It is evident that the Foreign Direct Investment (FDI) inflows to the ASEAN region reached an astonishing record amounting to around $230 billion in 2023. The increase was a slight marginal—less than 1 per cent compared to 2022—but it occurred despite a significant 10 per cent decline in global FDI (ASEAN Investment Report 2024). By this means, ASEAN has shown a third consecutive annual increase, accounting for around 17 per cent of global inflows, up from 16.5 per cent in 2022.
In view of the above, Indonesia, as part of ASEAN member states, should take a full advantage of the current FDI inflows and be able to align its comprehensive strategies to attract foreign investors. Not only that, Indonesia also should consider facing its competitors, including Vietnam, Thailand, and Malaysia. Thus, I am in the opinion that Indonesia should bring its ultimate and ambitious plan to enhance its FDI growth with an aggressive approach along with a calculated risk.
It is true that Indonesia is an attractive destination for FDI due to its strong domestic demand with a 276 million population, relatively young demographics, abundant natural resources, stable political situation, and well-regarded macroeconomic policy (US Department of States: 2023 Investment Climate Statements—Indonesia). Therefore, the aggressive approach with a calculated risk is worth trying to boost its FDI growth due to the above-mentioned reasoning.
There are six comprehensive strategies that I consider aggressive approaches that should be implemented to attract foreign investors in this regard. First, an integrated promotion between private and governmental agencies concerning Indonesia’s foreign direct investment climate. It should be noted that BKPM should be the leading vehicle along with the leading ministries. Currently, the current promotion seems not very well organized and lacks cooperation between. In view of this, I am advising the promotion should be massive, simultaneously, and integrated so we can see the impact—attracting new foreign investors, which will reflect Indonesia’s FDI flows in the foreseeable future.
Second, Indonesia should continue its ambitious plan to persuade and enforce its foreign investor to engage with downstream business activities as part of their foreign investment plan, specifically in mining and metal industries as well as the energy sector. It is important to note that the purpose itself is to create job opportunities, transfer of knowledge, and economic growth. To ensure this ambitious plan, Indonesia should have faith in its good standing and not be afraid of any compulsion from others. As an additional note while implementing this strategy, it is necessary for Indonesia to keep a good diplomatic relationship with any foreign party.
Third, strong enforcement in relation to laws and regulations along with taxation. It is true that Indonesia’s current laws and regulations are still developing to provide for legal certainty. In addition, it is important to note that Indonesia introduces its tax incentives, tax holidays, and tax allowances for its foreign investors. However, the implementation of enforcement, both legal and tax, seems still a key concern for investors in Indonesia. For the avoidance of doubt among its foreign investors, it is worth considering having strong enforcement within Indonesia’s laws and regulations along with taxation as part of investment security.
Fourth, maintaining its infrastructure development rate without the hesitation to stop. Currently, there are around 366,000 kilometers of roads in villages, 2,700 kilometres of new toll roads, 6,000 kilometres of national roads, 50 new ports and airports, 43 dams, and 1.1 million hectares of new irrigation networks that have been constructed (Investor Daily - PwC Report by Stefani Wijaya and Arnoldus Kristianus). The main goal to maintaining its infrastructure development rate is to have well-connected system between regions. By this means, Indonesia will have a better connectivity in term of their supply chain system, which will significantly lower the cost of production for business. Thus, it will provide the foreign investors with a remarkable opportunity to growth their business.
Fifth, promoting Sustainable Development Goals (SDG) as a tool to attract western investors. As initial matter, it is interesting to note that Indonesia is committed to implement SDGs to achieve a prosperous society in accordance with its national development goals. In this regard, SDGs have provided meaningful contributions as the reference for sustainable development that is universally followed by developing and developed countries, including Indonesia (UN SGD Report). The main concern in this strategy is how promoting SDG can attract the western investors? The answer relied on the characteristic’s differences between western investors whereas they are more care and ware compared with east investors, specifically China. In this regard, Indonesia can take a swing to promote investment in renewable energy and any others related area with SDGs.
Lastly, actively building an international relation with any parties whereas the non-negotiable principle of national security as the ultimate goals. By this means, Indonesia can actively participate in any international forum while promoting its foreign investment climate align with is diplomatic principle, free and active. However, it is important to keep national interest as guideline while navigating international relations to attract its foreign investors.
To conclude, it is worth noting that all of six comprehensive strategies above consider as an aggressive approach is feasible to be implemented to attract foreign investors. If the above-mentioned strategies deliver in massive, simultaneously, and aggressively, the goals to increase FDI inflows to Indonesia is likely to happen within the 5 (five) years. Thus, Indonesia can be the economic powerhouse in Asia along with Japan, China, Korea, Singapore, and India.
