(Photo: Ministry of Industry)

JAKARTA (TheInsiderStories) –  The Indonesian government efforts to encourage investor interest have not been maximized as reflected in investment performance, which only recorded moderate growth over the last couple of years. Only investment in digital sector that has shown significant growth.

The Investment Coordinating Board of Indonesia (BKPM) reports that total realized direct investment in Indonesia in 2017 reached Rp 692 trillion, representing an increase of 13.1 per cent from the Rp 612 trillion of total direct investment reported the previous year. This growth figure is not far off 2016 performance, at 12.3 per cent, the lowest growth level since 2011.

In fact, in the last several few years, the government has provided a number of incentives aimed at spurring investment. What’s more, a number of attractive infrastructure projects have also been rolled out.

Indonesia received Rp 430.5 trillion (US$32.34 billion) in foreign direct investment (FDI) throughout 2017, excluding investments in the banking and oil & gas sectors. In 2016, Indonesia attracted US$29 billion in FDI, an increase of 8.4 per cent over the previous year. However, this figure is still behind peer countries such as Vietnam and Thailand.

Thomas Lembong, Head of the Indonesia Investment Board, told reporters, Tuesday (30/1) that Indonesia is still losing to neighboring countries, such as the Philippines, Vietnam and Thailand. Therefore, the country must keep improving the investment climate.

Singapore remained the largest source of investment into Southeast Asia’s largest economy last year, followed by Japan and China. The biggest beneficiary of FDI in 2017 was the mining sector, followed by utilities, machinery and electronics, industrial estates and pharmaceuticals.

The presidential regulation pushes the central and regional governments to cooperate in a system known as ‘online single submission’, one that allows investors to complete registration more easily. The system is set to be implemented in April.

The regulation will also force ministries and government agencies and regional governments to establish their own task forces to monitor and facilitate incoming investments related to their respective sectors.

Leap in Digital Investment

The rapid growth of Indonesian digital business has significantly attracted foreign investors to participate in economic activity. The investment board recorded foreign investments on Indonesia’s e-commerce and digital companies at US$ 4.8 billion throughout 2017.

However, this figure is still a rough estimate, since many digital business players are not publicly-listed. The estimation was based on the reports in the mass media.

The total investment in the e-commerce and digital sector amounts to almost half of the total investment in oil and gas sector which amounts to around US$ 9 billion per year, with 30-50 per cent annual growth.

Lembong said the total investment in e-commerce and startup is more than half of investment in oil & gas sector. The sector has recorded annual growth of between 30 to 50 per cent.

He stated that out of the total investment in 2017, less than 10 per cent of the investment in this sector may have been recorded by the institution. This phenomenon [digital business] is “very sudden”. Never before in history Indonesia had recorded a spike from 0 to tens of trillions. Therefore, the government needs extra efforts to handle the influx of investors to this sector.

According to him, the difficulty of classifying the data will be a chore. However, it cannot be done in a short time. Therefore, in the future, they will start to spread announcement letters to companies and investors in order to get each to report the amount of their investment realization.

By looking at the e-commerce and digital sector’s investment in Indonesia, already nearly US$5 billion, it seems that the portion is very large and has a high growth rate.

However, competition or conflict between digital platforms and conventional businesses is inevitable. But this is not a major issue because this phenomenon will deliver positive movement to the economy.

These platforms, he said, brought informal business activities to formal ones. In the informal sector, the drivers were never organized, trained or given equipment. Now, they are registered, regulated and taxed, so this is very useful.

Written by : Staff Writer, edited by Elisa Valenta, email: elisa.valenta@theinsiderstories.com