Foreign investment remains in doldrums

The Jakarta Post, Jakarta

Actual investment entering the country remains at an all-time low, with direct foreign investment up until the year's first nine months coming to nearly half of its level during the same period last year.

Realized overseas investment by the end of September amounted to an unimpressive US$4.29 billion involving a total of 702 projects, the Investment Coordinating Board (BKPM) reported last week, a 43 percent drop in value as compared to 706 projects worth $7.63 billion a year earlier.

Actual domestic investment until 2006's third quarter, meanwhile, grew by slightly 4 percent to reach Rp 12.42 trillion ($1.35 billion) involving 117 projects, from Rp 11.97 trillion involving 163 projects during the same period last year.

The latest figures represent a reversal from the more than doubling in actual foreign direct investment (FDI) and a 20 percent growth in actual domestic investment achieved during 2005's first nine months compared with the same period of 2004.

By sector, foreign investors have mainly been putting their money into the metal, machinery and electronics industry (71 projects valued at $861.7 million), the paper and printing sector (12 projects valued at $439.5 million) and the automotive and transportation industry (21 projects valued at $421.5 million).

Meanwhile, local investors promoted 16 projects worth Rp 3.15 trillion in the metal, machinery and electronics sector, 14 worth Rp 2.49 trillion in the food industry, and 10 worth Rp 1.73 trillion in the agriculture sector.

BKPM's latest report also showed FDI approvals between January and September virtually unchanged at $10.52 billion from a year ago, although those for domestic investment nearly tripled to Rp 107.93 trillion.

A rise in investment approvals may reflect a rise as well in confidence in the country's investment climate, yet still, it is still the amount of realized investment which actually contributes to economic growth and creating employment.

The government is hoping for a 7.7 percent growth in total investments this year, with some Rp 132 trillion of it being realized.

In total, actual overseas and domestic investment up until the end of September stood at Rp 51.89 trillion, down from Rp 84.5 trillion in the same period last year. Overall realized investment has, however, provided jobs for a total of 228,549 workers, up from 197,643 a year earlier.

The BKPM's data excludes investment in the oil, gas and mining industries, the banking and finance sector, and the capital markets, which are handled by other government agencies.

The government has been working to improve Indonesia's business and investment climate, yet corruption, red-tape and woefully deficient infrastructure continue to undermine the efforts to lure back overseas investment, which peaked at $39.66 billion in 1995, before collapsing to $13.64 billion following the 1997-1998 Asian financial crisis.

Investment looks set to remain slow for the rest of 2006, with investors thinking twice before expanding their businesses in Indonesia's potentially huge market given that purchasing power is still low as a result of high inflation and interest rates.
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