JAKARTA (TheInsiderStories) – President Joko Widodo seduce foreign investors as Indonesia grapples with the low level of foreign direct investment and the spread of current account deficit. Within a few months after his victory, he got a number of new agreements with a number of foreign partners, including printing the largest international investment in more than five decades.
After meeting with Prince of United Arab Emirates (UAE) Sheikh Mohammed bin Zayed Al Nahyan on Wednesday (07/24), today he will meet South Korea’ Hyundai Motors Group top management. The South Korean car manufacturer and Grab looking a business partnership for the projects in the field of electric cars.
Hyundai itself at the end of 2018 was known to begin exploring negotiations with the government regarding the possibility of establishing an electric vehicle factory in the country. The progressive step is part of the company’ investment worth $880 million.
Hyundai chosen Indonesia as the location of the electric vehicle factory because the nation has a large reserves of laterlit nickel ore. The availability of these raw materials is so important because it is needed for the process of producing lithium-ion batteries as the main power source of electric cars in the future.
Its estimated, with this investment, Hyundai will build an assembly plant with a production capacity of 250,000 units per year, including for electric vehicles. Hyundai has been active 15 years in Indonesia through PT Hyundai Mobil Indonesia Motor since 1995.
In June, Japan’ INPEX Corp., also said have a planned to develop the Abadi liquefied natural gas project in Indonesia, which has an investment of as much as $20 billion. A few weeks later, Toyota Motor Corp said it would spend $2 billion to develop hybrid vehicles in Indonesia.
In the coming weeks, Widodo also received a visit from the founder of Japan’ Softbank Group Corp. Masayoshi Son and Saudi Arabian crown prince Mohammed bin Salman. Salman’ visit is also expected to be a good opportunity to reach a larger investment from Saudi, who now seems to be still hesitant to invest large capital in Indonesia.
Son from SoftBank is scheduled to meet Widodo in August and plans to double its investment in Indonesia, including at PT Tokopedia, one of an e-commerce unicorn in the country. The fund managers has invested a lot funds in the country.
In addition, the government has also just agreed with Tesla Inc., Volkswagen AG, and LG Chemical Ltd., and other several companies interested in building a battery factory for electric vehicles. Likewise with BYD Co. and Anhui Jianghuai Automobile Group Corp., known as JAC Motors, including among a number of parties who are being approached to build electric vehicle factories in Indonesia.
Brazilian Vale SA‘ units and partners in Indonesia also plan to spend around $5 billion on nickel projects over the next few years. And today Widodo will meet with the leaders of Hyundai Motors Group to add a series of investors who will choose safe areas amid escalating geopolitical tensions.
At the Belt and Road Forum, Indonesia and China has signed 23 memorandum of understandings on investment and trade cooperation in April 26. The cooperation contract includes the development of four economic corridors, rapid train research and technology cooperation, and the development of research of education. In the forum, Chinese President Xi Jinping has signed contracts for new projects worth $64 billion.
According to Vice President Jusuf Kalla, the funding will be use to develope projects in four economic corridors, namely North Sumatra, North Kalimantan, North Sulawesi and Bali. North Sumatera is a logistic hub in the Melacca Strait area, North Kalimantan is well-known for its world-class hydro power resources, North Sulawesi and Bali for Chinese tourists.
Chairman of Investment Coordinating Board Thomas Lembong realized that the BRI cooperation implementation will face some challenges. But he sees that the infrastructure connection between BRI participants could boost emerging countries’ trade, tourism, and investment.
Beside, Widodo also urged his ministers to hunt foreign investors pledge their money in the archipelago. As an example, in October, Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan will visit Africa to review the implementation of the PT Kereta Api (INKA) cooperation with companies in the region.
The latest estimate assumes Indonesia will attract total direct investment around Rp37,447.6 trillion ($2.68 trillion) in the next five years, or 6.9 percent to 8.1 percent of investment growth per year. Widodo is seen providing up to 13.8 percent of state investment and companies up to 7.9 percent.
The proposal also targets total infrastructure investment to reach Rp 6,421 trillion ($ 412 billion), or around 6 percent of GDP, between 2020-2024. In the first quarter (1Q) of 2019, Indonesian Investment Coordinating Board reported that the country recorded realization investment Rp195 trillion (US$13.73 billion).
The investment only grow single digit or 5.3 percent compared to 1Q of 2018 with total amount Rp185.3 trillion. Lembong said that the value of the investment realization had reached 24.6 percent of this year’ target Rp792.0 trillion. He stated, that the achievement of this investment realization is very important to maintain the economic growth at 5.2 percent in this year.
Compared to 1Q 2018, Lembong detailed, domestic investment growth in 1Q 2019 increased by 14.1 percent, from Rp76.4 trillion in 1Q 2018 to Rp. 87.2 trillion. While foreign capital investment of 1Q 2019 amounted to Rp107.9 trillion, this actually dropped 0.9 percent compared to 1Q 2018 which amounted to Rp108.9 trillion.
“Referring to the 1Q 2019 data, there is a positive trend towards FDI growth which was initially in the fourth quarter of 2018 was minus 11.6 percent to minus 0.9 percent,” said Lembong.
He acknowledged that this positive trend will continue in the future, especially supported by the strong determination of the government to continue economic reform, better utilization of Online Single Submission, and intensification of investment escorts by various relevant government agencies both at the center and area.
Indonesia needs to boost the investment and export to manage the current account deficit and to spurs the economic growth. Bank Indonesia reported current account deficit in the 1Q of 2019 was recorded at $7 billion or 2.6 percent of GDP. Previous quarter the deficit worth of $9.2 billion or 3.6 percent of GDP.
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