Special Reports / August 2019

Investment Is Key to Economic Growth

Jakarta. Indonesia's investment promotion agency will focus on attracting capital inflows into the digital economy to overcome an expected decline in the country's mining and manufacturing sectors.

The Investment Coordinating Board (BKPM) made this shift amid a slowdown in global economic growth. The European Central Bank revised its economic growth projection for this year to 1.1 percent from 1.9 percent.

The digital economy accounted for 8.5 percent of Indonesia's gross domestic product in 2018, and the sector is projected to make up 11 percent of GDP, or $130 billion, by 2020. A survey by the Indonesian Internet Service Providers Association (APJII) showed that the country had 171.7 million internet users in 2018, and that the number would continue to increase for the foreseeable future.

Hence, the government strives to make it easier for investors to keep the economy moving and create jobs. For example, it launched tax holiday policies last year, making those investing between Rp 100 billion and Rp 500 billion ($7 million-$35 million) in the country eligible for income-tax cuts of between 50 percent and 100 percent.

Investment Realization

The BKPM's investment realization data shows that investment in Indonesia grew 13.7 percent year-on-year to Rp 200.5 trillion in the second quarter of 2019. This is also 2.8 percent higher than the first quarter's Rp 195.1 trillion. Investment in the second quarter contributed 25.3 percent to the government's Rp 792 trillion target for 2019.

Cumulatively, investment in Indonesia increased 9.4 percent year-on-year to Rp 395.6 trillion in the first half. Domestic investment amounted to Rp 182.8 trillion in the period, while the coveted foreign direct investment stood at Rp 212.8 trillion. These investments created 490,715 new jobs in the first half.

Economic Growth

As Indonesia celebrates 74 years of independence, the government has highlighted the importance of human resources development. President Joko "Jokowi" Widodo has also indicated that his second-term administration would prioritize this.

Investment will be instrumental in the process of improving the capacity of Indonesia's human resources.

While the country's economy expanded 5.07 percent year-on-year in the first quarter of 2019, the government seeks to achieve a growth rate of 5.3 percent by the end of the year. To achieve this, Jokowi has set economic reform as a key point on his agenda. Some of the changes include continuing with massive infrastructure projects, untangling the bureaucracy, overhauling labor laws and attracting investors to Indonesia through tax incentives.