Inviting Foreign Investors

Kompas/AGUS SUSANTO

Aerial photo of the industrial area around Kali Cikarang in West Cikarang, Bekasi Regency, West Java, August 17, 2020. The Covid-19 pandemic has caused investment in Indonesia to experience the lowest growth in the past decade.

The government has again expressed its readiness to accept foreign direct investment. To achieve maximum results, we need to seriously prepare ourselves.

During an investment forum between Indonesia and the United States on Tuesday, Finance Minister Sri Mulyani invited foreign direct investors, including those from the US, to help restore the economy, which has been severely affected by the Covid-19 pandemic. The economic recovery will not proceed quickly if it relies only on government investment.

The US is currently the eighth-largest foreign investor in Indonesia. Despite fluctuating throughout this year, investment in the primary sector rose sharply in the third quarter of 2020 compared to the same period in 2019.

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The US has a long history in investing in Indonesia. One of the largest foreign investors after Indonesia’s independence was the US-based copper and gold mining company Freeport. In addition to the mining sector, US companies also invested in rubber processing, logging, automotive production and the agroindustry.

An increase in US investment would lead to greater diversity of foreign investors, who can share their experience and expertise in exporting and entering global markets. This will ultimately increase the competitiveness of Indonesian products. While the US currently ranks only as the eighth-largest source of foreign investment, the governments of both Indonesia and the US need to study why it is so low and try to find ways to boost it.

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Indonesia needs to increase private investment to provide jobs for the country’ workforce, which is projected to grow by more than 2 million people each year. However, the benefits should equally be shared by Indonesia and the foreign investors.

KOMPAS/EDDY HASBY

Workers finish manufacturing automotive components in the Small Industry Environment (LIK) Takaru Tegal, Dampyak, Kramat District, Tegal, Central Java, August 28, 2019. Small and medium industry players in this area supply components to PT Toyota Motor Manufacturing Indonesia.

The government has enacted the Job Creation Law to increase Indonesia\'s competitiveness in attracting investment, among other things, through greater ease of doing business. In addition, the government is also developing special economic zones as well as physical and digital infrastructure to make private investment more efficient. The quality of human resources should also be improved to meet the growing need of skilled workers.

However, weak consumer spending at home and globally will still hamper new investment. For this reason, the government needs to introduce fiscal and monetary policies to boost household spending and make foreign direct investment more attractive than portfolio investment. The handling of Covid-19 should remain the government’s priority.

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Another important task is the eradication of corruption. The recent arrests of two ministers and a number of public officials at the central and regional level by the Corruption Eradication Commission (KPK) show that corruption has damaged fair competition and hampers sustainable economic growth.

Foreign investors from the US, the European Union and other developed economies are subject to tough regulations on bribery and corruption. They will pull out if the corruption cannot be dealt with.