What’s in this article
Every country which receives foreign investment benefits from this influx of money which comes from abroad. Money which is received by a country through foreign investment can be used by a government for various purposes. Infrastructural upgrades, projects which serve the public, and improvements of standard of living and citizen welfare can all be driven through injections of money which find their sources from investments which have arrived from other countries. For this reason, the government of Indonesia has put forth much effort to attract foreign investment from various countries around the world.
How the Indonesian Government Has Encouraged Foreign Investment
However, for many years, the Indonesian government has taken steps to encourage foreign investment in the country. One of the earliest laws related to foreign investment in Indonesia is Law No. 1 of 1967, which was subsequently amended by Law No. 11 of 1970.
The purpose of this law was to attract foreign investors to invest in the Indonesian economy with a particular emphasis on the industrial sector. The Indonesian government of that era intended to promote investment in areas without sufficient domestic development, in particular managerial areas and technological infrastructure. Law No. 1 of 1967 would go on to be replaced by Law No. 25 of 2007.
Government Reforms and Incentives to Attract Foreign Investment in Indonesia
It did even more to attract foreign investment in Indonesia by removing all duration limits on foreign investment permits issued in the country. The law aimed to create a highly efficient, transparent, and fair investment environment, attracting global investors to Indonesia.
In June 2019, GR 45/2019 was issued by the Indonesian government. GR 45/2019 was created to encourage investment in industries which were classified as labour-intensive as well as pioneer industries.
The Indonesian government defines a labour-intensive industry as one which employs a minimum of 200 workers and has labour costs of 15% or less of its total production costs. The government also specifies the official definition of a pioneer industry.
A pioneer industry is any industry which provides positive economic contributions to any surrounding area.
There have also been various other policy reforms, deregulations, and incentives which have been formulated by the government of Indonesia which have been intended to promote foreign investment in Indonesia.
Statistics on Investment in Indonesia
As a result, the Indonesian government’s efforts to increase investment in the country have begun to generate tangible positive results. According to the latest statistics, Indonesia received approximately 185.3 trillion rupiah’s worth of investment over a recent three-month period. Of this amount, a total of 108.9 trillion rupiah came from foreign sources. Investment in Indonesia rose 11.8% last year, with foreign investment increasing by 12.4% over the same period.
Sources and Sectors of Foreign Investment in Indonesia
Hence, most of the foreign investment in Indonesia comes from other countries in the Asia-Pacific region. The top four foreign investors in Indonesia were Singapore, Japan, South Korea, and China. These four countries accounted for 67.2% of all of the foreign investment which had entered Indonesia over the studied period.
West Java, Jakarta, Central Java, Banten, and Riau receive 57.5% of Indonesia’s total investment, including both local and foreign.
The sectors which receive the most investment in Indonesia are housing, electronics, electricity, food, and telecommunications. These sectors receive a total of 55.1% of all the investment, including local and foreign investment, in Indonesia.
