economic growth to 6.3 percent, a ten-year high, in the second half of the year. Investment is expected to remain robust throughout the rest of 2008, hopefully attracting even more investors from all over the globe.

Source: www.AsiaEcon.org

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Source: www.asiaecon.org |

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