BKPM reveals drop in actual FDI figures

Urip Hudiono, The Jakarta Post, Jakarta

Hard work still lies ahead for the government despite its expectations of higher growth this year on more investments, with official figures showing actual overseas investment slowing down and a decline in proposals during this year's first quarter.

The Investment Coordinating Board (BKPM) reported Wednesday that actual foreign direct investment (FDI) realized in the first three months of the year only amounted to US$2.61 billion on 226 projects, from $2.01 billion on 211 projects during the same period last year.

Although this is a 29-percent increase, it is lower than the 147 percent growth of actual FDI realized during 2005's first quarter from the same period in 2004.

Actual domestic investment realized between January and March 2006, however, beat previous trends, growing 87 percent to reach Rp 8.53 trillion (US$967.4 million) on 48 projects, from Rp 4.54 trillion on 61 projects. It had shrank 46 percent in 2005's first quarter from the same period a year earlier.

In total, actual FDI and domestic investments 41 percent to Rp 32.28 trillion, providing employment for 107,480 workers.

Overseas investors, mostly from Japan and South Korea, have mainly invested in the metalworks, machinery and electronics sector (30 projects valued at $495.3 million), the paper and printing industry (four at $430.4 million) and the textile industry (12 at $392.2 million).

Prominent FDI realizations include a Rp 1.74 trillion production and distribution line merger of South Korea's PT LG Electronics Indonesia unit in Greater Jakarta, and a Rp 465.6 billion factory expansion of Japan's PT YKK Zipco Indonesia unit in Bekasi.

Local investors similarly invested in the metalworks, machinery and electronics sector, apart from service businesses and agroindustry. Notable investments were state-owned steel manufacturer PT Krakatau Steel's Rp 2.78 trillion production expansion in Cilegon, Banten, and PT Ivomas Tunggal's Rp 1.29 trillion plantation business merger.

The slowdown in actual FDI realization may continue throughout the year, with first quarter approval plans recorded having declined by 44 percent to $2.37 billion on 413 projects, from $4.28 billion on 322 projects during the same period last year.

Approved domestic investment plans still grew to Rp 359.8 billion on 42 projects, from Rp 1.89 trillion on 15 projects.

"Investors are becoming more picky now about where to put their money, more so with the recent rise in global oil prices, which is forcing them to carefully weigh the costs and benefits according to their business plans," the board's deputy head for investment promotion, Darmawan Djajusman, said of the latest data.

"That is why it is important for us to quickly improve the investment climate and promote potential investment places."

The government recently announced a package of regulatory fixing and fiscal incentive policies to better the country's investment climate and increase private participation in infrastructure development, in the effort to achieve a 6.2 percent growth target.

Corruption, red-tape bureaucracy and lack of infrastructure remain the major obstacles in the struggle to lure back foreign investments -- which reached a peak of $39.66 billion in 1995, but then collapsed to $13.64 billion following the 1997-1998 Asian financial crisis.

The government is targeting a total of Rp 206.7 trillion worth of FDI and domestic investment approvals for 2006, with at least Rp 132.8 trillion being actually realized within the same year.

BKPM's data excludes investments in the oil, gas and mining industries, banking and non-bank financial institutions, and capital markets, which are managed by other government agencies.

Total investments grew by only 9.93 percent last year, from 15.71 percent in 2004, bringing down 2005's total economic growth to only 5.6 percent from its 6 percent target.
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