Foreign Investment Begins to Slow Down

Rabu, 24 Juli 2013 | 10:47

Direct investment growth trend will shift from foreign investor to local investor this year, following global economic slowdown and the threat of monetary stimulus reduction by the Federal Reserve.Based on the data from the Investment Coordinating Board (BKPM) on Tuesday (7/23/2013), foreign capital investment year-on-year (yoy) in the first and second quarter of this year was 27.2% and 18.9% respectively.

These figures were higher compared to the growth of domestic capital investment year-on-year that reached 39.6% in the first quarter of this year and 59.1% in the second quarter. During last year, the growth of foreign capital investment year-on-year in each quarter was in fact higher compared to domestic capital investment.     

Head of BKPM Chatib Basri said there is a shift in growth trend from foreign capital investment to domestic capital investment. “There is a shift to domestic capital investment, while foreign capital investment begins to slow down. From its position up to the first half, domestic investment may potentially exceed the target,” he said in a press conference in Jakarta, Tuesday (7/23/2013).

BKPM’s Deputy for Investment Control and Implementation Azhar Lubis said foreign capital investment year-on-year growth in the second quarter was the lowest since 2010, at the time Eurozone debt crisis started. “It’s the lowest growth since 2010. The lowest growth previously occurred in the third quarter of 2012 at 21.7%, but it’s now at the level of 18.9%,” said Azhar.

Basri said the foreign capital investment was sluggish throughout the first half of 2013 following a slowdown in Gross Fixed Capital Formation (PMTB) and capital goods import since the last quarter of last year “For the first half, the slowdown occurred because of the impact from the slowdown in PMTB and capital goods imports since November last year, as the realization of investment in BKPM has a gap of three to nine months,” he said.

The Head of BKPM, who also serves as Minister of Finance, predicted the slowing pace of foreign investment will continue throughout this year due to sentiment of quantitative easing reduction plan by the Federal Reserve. “The Fed’s quantitative easing reduction plan will have an impact on the realization of investment in the second half toward investment portfolio and foreign direct investment.”

Basri revealed has called on countries in the G20 meeting at the end of last week to be alert on the impacts of monetary policy in the US. Thus, those impacts do not ruin economies in developing countries that support today's global economy.

Domestically, the government will cut investment licensing, loose the negative investment list (DNI), and the requirements for fiscal incentives.

Despite the rise, he said, domestic capital investment is not free from challenges in second half of 2013. The first challenge is raising the benchmark of Bank Indonesia interest rate by 75 basis points in the last two months. "Raising interest rate is more or less influential, not only to domestic investment, but also foreign investment," he said.

The second challenge is the sustainability trend of rapid growth in domestic capital investment while foreign capital investment growth actually slowed down. "Domestic investors are usually backward. After foreign investors come first, then domestic investors will follow to sustain their businesses," said Basri.

While welcoming the positive shift in this trend, Basri sees there are some shortcomings of domestic investment, so that the government still had to rely on foreign investors. The first short coming is the lack of foreign investor who would like to be a pioneer in an industry. The second shortcoming is the lack of labor absorption by domestic investors, when compared to foreign investors.

Throughout Q2/2013, Foreign investors had absorbed 386,566 jobs, while domestic investors only employed 239,810 workers. "So we do still need foreign investment," he said.

 Chief Economist of Bank BNI Ryan Kiryanto sees there is no problem if the foreign investment growth is followed by the acceleration of domestic investment. However, the government should try to attract more foreign investors.

"What to be worried is when the domestic and foreign investments are slowdown. However, the government should also not be ignored when foreign investment growth is slow, because this is an indication that foreign investors maybe move their investment to other attractive countries," he said.

 Ryan said Indonesia still has its advantages and great potential to attract foreign investors. However, foreign investors also take into account the political climate which heats up ahead of the political year 2014.

Economist at Samuel Sekuritas Lana Soelitianingsih said the 2014 election will make foreign investors postpone its expansion in Indonesia. "They want to know if the elected president is nationalist or foreign-oriented," he said.

Meanwhile Ryan said foreign investors are still needed by the Indonesian economy as it is one of the main sources of foreign exchange reserves which needed to stabilize the exchange rate. (t03/t06/aph)

by Achmad Puja Rahman Altiar, Arsyad Paripurna, Hadijah Alaydrus