by Prema Nakra, Ph.D.

 

The Republic of Indonesia is the largest and most populous economy in Southeast Asia with 240 million people, making it the fourth largest country in the world. Located in the heart of the economic growth in Southeast Asia, it is a vast polyglot nation that stretches more than 5,000 kilometers across the equator and is made up of more than 17,000 islands.

 

In my first article in this series, I provided an overview of Indonesia and the opportunities that exist. In this article I discuss the investment opportunities available in the country. 

 

INVESTOR CONFIDENCE IN INDONESIA

 

Indonesia is not only a growing market but also one of the most promising investment destinations in the coming decades. Foreign direct investment, which was held in check for years after the 1997 economic crisis in Asia, is also returning.

 

Having previously been overlooked in favor of other countries in Asia such as India and China, Indonesia is now hard to ignore. In 1996, the Indonesian government issued a deregulation package that simplified the tariff structure, reduced overall tariff levels, removed restrictions, and replaced many non-tariff barriers.

 

As the CIA's The World Factbook reports, key global export partners include Japan, China, the U.S., Singapore, South Korea, India and Malaysia (in that order) with total exports in 2011 to the tune of $208.9 billion. Import partners include China, Singapore, Japan, the U.S., Malaysia, South Korea, and Thailand (in that order) with total imports of $172.1 billion.

 

An estimated 400 Australian firms operate in Indonesia in a range of sectors, including mining, construction, finance and banking, food and beverages, and transport. There have been multiple two-way ministerial visits between Australia and Indonesia since September 2007. 

 

Investment Opportunities

 

Investment opportunities are ripe in all sectors ranging from infrastructure to manufacturing and services. Indonesia's large domestic market and rising income per capita makes the country a compelling investment destination for consumer goods manufacturers. Government policies privatizing many state owned enterprises, dismantling monopolies, and liberalizing regulations regarding foreign direct investment have laid the foundations for future growth.

 

Growing sectors such as mining, transportation and telecommunications in Indonesia continues to attract high levels of foreign direct investment. Indonesia enjoyed a 60% annual increase to $17 billion in 2010 and to $19 billion in 2011. In the first quarter of 2012, foreign direct investment reached $5.6 billion, which was 30% higher than the previous quarter.

 

Opportunities clearly exist, although challenges remain. In the next several articles I will detail Indonesia's value proposition and the various non-tariff barriers that could make investments in the country more risky.