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Investment in Indonesia to remain vital next year: ADB

Publication Date : 04-10-2012


Indonesia will continue to outshine its Asian peers in attracting foreign investments next year, backed by the archipelago's growing middle class and economic resilience that stems from its domestic consumption, the Asian Development Bank (ADB) says.

The Manila-based organisation says Indonesia's economic growth will top 6.6 per cent in 2013, with total investment — mostly in the form of foreign direct investment (FDI) — estimated to contribute 3 to 3.5 per cent of the figure.

"With its strong macroeconomic fundamentals, Indonesia is the best bet for investment, considering the fact that China and India have recently become less attractive with their slowing growth and soaring labour costs," ADB economist Priasto Aji said in Jakarta yesterday.

Southeast Asia's largest economy remained attractive for foreign investors mainly due to its growing base of middle-class consumers, which would provide a "huge group of potential buyers" for companies establishing and expanding their business here, he added.

Indonesia is currently among the major destinations for FDI after prominent ratings agencies Fitch Ratings and Moody's Investors Service awarded the country investment-grade status. FDI realisation in Indonesia reached 56.1 trillion rupiah (US$5.9 billion) in the second quarter this year, the highest in the country's history.

The United Nations Conference on Trade and Development (Unctad) ranked Indonesia fourth on its 2012 list of top FDI destinations, just below China, the United States and India.

"However, the ranking does not mean that we are less attractive than China and India because actually they are seeing downward trends in investment, which is different from our case," said Aji. "Last year, Indonesia was in sixth place [in Unctad's rankings]."

Taipei Economic and Trade Office in Indonesia representative Andrew LY Hsai echoed Aji's optimism about Indonesia's future prospects as an investment destination.

During an interview with The Jakarta Post yesterday, Hsia said that more Taiwanese firms would soon pour investments into Indonesian sectors beyond labour-intensive industries, particularly focusing on hi-tech industries.

"Indonesia is now becoming much more attractive in terms of its investment environment," he said.

The ADB said that there would be less pressure on Indonesia's trade balance next year.

ADB senior country economist Edimon Ginting expected the positive trend to continue throughout the rest of this year and into next year, citing the likely improvement in Indonesia's exports. "Our exports next year will be helped by the likely depreciation of the rupiah and the fact that Indonesia's exported goods are very diversified," he told reporters.

A surge of investment, coupled with less pressure on the trade balance, will help Indonesia to cope with its current account deficit, which in the second quarter stood at $6.9 billion, or 3.1 per cent of gross domestic product (GDP).

The ADB said that Indonesia's current account deficit in 2013 would narrow to 1.4 per cent of its GDP.

Commenting on ADB's report, Investment Coordinating Board chairman Chatib Basri shared similar notions, predicting Indonesia would see even stronger investment realisation in 2013 as the country was "the least unattractive country" amid downward economic trends in the region.

With all bright macroeconomic indicators at its disposal, Basri argued that Indonesia next year should be given investment grade status from Standard & Poor's (S&P), the only company of the "Big Three" rating agencies that have not upgraded Indonesia's sovereign debt rating.

"Indonesia deserves an upgrade," he told the Post yesterday via a text message from Dubai, United Arab Emirates. "In real terms, Indonesia has entered an investment grade [group of economies] ... the market has acknowledged such status even without S&P's recognition."


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