Foreign Investment: Bilateral Cooperation Indonesia & South Korea
Investors from South Korea plan to invest up to USD $18 billion in Indonesia. Indonesian President Joko Widodo, Chairman of the Chamber of Commerce & Industry (Kadin) Rosan Perkasa Roeslani, Trade Minister Thomas Lembong and Foreign Minister Retno Marsudi witnessed the signing of business agreements and memorandums of understanding (MoU) in Seoul on Monday (16/05), covering bilateral cooperation in infrastructure development such as power plants, gas pipelines and railways as well as trade, creative economy, environment, and maritime affairs.
Chairman of Indonesia's Chamber of Commerce & Industry (Kadin Indonesia) Rosan Perkasa Roeslani said the signing of these agreements is evidence that South Korean investors have a high degree of confidence in the potential of the Indonesian economy and the stability of Indonesian politics, particularly as the Indonesian government has shown its commitment to push for infrastructure development across the Indonesian archipelago (which includes the establishment of power plants, harbors, toll roads and irrigation). With better infrastructure, Indonesia's investment climate gets a boost as logistics costs should ease and investors need to spend less on additional infrastructure to support their core investment. Moreover, through deregulation and tax incentives (set in the 12 economic policy packages) the Indonesian government is eager to make it more attractive for foreigners to invest in Southeast Asia's largest economy.
Roeslani said investment commitments from South Korea include the Korea Gas Corporation (Kogas) that is to establish gas-related infrastructure worth up to USD $10 billion (including a USD $600 million gas pipeline in the waters off the coast of South Sumatra in cooperation with PDPDE South Sumatra) and Lotte Chemical - subsidiary of the Lotte Group - that is to develop a olefin-based petrochemicals industry in Indonesia worth a total of USD $4 billion. Furthermore, there is the CJ Group that is committed to invest up to USD $2.1 billion in the animal feed industry and the cinema industry. Daewoong Pharmaceutical is set to invest up to USD $100 million for the production of raw materials in the bio-pharmacy, while Parkland will invest USD $83.5 million in Indonesia's footwear industry.
Other investment commitments from South Korea include the cooperation of Korbi and Indonesian coffee trader Coffindo for the development of solar power plants worth USD $100 million, while Komipo, Posco Engineering and Sulindo Putra Timur signed a MoU for the establishment of a USD $230 million hydro power project in Southeast Sulawesi. There is also the commitment among Komipo, Samtan, Indika Multi Energi Internasional and Marubeni to expand three existing power plants in Cirebon (West Java), a project worth USD $1.27 billion.
Lastly, there is the plan of steelmaker Posco to invest in its existing facilities in Indonesia (in cooperation with Indonesia's largest steelmaker Krakatau Steel) in order to boost the annual steel production capacity to 10 million tons. This is in line with the Indonesian government's efforts to reduce the nation's dependence on imports of steel.
Foreign Direct Investment (FDI) South Korea into Indonesia:
| 2011 |
2012 | 2013 | 2014 | 2015 | 2015 (Q1) |
2016 (Q1) |
|
| FDI South Korea (in million USD) |
1,218.7 | 1,949.7 | 2,205.5 | 1,126.6 | 1,213.5 | 634.0 | 188.9 |
Source: BKPM
Although it is encouraging to see such a high amount of investment commitments from South Korea, it will be important for Indonesia to form a team that can continue to communicate with these South Korean investors. It has happened frequently in the past that investment commitments (for example with Chinese and German investors) are not followed up by actual investment realization. Economist Lana Soelistianingsih says there are five issues that make foreign investors hesitant to invest in Indonesia: (1) corruption, (2) red tape/bureaucracy, (3) weak infrastructure, (4) weak coordination and cooperation between the central and regional government, and (5) the difficult access to financing.
Foreign Direct Investment Realization into Indonesia in Q1-2016:
| Country | Investment (in million USD) |
| Singapore |
2,863.1 |
| Japan | 160.0 |
| Hongkong | 506.8 |
| China | 464.6 |
| Netherlands | 266.9 |
| South Korea | 188.9 |
| Thailand | 173.0 |
| British Virgin Islands | 171.8 |
| Malaysia | 101.7 |
| Cayman Islands | 92.3 |
Source: BKPM