Slowdown in FDI spells bleak outlook for Indonesia
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Foreign investment hits 3-year low in Q2 as firms await outcome of 2014 vote
Indonesia may face another downturn in its economy as the slowdown in foreign investment is likely to continue for at least the next two years, as foreign companies wait for the results of the 2014 general election.
Indonesia posted only 18.9 per cent FDI growth in the second quarter, its lowest in three years. Economists have predicted the slowdown will continue, crippling an economy that is already hurt by surging inflation, weak exports and erratic government spending.
“Growth from investments is needed because our exports outlook is bleak,” Fauzi Ichsan, a senior economist with Standard Chartered, said yesterday. “Our consumption is also affected by the fuel price hike, which is sparking inflation and weakening people’s purchasing power.”
Investment is the second-biggest contributor to Indonesia’s economic growth, accounting for roughly 25 per cent of its gross domestic product (GDP). Household consumption has a 55 per cent share in GDP, with the rest comprising exports and government spending.
Despite the slowdown in FDI growth, Indonesia still managed to realise 99.8 trillion rupiah (Bt301.19 billion) in investments in the second quarter, 30 per cent higher compared to a year earlier, thanks to a strong growth in domestic direct investments that topped 59 per cent.
However, the slowdown in FDI remains a concern because it was the main driver of jobs in the country. Of the 626,376 additional jobs created by investment in the second quarter, 62 per cent came from FDI, according to statistics from the Investment Coordinating Board (BKPM).
Indonesian Employers Association (Apindo) chairman Sofjan Wanandi said that the presence of foreign investors benefited local industries, as both complemented each other in terms of job creation.
“They are controlling sectors that we cannot enter due to the high technology requirements, such as electronics or automotive. Meanwhile, we can [complement foreign investors] by developing businesses that are related to supply chains or distribution,” he said.
