This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Optimalisasi investasi infrastruktur, jasa, dan hilirisasi: Target 2024
25 January 2024
By Arnoldus Kristianus
Jakarta, ID – The Investment Ministry/Investment Coordinating Board (BKPM) affirmed that, even though Indonesia is entering a political year, the government is optimistic about reaching the investment target of Rp1,650 trillion. The government will optimise investments in infrastructure, services, and downstreaming. The downstreaming policy will be the foundation of investments.
“The government is targeting downstreaming to represent 40%-45% of the total investment. Downstreaming performance will be expanded to outside of mining, as we recognise the presence of potential investors, prompting our expansion efforts,” Investment Minister/BKPM Head Bahlil Lahadalia said during a press conference on Investment Realisation Development at the Investment Ministry/BKPM Office in Jakarta on Wednesday (24/1/2024).
According to data from the Investment Ministry/BKPM, downstreaming investments in 2023 amounted to Rp375.4 trillion, constituting 26.5% of the total investment realised from January to December 2023. In detail, the mineral sector emerged as the leading contributor, with investments totalling Rp216.8 trillion. Notably, investments in nickel reached Rp136.6 trillion, bauxite investments amounted to Rp9.7 trillion, and copper investments stood at Rp70.5 trillion.
Subsequently, investments in the forestry sector amounted to Rp51.8 trillion, while the agriculture sector, specifically from the crude palm oil (CPO) industry, garnered investments totalling Rp50.8 trillion. Additionally, investments in oil and gas from oleochemical reached Rp46.3 trillion, and the electric vehicle ecosystem received investments amounting to Rp9.7 trillion.
According to Bahlil, the investment realisation target can be achieved as long as the government can maintain its political stability so that they can maintain the trust of investors to invest in Indonesia.
“If we were from the east, we would not give up on the target. This is a characteristic of people from the east. When the President gave the order to secure Rp1,650 trillion [in investments], I held a coordination meeting with the team. They said they would not adjust the target. There is only one condition during an election [period], do not slander. Do not defame our country so that it remains stable,” Bahlil said.
In response, Indonesian Employers Association (Apindo) Chairperson Shinta Widjaja Kamdani said that the government was optimistic about setting the investment target of Rp1,650 trillion as there is ample space to create approaches and innovations to attract investments in 2024. The establishment of such a target serves as a motivation to enhance the government's performance and ensure optimal efforts in attracting investments throughout the year.
“We are willing to support and cooperate to realise the target. However, we believe that achieving the target requires significant efforts within the country, especially to improve certainty perception, predictability, and the overall business climate competitiveness in Indonesia throughout the year,” Shinta said when contacted on Wednesday (24/1/2024).
According to Shinta, domestic demand-driven and global value chain-driven investments will only grow moderately. Hence, significant efforts in the country are required, especially from the government. For example, by facilitating policy reform/intervention and providing investment stimuli that can increase trust in the business climate.
“The government’s success in creating those aspects is crucial and determines if the investment target set by the President can be achieved,” Shinta said.
Shinta said that internal and external factors determined the flow of investments in 2024. In the country, investment uncertainty is currently at an all-time high as Indonesia is going through a change of leadership. The transition is quite a big risk as the economic policies that determine the business/investment climate in various national economic sectors can change/affect business opportunities.
Shinta pointed out that the government faced challenges in maintaining a consistent implementation of policies. As a result, several economic policies are contingent on the discretionary decisions of political leader.
“The certainty perception and predictability of the domestic business/investment climate are still low, so investors tend to wait and see until the new leader is clear and effectively working,” he said.
On the domestic front, acquiring investment financing is no straightforward task due to the current record-high real loan interest rates. Consequently, not all business players feel sufficiently capable or daring to shoulder the burden of a loan. The accessibility to investment funding remains constrained and is a persistent source of grievances, particularly voiced by micro, small, and medium enterprises (MSMEs). These businesses often find themselves unable to meet the numerous requirements set forth by financial institutions.
“Moreover, the demand growth of the domestic and international markets can generally trigger higher investment growth. This year, they are forecasted to remain stagnant or to only grow moderately due to the global economic slowdown, inflation, high interest rates, and the perception of uncertainty inside and outside the country,” Shinta said.
Meanwhile, there is an anticipation of a decline in foreign investments in developing countries. The nations that traditionally engage in investments are currently experiencing an economic growth slowdown coupled with a tightening of monetary policies.
“Moreover, there are geopolitical pressures, so the investment risk and uncertainty of the global business climate become quite high. So, global investors are more interested in investing in countries that have excellent investment ratings,” Shinta said.
Meanwhile, Indonesia Chamber of Commerce and Industry Regional Autonomy Development Deputy Chairperson Sarman Simanjorang said that the downstreaming programme was attracting potential investors to invest in Indonesia. With downstreaming, various natural resources that have always been exported raw, now must be processed in the country to be exported. Downstreaming can be a large opportunity for potential investors to enter Indonesia.
”I see that the first ones are sectors that encompass smelters or factories that process natural resources. They will be some of the sectors potential investors are most interested in,” Sarman said.
Simultaneously, the government must uphold the trust of investors to encourage them to remain in Indonesia. Therefore, political elites need to actively contribute to fostering a favorable environment for investment and business activities, especially during the political year. Additionally, with Indonesia undergoing a change of leadership, if the election spans two rounds, the government must be prepared to promptly signal the investors.
“Even though we are currently in a political year, the environment must remain safe, comfortable, and conducive. It is a large capital, we hope that the political elites will not provide a statement that will psychologically disturb people and the business world,” Sarman said.
Another step that can boost investment realisation is to improve the licensing service system. One of the solutions is by organising it so that it can progress optimally through digitalisation.
“I think that it must be improved. Even though it is already great, it can be improved further. Then, policies on infrastructure and energy must also be our priority in the future,” Sarman explained.
