JAKARTA (Reuters) - Indonesia is aiming to increase foreign direct investment by 23 percent this year, after record inflows in 2012 helped insulate Southeast Asia’s largest economy from a slowdown in exports.
Direct investment in the final quarter of 2012 rose 23 percent to 56.8 trillion rupiah ($5.91 billion), taking full year FDI up 26 percent to around $23 billion, the country’s investment board said on Tuesday.
Strong investment was driven by the mining, transport and chemicals sectors, showing firms shrugged off worries over policy uncertainty, corruption and weak infrastructure to seek returns in an economy growing at more than 6 percent.
“Investors at home and abroad have responded positively to efforts to improve the investment climate by central and regional government, more attractive investment incentives and integrated campaigns,” said Chatib Basri, the country’s investment chief, at a news conference.
Foreign inflows to the G20 economy have increased significantly since Indonesia regained investment grade status from two rating agencies a year ago. Investment makes up around 30 percent of the G20 economy.
Though the headline figure was far smaller than the $111.7 billion in FDI that China attracted in 2012, Indonesia remained attractive to foreign investors compared with its Southeast Asian neighbors. Vietnam, for example, estimated its FDI fell by 5 percent to $10.46 billion in 2012.
Basri did not give details on the firms investing. Mining was the biggest sector, despite a series of new rules that limited foreign ownership and restricted exports. Freeport McMoran Copper & Gold Inc (FCX.N) is the biggest existing mining investor.
Indonesia is keen to draw investment in transport to improve strained infrastructure from airports to railways, and wants investment in chemical manufacturing to turn the country’s oil and natural gas output into higher value products.
L’Oreal (OREP.PA), the world’s top cosmetics group, opened its biggest factory globally in Indonesia this year, one of many consumer firms eyeing spending by the country’s emerging middle class. L’Oreal sees sales in Indonesia growing 30 percent this year to make it the firm’s fastest growing Asian market.
The investment board recently approved a license for tech giant Apple (AAPL.O) to open official stores in Indonesia, Basri said. Basri told Reuters last year that he was confident as the country had $75 billion of FDI in the pipeline.
The increases in FDI have had an negative side, leading the country into a wider current account deficit as a result of surging imports of capital goods and raw materials and falling commodity exports and putting pressure on the rupiah.
While direct investors pour into the country and the stock market .JKSE hit a record high this month, portfolio investor sentiment has turned more neutral or bearish because of the rupiah, with increased trading on offshore currency derivative markets to hedge bets on rupiah assets.
The government and the central bank last week instructed state-controlled oil and gas firm PT Pertamina to stop buying dollars from the open market, an effort to support the currency, which was Asia’s worst emerging market performer last year.
Nissan Motor Co (7201.T), among many automakers expanding production in the country, said recently the rupiah was a worry for its economic outlook for the country.
Sharp hikes in minimum wages are also a concern for labor intensive industries such as textiles, footwear and plantations. Some South Korean investors have closed down factories to relocate to other countries after the government declined their requests to be exempted from the wage hike regulations, the Jakarta Post newspaper reported on Monday.
But Basri said there were no companies that had notified him they wanted to withdraw investment from Indonesia.
“We don’t expect foreign investors to stop coming into Indonesia, especially noting the fact that infrastructure upgrades are ongoing in the country over the next three to five years,” said Gundy Cahyadi, an economist at OCBC in Singapore.
“What’s more important for the country is that there is a need to continue enhancing workers productivity, especially in the manufacturing sector, which has been a laggard relative to the region.”
($1 = 9,617.5 rupiah)
Writing by Neil Chatterjee; Editing by Alex Richardson