Foreign Direct Investment Indonesia: up in Rupiah, down in USD Terms

Meanwhile, domestic direct investment grew 12.3 percent (y/y) to IDR 42.9 trillion in the second quarter of 2015.

Overall, direct investment realization in Indonesia so far in 2015 is solid, particularly considering the current weak global and domestic conditions. Despite slowing economic growth, slowing domestic consumption and weak future GDP growth outlooks (which discourages foreign and domestic investors to establish or expand factories in Indonesia), total investment realization rose to IDR 135.1 trillion in Q2-2015 from IDR 116.2 trillion in the same quarter last year.

Around USD $2.16 billion worth of Q2-2015 FDI in Indonesia was spent on transportation, warehouses and telecommunications projects, while USD $1.05 billion and USD $631 million were invested in the country’s mining and construction sectors, respectively. The BKPM’s FDI data excludes the banking and oil & gas sectors.

The largest source of foreign investment in Q2-2015 originated from Malaysia due to the Malaysia-based Axiata Group’s expansion efforts for its local XL Axiata unit (contributing a total of USD $2.3 billion). Singapore came in second position with USD $1.1 billion worth of investment, followed by Japan with USD $400 million.

It is important for Indonesia that investment realization remains growing as it has been acknowledged as the key pillar of support for President Joko Widodo’s target to raise the level of economic growth to 7 percent (y/y) by the end of his first presidential term (in 2019). The government particularly needs infrastructure investment in order to boost economic growth. The Indonesian Ministry of National Development Planning (Bappenas) recently said the country needs IDR 5.5 quadrillion (approx. USD $450 billion) worth of funds for infrastructure development in the 2015-2019 period.

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

	2014				2015
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Domestic Direct Investment	34.6	38.2	41.6	41.7	42.5	42.9
Foreign Direct Investment	72.0	78.0	78.3	78.7	82.1	92.2
Total Investment	106.6	116.2	119.9	120.4	124.6	135.1

 

	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)}

Rapid FDI growth in rupiah terms is supported by sharp rupiah depreciation against the US dollar (ever since the US dollar obtained bullish momentum in May 2013 ahead of monetary tightening in the USA). Between the end of May 2013 and today (Monday 27 July 2015), Indonesia's rupiah has depreciated 37.2 percent against the US dollar.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

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