Indonesia recorded the highest second quarter increase in foreign direct investment in over a decade, according to the Ministry of Investment, a continuation of the trend in foreign investment from the previous quarter.

Foreign Direct Investment (FDI) rose 39.7% year-on-year to Rp 163.2 trillion (roughly US$10.8 billion under current exchange rate) in the April to June period of 2022 from Rp 116.8 trillion in the same period of 2021, the Minister of Investment told a press conference on Wednesday, July 20, 2022. 

Minister of Investment Bahlil Lahadalia said the increase was a further acceleration from the previous quarter of 2022, which saw FDI increase by 31.8% compared to the first quarter of 2021. It is worth noting that the report from the Ministry of Investment (also known as BKPM), excludes investment in banking and the oil and gas sectors.  

Singapore remains Indonesia’s main source of FDI with $3.2 billion. The nation has long been a financial hub for global investors channeling their investment into the archipelago. China was the second largest investor with $2.3 billion, followed by Hong Kong ($1.4 billion), Japan ($0.9 billion), and the United States ($0.8 billion). It may be interesting to note that England further broke the top 10 investment sources to Indonesia as part of its commitment to invest in Indonesia’s development of renewable energy. 

FDI contributed 54% to the total investments in the second quarter of 2022 as reported by BKPM. When taking into account domestic investments, Indonesia recorded Rp 302.2 trillion in the April to June period of 2022, a 7% increase compared to the previous quarter of 2021. Subsequently, total investment for the first half of 2022 was Rp 584.6 trillion, or a 32% increase compared to the Rp 442.8 trillion recorded in the first half of 2021. 

Central Sulawesi rise in prominence 

The growth in FDI was mainly driven by investments into the downstream industry development in the mining and petrochemical sectors. The province of Central Sulawesi as well as North Maluku, which had been growing rapidly as productive sources for nickel, had further risen in prominence with around $3.6 billion in investments having being poured into the region since the start of 2022, leapfrogging other provinces in the nation as a favored investment destination. 

Mr. Lahadalia attributed the spike in investment to the planned development of several major multinational companies, such as South Korea-based LG and China-based Foxconn, that have begun their factory construction phases in Batang, Central Java. 

“There they’ll start producing maybe in 2024 or 2025 because that's part of the downstreaming that’s being developed with Central Sulawesi and North Maluku,” Mr. Lahadalia said. 

Downstream industry, renewable energy remain as priorities 

Mr. Lahadalia said the government would continue to focus on downstreaming the metal processing sectors, as well as industries that uses energy. The comment came in regards to the current global energy challenge caused by the war between Russia and Ukraine, which has pushed oil prices pass the $100 dollar per barrel mark. 

He reiterated the government’s plans to ban the export of bauxite and tin to further promote investment into the downstreaming of the metal industries, citing the strategy’s success in attracting major investments, mostly from China, in the production of components used in electric car batteries extracted from nickel. 

“We understand that the global economic situation is still unclear due to the war between Russia and Ukraine, while the tightening of interest rate from the Fed will continue to be a challenge for the investment climate in Indonesia. However, looking at Indonesia’s economic growth as well as the growth in investment, BKPM is optimistic that the target of 1,200 trillion rupiah by the end of 2022 can be achieved with the cooperation between the central and regional governments as well as investors,” Mr. Lahadalia said.