In this page: FDI in Figures | What to consider if you invest in Indonesia | Protection of Foreign Investment | Procedures Relative to Foreign Investment | Office Real Estate and Land Ownership | Investment Aid | Investment Opportunities | Sectors Where Investment Opportunities Are Fewer | Finding Assistance For Further Information
Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).
According to UNCTAD's World Investment Report 2022, FDI investment in Indonesia declined by 22% between 2019 and 2029, recording USD 18.59 billion, because of a 58% drop in investment in the manufacturing industry as a result of the economic crisis triggered by the Covid-19 pandemic. Moreover, two key sources of FDI fell: inward investment from Japan dropped by 75% to USD 2.1 billion and investment from Singapore by almost 30% to USD 4.6 billion. It reached USD 20.08 billion in 2021. The FDI stock reached USD 240.56 billion in 2020 and 259.26 billion in 2021. Prior to the outbreak of the Covid-19 pandemic, FDI flows to Indonesia had grown and their base had expanded due to resilient economic growth, low public debt and prudent fiscal management. FDI growth was attributed to a series of economic policy packages that had been implemented by the Indonesian government over the last years, mainly focusing on deregulation, law enforcement and business certainty, interest rate tax cuts for exporters, energy tariffs cuts for labour-intensive industries, tax incentives for investment in special economic zones and lowered tax rates on property acquired by local real estate investment trusts. Moreover, Indonesia lowered the minimum equity requirement for foreign investors and abolished the approval requirement for several business transactions involving foreign investors. The policy of liberalisation has enabled Indonesia to rank 17th among the top 20 host economies. Japan remained the largest source of investment, followed by Singapore, the UK, Thailand and the USA. The stock of FDI is concentrated in the manufacturing, financial intermediation, trade and mining sectors.
Indonesia has been a big-ticket recipient of Chinese investment for some time. As a trillion-dollar economy in its own right, the country offers opportunities in various sectors and not just infrastructure builds. These include the digital economy, healthcare, and finance, among others.
The Indonesian government has managed to improve the overall economic climate by consolidating political and economic stability and through structural reforms that have removed some investment risks. However, several obstacles remain, such as the rising cost of credit, excessive and unpredictable regulation, the poor quality of infrastructure, the terrorism risk and a high level of corruption. A recent Constitutional Court decision granting more regulatory authority to regional governments could pose a challenge to ongoing investment climate improvements. In the long term, however, Indonesia's current economic situation may may provide the right time to invest in the country, especially in its financial instruments.
The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in Indonesia and Asia-Pacific in 2022 and 2023.
|Foreign Direct Investment||2020||2021||2022|
|FDI Inward Flow (million USD)||18,591||21,131||21,968|
|FDI Stock (million USD)||240,564||259,697||262,920|
|Number of Greenfield Investments*||64||73||96|
|Value of Greenfield Investments (million USD)||20,300||8,248||15,016|
Source: UNCTAD, Latest data available.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
|Main Investing Countries||2020, in %|
|Main Invested Sectors||2020, in %|
|Transportation, Storage, and Communication||12.1|
|Wholesale and retail trade||11.5|
|Mining and quarrying||10.2|
|Electricity, gas and water supply||8.2|
Source: Bank Indonesia, Latest data available.
Advantages for FDI in Indonesia:
Disadvantages for FDI in Indonesia:
|Country Comparison For the Protection of Investors||Indonesia||East Asia & Pacific||United States||Germany|
|Index of Transaction Transparency*||10.0||5.9||7.0||5.0|
|Index of Manager’s Responsibility**||5.0||5.2||9.0||5.0|
|Index of Shareholders’ Power***||2.0||6.7||9.0||5.0|
Source: The World Bank - Doing Business, Latest data available.
Before conducting business in the abovementioned sectors , approval must be obtained from the competent organization BKPM.
Indonesia benefits from the assistance plan of the European Union and of USAID. For the USAID program, the national organization in charge of carrying it out is the Indonesian Plan of assistance to commerce (ITAP), whose task is to reinforce the capacities of public administrations in analysis, negotiation and setting up of bilateral and multilateral trade agreements. The ITAP works directly with the Ministry of Commerce to ensure training which will help Indonesian companies to find more openings on the international markets. The Program of support for commerce (TSP), which is in charge of carrying out the assistance program of the EU, devotes itself mainly to training and broadcasting information, as well as market research. The beneficiaries of this program are those who engage in international commercial activities in Indonesia, in particular exporting SMEs, who can thus increase trade with their counterparts in other countries and in the EU. European companies which buy in Indonesia will find more reliable products, more in conformity with European standards, while European companies which export to Indonesia, or which operate in the country, should also benefit from simplified import procedures.
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Latest Update: September 2023