G20 strengthens Indonesia's position as an investment magnet
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 - G20 perkuat posisi RI sebagai magnet investasi
10 November 2022
By: Triyan Pangastuti and Arnoldus Kristianus
The G20 Summit in Bali from 15 to 16 November 2022 will strengthen Indonesia’s position as a global investment magnet. Hence, the government, businesses, and all elements of the nation must go all out to make the event successful.
Investment, especially foreign direct investment (FDI), must be boosted so that Indonesia’s economy grows more impressively. Until now, investment or gross fixed capital formation (GFCF) has been significantly contributing to the gross domestic product (GDP) by around 30%-32%, which is the second largest after household consumption that contributes by around 56%.
FDI will not only double workforce absorption, but it will also increase state revenue, foreign exchange reserve, and rupiah’s exchange rate. Besides that, FDI will improve the resilience and competitiveness of domestic industries.
In order for the G20 Summit to be effective in attracting global investors, the government must hold more business forums and investor forums. The government must offer industrial sectors that have a high added value and can boost the domestic downstreaming process by still referring to the three main topics of the summit, namely global health architecture, energy transition, and digitalisation.
The sectors that can be offered by the government to investors and member countries in the G20 include digital economy, low-carbon energy transition, fisheries, agriculture, and future manufacturing industry such as electric vehicles and tourism.
This was revealed by Indonesian Employer Association (Apindo) Economic Policy Analyst Committee Chairperson Ajib Hamdani, Universitas Indonesia (UI) Faculty of Economics and Business (FEB) Institute for Economic and Social Research (LPEM) economist Teuku Riefky, Centre of Economic and Law Studies (Celios) Director Bhima Yudhistira, Institute for Development of Economics and Finance (Indef) Program Director Esther Sri Astuti, and economic observer Tauhid Ahmad to Investor Daily on a separate occasion in Jakarta on Wednesday (9/11).
Meanwhile, Bank Indonesia (BI) Deputy Governor Dody Budi Waluyo said that Indonesia’s position that holds the 2022 G20 presidency would strengthen the market’s trust in the domestic economic prospect and financial system stability in the future.
Seventeen heads of states and governments have confirmed their attendance at the G20 Summit in Bali, including US President Joe Biden and China President Xi Jinping. Meanwhile, Russia President Vladimir Putin has yet to confirm.
Indonesia’s readiness to welcome the G20 leaders has been stated by President Jokowi.
Target achieved
Apindo Economic Policy Analyst Committee Chairperson Ajib Hamdani revealed that, if the G20 Summit is successful, the trust of international citizens in Indonesia’s investment climate will increase. “Hence, the investment target this year that reaches Rp1,200 trillion can be achieved, it can even be surpassed,” Ajib stated.
According to Ajib Hamdani, there are potential sectors that can attract foreign investors to invest in Indonesia, including the manufacturing, mining, agriculture, and energy industries.
Based on the calculation of the Coordinating Minister for Economic Affairs Airlangga Hartarto, Indonesia’s role that holds the G20 presidency will contribute Rp7.4 trillion to the GDP. Meanwhile, the impact of the G20 event in the form of direct expenditure reaches Rp1.7 trillion that comes from 438 events.
On the other hand, UI FEB LPEM economist Teuku Riefky explained that the government and the business world need extra effort to show that Indonesia is an investment destination country. “What must be affirmed at the G20 [Summit] are business forums and investor forums. There, the government and businesses must be able to convince investors regarding the sectors offered,” he said.
Teuku added that the sectors that must be offered at the G20 Summit are sectors with high added value and sectors that are encouraged to carry out downstreaming and structural transformation. “The processing sector has a high workforce absorption. The economic added value is also high, the same goes for its impact on tax revenue,” he stated.
Teuku Riefky said that the government’s effort to attract investment cannot stop at the summit. “After the G20 Summit, the government must follow up and organise the investment climate, especially investment permits,” he added.
Investment magnet
Celios Director Bhima Yudhistira said that Indonesia must make the three main topics of the G20 Summit – global health architecture, energy transition, and digitalisation – real commitments. “It will make Indonesia a foreign investment magnet as investors see that the government is serious,” he said.
According to Bhima, the government must show that the G20 Summit is not just another forum with no follow up. For example, in the context of energy transition, the government must ratify New Renewable Energy (NRE) Draft Law to be a law. The purpose is to provide legal certainty for NRE investment in the country.
Besides that, Indonesia’s solid economic fundamentals, such as the decrease in incremental capital output ratio (ICOR), better exchange rate performance compared to competing countries, as well as economic transformation towards sectors with added value must be showcased at the G20 Summit. “The most important thing is that Indonesia’s commitment in the G20 must be realistic and measured,” he affirmed.
Bhima added that sectors that can be offered for investment at the G20 forum include digital economy, low-carbon energy transition, fisheries, agriculture, and future manufacturing industry such as electric vehicles and tourism. These sectors have potential and competitiveness compared to other G20 member countries.
“For example, for electric vehicles, Indonesia is rich with nickel for the main raw material of electric vehicle batteries,” he said.
Moreover, according to Bhima Yudhistira, investment in the agriculture sector will contribute to workforce absorption and play a large role in national food security. This surpasses that sectoral impact in the short term.
“These sectors can be the economic recovery engine thanks to the multiple effects from workforce absorption. For example, the electric vehicle ecosystem and energy transition is predicted to absorb 15 million people until 2045,” he stated.
After the G20 Summit, he said that the government must follow up several direct investment and funding commitments from G20 countries so that they can be realised immediately. This means that the technical team in every ministry must be ready to follow up the investors so that there is no bottleneck.
