Foreign Direct Investment (FDI) into Indonesia Rises in Q1-2016

BKPM Chairman Franky Sibarani is content to see the Q1-2016 FDI data and attributed the investment growth to the government's economic policy packages. The Indonesian government has been implementing reforms through a set of economic policy packages that include tax incentives and deregulation (between September 2015 and March 2016 the government has unveiled 11 packages; see the table at the bottom of this webpage). Sibarani added that direct investment in Indonesia in the first quarter has created nearly 330,000 new jobs.

Sibarani also informed reporters that the proportion of direct investment outside the island of Java rose from 43.9 percent in Q1-2015 to 44.9 percent in Q1-2016 in line with government efforts to create a more equally divided investment distribution across Indonesia. This will help to turn Indonesia into a more equal society.

Read more: Indonesia's Gini Ratio Fell in 2015; Concerns about Social Cohesion Persist

However, on a quarter-to-quarter basis, it was the first time since Q4-2011 that FDI realization in Indonesia eased.  FDI realization of IDR 96.1 trillion in Q1-2016 was below the IDR 99.2 trillion FDI realization in the preceding quarter.

Foreign and Domestic Investment in Indonesia (in IDR trillion):

	2014				2015				2016
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1
Domestic Direct Investment	34.6	38.2	41.6	41.7	42.5	42.9	47.8	46.2	50.4
Foreign Direct Investment	72.0	78.0	78.3	78.7	82.1	92.2	92.5	99.2	96.1
Total Investment	106.6	116.2	119.9	120.4	124.6	135.1	140.3	145.4	146.5

 

	2011				2012				2013
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Domestic Direct Investment	14.1	18.9	19.0	24.0	19.7	20.8	25.2	27.5	27.5	33.1	33.5	34.1
Foreign Direct Investment	39.5	43.1	46.5	46.2	51.5	56.1	56.6	65.5	65.5	66.7	67.0	71.2
Total Investment	53.6	62.0	65.5	70.2	71.2	76.9	81.8	83.3	93.0	99.8	100.5	105.3

^{Source: Indonesia Investment Coordinating Board (BKPM)}

The largest foreign investor in Indonesia remains Singapore (investing USD $2.9 billion in Q1-2016), followed by Japan (USD $1.6 billion), Hong Kong (USD $500 million), China (USD $500 million), and the Netherlands (USD $300 million). China recorded a spectacular 400 percent (y/y) growth pace in terms of FDI in Indonesia in the first quarter on the back of several smelter projects (for example the Well Harvest Mining and Morowali projects) and infrastructure projects (such as the Jakarta-Bandung fast train project). Moreover, it is well-known that many Chinese companies invest in Indonesia through their Singapore-based subsidiaries and therefore FDI from China is actually larger than the figures would suggest.

Regarding domestic direct investment, BKPM reported a 18.6 percent (y/y) growth to IDR 50.4 trillion (USD $3.6 billion using the rupiah rate set in the 2016 State Budget). As such, total investment into Indonesia (foreign direct investment plus domestic direct investment) rose 24.6 percent (y/y) to IDR 146.5 trillion in Q1-2016, roughly 25 percent of BKPM's full-year target. In full-year 2016 BKPM targets to see IDR 595 trillion in total direct investment in Indonesia, up approx. 9 percent from investment realization of IDR 545.4 trillion in 2015.

The FDI data released by BKPM today (25/04) are excluding the oil & gas and banking sectors.

Economic Stimulus Packages of the Indonesian Government:

Package	Unveiled	Main Points
1st	9 September 2015	• Boost industrial competitiveness through deregulation • Curtail red tape • Enhance law enforcement & business certainty
2nd	30 September 2015	• Interest rate tax cuts for exporters • Speed up investment licensing for investment in industrial estates • Relaxation import taxes on capital goods in industrial estates & aviation
3rd	7 October 2015	• Cut energy tariffs for labor-intensive industries
4th	15 October 2015	• Fixed formula to determine increases in labor wages • Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
5th	22 October 2015	• Tax incentive for asset revaluation • Scrap double taxation on real estate investment trusts • Deregulation in Islamic banking
6th	5 November 2015	• Tax incentives for investment in special economic zones
7th	4 December 2015	• Waive income tax for workers in the nation's labor-intensive industries • Free leasehold certificates for street vendors operating in 34 state-owned designated areas
8th	21 December 2015	• Scrap income tax for 21 categories of airplane spare parts • Incentives for the development of oil refineries by the private sector • One-map policy to harmonize the utilization of land
9th	27 January 2016	• Single billing system for port services conducted by SOEs • Integrate National Single Window system with 'inaportnet' system • Mandatory use of Indonesian rupiah for payments related to transportation activities • Remove price difference between private commercial and state postal services
10th	11 February 2016	• Removing foreign ownership cap on 35 businesses • Protecting small & medium enterprises as well as cooperatives
11th	29 March 2016	• Lower tax rate on property acquired by local real estate investment trusts • Harmonization of customs checks at ports (to curtail dwell time) • Government subsidizes loans for export-oriented small & medium enterprises • Roadmap for the pharmaceutical industry

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