Relying on Investment for Growth

Anton Hendranata*

For the last four years Indonesia's foreign direct investment (FDI) has almost doubled in size, a significant jump by any measure. In 2010, FDI was US$16 billion, but by 2013 it had ballooned to US$29 billion. Even among the top FDI receiving countries in the world, where the United States, China and Russia were the top three ranked, Indonesia ended up in the respectable 18th spot. Among its regional counterparts, Indonesia was behind Singapore (ranked sixth) and India (ranked 14th). This, no doubt, is a good start. However, interestingly enough, the role of FDI in the economy is still relatively small. The ratio of FDI to GDP in Indonesia reached only 3.3 percent in 2013, roughly half of Malaysia (5.8 percent) and Vietnam (6.7 percent).

Another interesting point is that the rise in FDI inflows to Indonesia is not due to our conducive investment climate but in spite of it. There remain many old and well-known structural problems that need the current Jokowi-JK cabinet's urgent attention: cumbersome permits, red tape, costly land acquisition and bothersome illegal fees as well as dilapidated and barebones infrastructure.

November 18, 2014