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Indonesia attracts tepid foreign direct investment inflow in Q4

Wednesday, January 25, 2017 - 22:04

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Growth in foreign direct investment (FDI) slowed significantly in Indonesia in 2016's final quarter, which could dent efforts to boost the rate at which Southeast Asia's largest economy is expanding.

[JAKARTA] Growth in foreign direct investment (FDI) slowed significantly in Indonesia in 2016's final quarter, which could dent efforts to boost the rate at which Southeast Asia's largest economy is expanding.

Analysts said tepid FDI figures for October-December might reflect political tensions seen in Jakarta ahead of regional elections in February, and worry about the prospects for emerging markets after Donald Trump's election as United States president.

In rupiah terms, FDI rose 2.1 per cent in October-December from a year earlier, according to data from the country's investment board that excludes investment in banking and the oil and gas sector.

That was the smallest increase for a quarter in at least five years, according to Thomson Reuters data.

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In dollar terms, FDI in the quarter contracted 5 per cent from a year earlier.

Based on investment board figures, Indonesia attracted US$29.0 billion of FDI in 2016, compared with US$29.3 billion the previous year.

On Nov 4, a mass rally of Muslims urging that Jakarta Governor Basuki Tjahaja Purnama be prosecuted for allegedly blasphemous comments about the Koran ended with some violence. There was no violence after another rally on Dec 2.

Purnama, a Christian and ethnic Chinese running for re-election, is now on trial for alleged blasphemy, which he denies.

Separately, rumours have been spread millions of workers from China have stolen Indonesian jobs. President Joko Widodo said there are only 21,000 workers from China in Indonesia.

Liky Sutikno, the head of Indonesia's Chamber of Commerce for China, said on Monday there is growing concern among investors due to anti-Chinese sentiment. "A lot of my friends who wanted to come now said they are scared. They feel Indonesia has become risky," Mr Sutikno said.

In a press briefing on Wednesday, investment board chairman Thomas Lembong encouraged people to look at total FDI figures for 2016 instead of focusing on quarterly results.

He also dismissed concerns about the Jakarta protests and negative views of China and ethnic Chinese Indonesians. "We shouldn't let political fights have a spill-over effect to the economic and investment arena," he said.

Some analysts saw a silver lining in Wednesday's FDI data.

OCBC economist Wellian Wiranto called the numbers"relatively encouraging", adding that a dip compared to 2015"has to be seen in the context of the high level of uncertainties in the global economy into the end of last year." Indonesia needs more FDI to help build its manufacturing sector and finance its current account deficit.

The government has tried to boost investment by opening some sectors for more foreign ownership.

Economic growth slowed in the third quarter to 5.02 per cent, partly because of weak investment, and the central bank expects growth to slip in the fourth quarter, bringing the 2016 pace to 5 per cent. For this year, Bank Indonesia forecasts 5.0-5.4 per cent growth.

The biggest beneficiaries of FDI in 2016 were the base metal, machinery and electronics sector and pharmaceuticals Singapore was the biggest source of investment.

REUTERS

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