With economic activities flatlining, Indonesia will see a slowdown in direct investment this year and may not expect significant changes in investment trends, according to economists and business players.
The situation is partly attributable to the absence of government policies that can help attract investors, according to Hendri Saparini, the executive director of the Center of Reform on Economics (CORE) Indonesia.
The negative investment list (DNI), which was recently revised, will relax foreign ownership in a few business sectors, including infrastructure and transportation. This policy, however, will not do the trick as it will take more time to be effective.
“Without incentives, investment will mostly enter sectors that have already attracted investors,” Hendri said, citing sectors with heavy reliance on the domestic market, such as food and beverages, automotive, retail, telecommunications and transportation.
According to Hendri, investment in the mining sector would likely decline due to the raw-mineral export ban, which will become effective in mid-January. Meanwhile, most investors in manufacturing, particularly labor-intensive industries, would remain in “wait and see” mode until after the election, Hendri added.
Indonesia expects investment spending to increase to Rp 450 trillion (US$36.95 billion) this year, up 15 percent from an estimated Rp 390 trillion in the past year.
Investment has decelerated since the second quarter last year, causing the country’s growth to plunge below 6 percent for the first time in more than two years. Investment is the second growth booster, accounting for around 33 percent of gross domestic product (GDP), after domestic consumption.
Trade data issued by the Central Statistics Agency (BPS) shows signs of a further slowdown with imports of capital goods, which largely support investment, plummeting by 17.16 percent to $29.1 billion between January and November last year.
The government has vowed to ease doing business in the country and address key bottlenecks hampering investment, such as complicated business permits and land acquisition, in a bid to better facilitate investment.
With the nation holding elections in April and July, there are questions over the economic policies of the next administration, creating uncertainty.
“We are now experiencing the ‘wait and see’ attitude from private investors, both domestic and foreign, because they don’t want to take big risks. This is partly because they realize there’s not much that can be done by the current government,” said Sofjan Wanandi, chairman of the business lobby group, the Indonesian Employers Association