By Adriana Nina Kusuma and Rieka Rahadiana
JAKARTA Oct 22 Indonesia attracted a record
$5.9 billion in foreign direct investment in the third quarter,
signalling that Southeast Asia's biggest economy remains a hot
favourite despite a bleak global outlook and worries about
corruption and corporate governance.
In rupiah terms, total FDI in July to September rose 22.00
percent year-on-year to 56.6 trillion rupiah ($5.90 billion),
after 30.2 percent annual growth in the second quarter. The
third quarter number is a record for any quarter.
Although the increase is less dramatic in dollar terms, and
the number is dwarfed by China's $24.34 billion FDI in the same
period, it signals that Indonesia's spotty reputation in
protecting foreign investors and other worries are being seen as
India, with an economy twice the size of Indonesia,
attracted only $4.43 billion in FDI in the second quarter.
"It's no one factor driving this investment (in Indonesia)
but the combination of a well-diversified economy and a consumer
base with optimism at an all-time high," said Arian Ardie, COO
of Terrasys Energy, a renewable energy consultancy and
Earlier this month, British-born financier Nat Rothschild
resigned from the board of Bumi Plc, one of the
world's biggest coal exporters formed with Indonesian
shareholders two years ago in a $3 billion deal. He had earlier
pressed for investigations into financial irregularities at the
company's Indonesian subsidiaries.
"The vast majority of Indonesian business people are shocked
by the appalling impression Bumi PLC has given to potential
foreign investors in Indonesia," he wrote in his resignation
"They recognise that Indonesia needs massive FDI in order to
sustain its economic growth. The Bumi PLC story is a small but
high-profile impediment to ensuring that growth."
Bumi is controlled by the powerful Bakrie family, one of the
most wealthy in Indonesia, and partner Samin Tan.
Indonesia's vast mineral wealth, and growing domestic
market, appear to be outweighing worries arising from Bumi's
According to the country's foreign investment board, base
chemicals, mining and transportation-telecommunication
industries were the main recipients of investment in the third
"There will be no impact from Bumi cases on investment in
Indonesia," Trade Minister Gita Wirjawan told reporters last
"That's because our investors see Indonesia as a long-term
investment, while Bumi is just a corporate issue which has no
relation with our investment climate."
Indonesia recorded total FDI of 175.3 trillion rupiah in
2011, rising 18 percent from a year earlier. FDI was 107.6
trillion rupiah in the first half of this year.
Some analysts however warned that foreign investment could
taper off if the government did not improve basic
"Investments in Indonesia are still rather low and FDI has
room to grow if the government invests more in basic
infrastructure," said Royal Bank of Scotland economist Enrico
Tanuwidjaja in Singapore.
"The road density hasn't been growing that much. It's the
same for rail, ports and other infrastructure."
Indonesia receives persistently bad scores in Transparency
International's corruption index. Labour unrest is also a
Last year, workers at Freeport McMoRan Copper & Gold's
unit in Indonesia staged a three-month strike at the
company's Grasberg mine in Papua in the biggest industrial
dispute in the country.
Hundreds of thousands of factory workers went on strike and
rallied on Oct. 3, demanding improvement in contracts and better
pay for 16 million outsourced workers in the world's fourth most
But increasing wealth of its 220 million people makes for a
huge domestic market, while the relatively low average age of
its population offers great potential for labour supply.
"Despite the recent strikes and all, and there are labour
law issues that need to be resolved, wages in Indonesia are
still pretty low compared to say China," said Aninda Mitra, head
of economics for Southeast Asia at ANZ Bank in Singapore.
"Moreover, a lot of the investments will be catering to
local demand. Indonesia is seen as a sizable economy with a
growing middle class and there is great potential for
manufacturing to cater to this demand."
Big-ticket investments recently announced include plans by
South Korean steelmaker POSCO to almost double its
investment in Indonesia to $11 billion over the next five years,
from $6 billion currently.
Foxconn Technology Group, the main supplier of Apple Inc
, will invest up to $10 billion in Indonesia over 5-10
years, local officials have said.
Domestic consumption makes up more than 50 percent of gross
domestic product, supported by a rising middle class and low
Indonesia's economy is projected to grow 6.1-6.5 percent in
2012, one of the fastest growth rates in Asia after China and
"Bumi may get the headlines, but that's not the Indonesia
economic story," said Ardie at Terrasys Energy.
"The economy is being driven by consumer demand, and longer
term trends of capital formation the seeds of which were planted
15 years ago."