Government Turns to Investments as Economic Engine

KOMPAS/TOTOK WIJAYANTO

Prospective investors consult with the one-stop integrated service officer at the Investment Coordinating Board (BKPM) Building, Jakarta, Tuesday (26/1/2021).

JAKARTA, KOMPAS – Investment realization showed an upward trend in the second quarter of 2021, at a time when the growth of household spending was disrupted by the Covid-19 pandemic. The construction of factories to manufacture electric vehicles and batteries contributed greatly to the increase in investment realization.

Based on data from the Investment Coordinating Board (BKPM), direct investment realization rose 16.2 percent to Rp 223 trillion (US$15.44 billion) in the second quarter this year from the same period in 2020. Of the total investment realized, domestic investment (PMDN) reached Rp 106.2 trillion, a 12.7 percent year-on-year (yoy) increase, while foreign investment (PMA) realization accounted for Rp 116.8 trillion, a 19.6 percent yoy increase.

The head of the Finance Ministry’s Fiscal Policy Agency, Febrio Kacaribu, said he was upbeat that investment would become the main engine of economic growth. Moreover, further growth in investment was expected following the issuance of the implementing regulations for Law No. 11/2020 on Job Creation.

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“The implementation of structural reform, especially those related to ease of doing business, will continue to be accelerated so investors can feel the immediate. Investment is expected to become the main engine of economic growth," Febrio said in Jakarta on Thursday (29/7/2021).

So far, household spending has been the main driver of economic growth. Citing data from Statistics Indonesia (BPS), household spending contributed 56.9 percent to gross domestic product (GDP) in 2020. That same year, investment, or gross fixed capital formation, contributed 31.73 percent to GDP.

Investment is expected to become the main engine of economic growth.

I Kadek Dian Sutrisna, chief economist at state-owned infrastructure financing company PT Sarana Multi Infrastruktur (SMI), pointed out that this year’s investment growth still relied on recovery in consumer spending.

The government’s financial stimulus packages were intended in part to stimulate growth in consumption or spending among the low-income people. Increase in demand would result in an increase in the supply side, which would in turn contribute to investment recovery, Kadek added.

"The government needs balance between consumption and investment, between short-term and long-term goals," he said.

Electric vehicles

KOMPAS/VINA OKTAVIA

PT Perusahaan Listrik Negara operates the first public electric vehicle charging station on the Trans-Sumatra toll road, Tuesday (26/1/2021). This step is to support the acceleration program for battery-based electric vehicles.

Febrio said the development of manufacturing plants for electric vehicles (EVs) and batteries had contributed greatly to investment growth, as reflected in the increased investment in the basic metals industry, which included EV and battery production, with the majority of investments coming from foreign investors.

In the industry sector, investments in the basic metals, metal goods, non-machinery and equipment sectors amounted to Rp 29.7 trillion, equivalent to 13.3 percent of total domestic and foreign investments. Meanwhile, the foreign investment realization in these sectors reached Rp 25.81 trillion in the second quarter of the year, or equivalent to 22.1 percent of overall domestic and foreign investments. On this investment achievement, the combined sector became the second largest investment destination after the housing, industrial and office property sectors.

“The construction of electric vehicles and battery cells factories are currently underway in Indonesia. This labor-intensive industry is expected to absorb a lot of workers during the pandemic, as other sectors have yet to recover," said Febrio.

Specifically in the manufacturing sector, investment realization reached Rp 167.1 trillion in the first semester of 2021. This amount accounted for 37.7 percent of the total value of national investment in the January-June 2021 period, which reached Rp 442.8 trillion.

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Industry Minister Agus Gumiwang Kartasasmita said the increase in investments was expected to strengthen resilience of the domestic manufacturing industry and support economic growth. "These investments will strengthen the country\'s manufacturing structure and increase competitiveness," he said.

Meanwhile, Hyundai Motor Group and LG Energy Solution on Thursday announced that they had signed a memorandum of understanding (MoU) with the government. The two companies planned to build an electric vehicle battery (EVB) factory in Karawang, West Java, with an investment of around $1.1 billion.

The MoU signatories were Hyundai Mobis president and CEO Sung Hwan Cho and LG Energy Solutions president Jong Hyun Kim. The witnesses of the virtual signing ceremony included Investment Minister Bahlil Lahadalia and PT Indonesia Battery Industry president director Toto Nugroho.

Construction on the factory is scheduled to break ground in the fourth quarter of 2021 towards completion in the first semester of 2023. The new factory is expected to start commercial production of EVBs in the first semester of 2024. The factory is being built on a site of around 330,000 square meters. When it is fully operational, the factory is expected to produce 10 gigawatt hours of NCMA lithium ion batteries a year, which can meet the needs of more than 150,000 electric vehicles.

This article was translated by Hendarsyah Tarmizi.