Indonesia sees spike in Japanese investment

Posted on 27 October 2016

Source: The Jakarta Post

Japan’s direct investment into Indonesia is poised to hit the highest level in three years as business confidence improves with new domestic sectors and upstream industries being targeted by the Asian economic powerhouse.

Foreign direct investment (FDI) from Japan to Indonesia is set to reach between US$3.5 billion to $4 billion by the end of the year, according to the Japan International Cooperation Agency (JICA).

For the first six months of the year, direct investment from the country of sakura reached $2.9 billion, equal to the total amount throughout 2015, data from the Investment Coordinating Board (BKPM) showed.

In the past five years, Japan has invested over $2 billion per year in Indonesia, except for 2013 when it poured out $4.7 billion thanks to automobile firms Yamaha and Honda’s major investments.

“Now our confidence for Indonesia is improving, though legal uncertainty can still be fixed further,” JICA advisor Yamazaki Norio said after a BKPM and Japanese business community forum in Jakarta on Monday.

Japan’s investors are currently working on major projects in Indonesia, including the $3 billion Patimban Port project in West Java, which is still in the pipeline and will serve as an alternative to the country’s congested main trade hub Priok Port, as well as the ongoing $1.4 billion MRT project in Jakarta.

The government will also offer the upcoming 200-kilometer Jakarta-Surabaya high-speed train project to Japan, after the country lost to China in a bid to construct Indonesia’s first ever high-speed railway connecting Jakarta and Bandung in a $5.1 billion project.

JICA said investment trends from Japanese businesses in Indonesia had moved gradually from automobiles to upstream industries like steel, such as Krakatau Nippon Steel Sumikin (KNSS) that produces steel for automobiles, or major firm Asahimas Chemical with chemicals for making plastics.

“If in the past, Japan invested a lot in cars and motorcycle production, now they are going upstream to produce the raw materials for [the] automotive [sector] like steel and plastic chemicals,” Norio said.

The food and beverage, logistics, IT and retail sectors are also of interest for Japan’s investors, said Japan External Trade Organization (JETRO) president director Daiki Kasugahara.

Still, as 80 percent of the investments are concentrated in West Java, Japanese investors are being urged to tap into other regions.

In the past, businesspeople set up electronics factories in Batam but over time, the investment climate became unsupportive, resulting in dozens of them moving out, said Kasugahara.

“Hundreds of companies, especially electronics, could be found in Batam in the past but have reduced in number to [...] 27 now as a result of rampant labor demonstrations and legal uncertainty,” he added.

Batam Indonesia Free Zone Authority (BP Batam) deputy chairman for public services Gusmardi Bustami acknowledged the fact but quickly added that reform efforts would boost the region, which is accessible within 30 minutes from world business hub Singapore.

“We set lower land prices for the processing industry to employ more of our skilled workers,” Gusmardi said, promoting the region that has a 350,000-strong workforce and dozens of vocational schools and universities.

Land procurement has also been made more certain with stricter law enforcement in Batam that has allocated 68 percent of its approximately 45,692 ha land area for industrial and residential purposes.

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