Indonesia is a robust economic growth, a 265m population in 2019 and a favourable position as South-east Asia’s largest economy have driven Indonesia to become an increasingly important actor in global trade.
Foreign direct investment in Indonesia (excluding investment in banking and the oil and gas sectors) increase 9.6 percent year-on-year to IDR 104.9 trillion (USD 6.99 billion) in the June quarter of 2019, compared to a 0.9 percent fall in the previous quarter.This is the first increase in foreign direct investment since the first quarter 2018.
The biggest sources of the investment come from Singapore, than followed by Japan and China. The investment for transportation, telecommunication, and base metal sectors were the biggest beneficiaries. Foreign Direct Investment in Indonesia averaged 75.53 IDR Trillion from 2010 until 2019, reaching an all time high of 112 IDR Trillion in the fourth quarter of 2017 and a record low of 35.40 IDR Trillion in the first quarter of 2010.
In the second quarter of 2019 (Q2-2019) total direct investment realization in Indonesia climbed 13.7 percent year-on-year (y/y) to IDR 200.5 trillion compared to IDR 176.3 trillion in the second quarter of 2018. Direct investment realization consists of (1) domestic direct investment (DDI) and (2) foreign direct investment (FDI).
Last year, investment weakened because in the fourth quarter of 2018 there was economic turbulence caused by trade war and fluctuations in the rupiah exchange rate. Investors had not yet seen the signs of investing in Indonesia going better for future. Iinvestment climate is improving now. This can be seen by various projects that are being worked on in various regions with a value of tens of trillions of rupiah each.
Indonesia's strong economic growth and good demographics make it as the best country for investors, there are some risks that you must consider before investing in Indonesia. For example, the country's strong growth makes it the main target for inflation, while the country has greater geopolitical risk than developed countries like the United States.
Things to consider before investing in Indonesia
- Stable Economic Growth. Indonesia's economic growth is still better than other emerging markets. Indonesia's condition is better than other emerging market countries which recorded lower growth compared to Indonesia.
- Risk. Legal uncertainty is the biggest investment risk currently in Indonesia. Although the government has cut down many bureaucracy and facilitated investment, the central government's policies sometimes contradict with local governments. Only a few areas are investment friendly. In addition, illegal levies have become a big problem that has never been resolved from the past until now. In addition, corruption is a problem that cannot be erased in Indonesia.
- Inflation. Indonesia has faced rising inflation along with its economic growth. If these rates were to move out of control, it could lead to higher interest rates that may negatively impact the country's equity prices.
- Geopolitical. Indonesia resides in Southeast Asia, which means that it may face more geopolitical risk than developed countries like In Asia.