Going beyond incentives: What Indonesia must do to attract quality investments

IN GLOBAL finance, attention is fleeting but memory is long. Countries that win investment today do so not by offering the cheapest labour or the deepest tax breaks, but by proving they can be trusted when conditions change.

For Indonesia, the next wave of industrial capital will not be drawn by promises. Instead, it will be drawn by credibility. Over the years, international markets and policy debates have shown how quickly sentiment shifts.

One regulatory surprise, one stalled project or one unresolved dispute can undo years of promotional effort. Investors now operate in a world shaped by geopolitical fragmentation, tighter capital and rising political risk.

In that environment, predictability becomes a competitive advantage. Removing structural barriers to foreign direct investment matters more than ever.

Compliance costs, unclear licensing pathways and overlapping authorities are not just bureaucratic inconveniences. They are pricing signals. Each delay raises the perceived risk of doing business, and risk always demands a higher return.

Urgent tasks ahead

When Indonesia talks about becoming a destination of choice, it must start by making the basic mechanics of investment smoother, faster and more reliable. Regulatory certainty does not require perfect rules; it requires consistent ones. Investors understand complexity, but they struggle with ambiguity.

A predictable approval process, clear land and environmental standards, and transparent dispute resolution do more to attract long-term capital than any headline-grabbing incentive. Indonesia has taken steps in this direction, but execution remains uneven.

For a global fund deciding where to place a billion-dollar factory or processing plant, the difference between a six-month approval and a two-year delay can be decisive. Speed and clarity matter in a world where supply chains are being rebuilt for resilience.

But attracting capital is only half the challenge. Steering it wisely is the harder part. The global race is for the right investment. Volume looks impressive on paper, but quality shapes the future.

Indonesia’s next phase of growth depends on whether incoming capital transfers technology, raises productivity and builds domestic capability, or merely exploits cost advantages before moving on.

Prioritising next-generation industries is therefore a necessity. Battery materials, renewable energy, advanced manufacturing and digital infrastructure are more than high-growth sectors; they are anchors in the emerging industrial geography of the world. Countries that host them gain bargaining power. Those that do not become price takers.

This requires discipline. Governments must resist the temptation to chase every dollar. Investment that does not embed skills, research and local supplier networks leaves little behind once incentives expire.

As one senior investor once told me: “Factories can be moved. Capabilities cannot.”

Indonesia’s policy framework must be built around that distinction. Here, the role of Danantara sovereign wealth fund as a trusted investment catalyst becomes crucial.

Global investors are not short of money. What they lack is confidence in new markets. Sovereign-linked institutions can bridge that gap when they operate with professionalism and transparency.

Why Indonesia’s sovereign wealth fund matters here

Danantara, if positioned correctly, can serve as Indonesia’s signal to the world that projects are not just politically endorsed, but commercially credible. De-risking means aligning incentives so that private capital feels protected against regulatory shifts, policy reversals and coordination failures.

Indonesia enters 2026 with a government growth projection of around 5 per cent; it is respectable by global standards, but increasingly modest within South-east Asia. The comparison that now looms largest is Vietnam. While Indonesia steadies itself at 5 per cent, Vietnam posted growth of close to 7 per cent in 2025, underlining a divergence that cannot be explained by global conditions alone.

Indonesia’s advantage has always been scale. It has the largest population and labour pool in the region, a domestic market that investors find hard to ignore, and strategic resources, such as nickel, central to the global energy transition. Yet scale, without execution, has become a diminishing advantage.

Vietnam’s rise has been neither accidental nor purely cyclical. It has built a manufacturing ecosystem that works. Supply chains are deep, logistics are reliable and trade pacts are actually utilised.

Investors know what they are getting. That certainty has allowed Vietnam to anchor global electronics giants with the likes of Samsung, Intel and others into its industrial base, creating spillovers in skills, productivity and exports.

Indonesia, by contrast, continues to rely heavily on commodity narratives. Nickel downstreaming has promise, but without addressing skills gaps, technology transfer and supporting infrastructure, value creation remains uneven. Investors may come for resources, but they stay for ecosystems.

Danantara’s role becomes critical here. If it functions merely as another state investment vehicle, it will not move the needle.

If, however, it can de-risk projects, coordinate industrial policy and anchor long-term capital into manufacturing and skills development, it could help lift growth beyond the 5 per cent ceiling.

Vietnam’s lesson is uncomfortable but clear: growth follows execution. Unless Indonesia closes its structural gaps – particularly in skills, supply chains and trade integration – it risks watching its regional peers pull further ahead, human-capital advantage notwithstanding.

When a respected domestic institution co-invests, global funds interpret that as a vote of confidence in both governance and project viability. This is especially important for large, complex industrial projects that cut across ministries, regions and regulatory regimes.

Infrastructure, energy and advanced manufacturing require long timelines. Investors want to know that if political winds change, the economic logic of their projects will not be swept away.

Danantara’s value lies not only in capital, but in coordination. It can ensure that policy ambition translates into bankable projects, that infrastructure is aligned with industrial strategy, and that approvals move in step rather than in conflict. In emerging markets, these are often the points where good ideas fail.

None of this is easy. Reducing compliance costs threatens vested interests. Steering investment towards higher-quality projects demands saying no to deals that look attractive in the short term. Building trust through institutions takes time. But these are the trade-offs that define whether a country becomes a manufacturing hub or merely a processing site.

Time to seize the moment

Indonesia stands at a moment when global capital is searching for stability in an unstable world. Supply chains are being restructured not just for cost, but for security.

Energy transitions are creating new industrial winners. Geopolitical tensions are pushing companies to diversify their exposure. Few countries are as well placed as Indonesia to benefit from these shifts, if it chooses clarity over convenience.

In my years of covering international investment, the most successful economies were never those that tried to please everyone. They were those that set clear rules, enforced them consistently and aligned public institutions with private ambition. Investors reward that discipline with patience and capital.

If Indonesia wants to be a destination of choice for impactful industrial investment, it must make three things unmistakably clear: that doing business here is predictable, that the projects it welcomes will build long-term capability, and that its institutions, including Danantara, are designed to protect value rather than politics.

The next wave of global capital will not wait. It will go where confidence lives. The question now is whether Indonesia is prepared to meet it there.

The writer is chair of the board of the Indonesian Business Council