ECONOMY STILL SUSTAINED BY DIRECT INVESTMENT

There were four factors which constituted the growth assets of a nation, namely public consumption, government’s spending, direct physical investment and international trading [import & export] in the past two years when the world’s economy was sullen, the import-export factor could not be expected too much. 

In fact there was one factor to pin hope on, i.e. government’s expenditure, but whatever the reason, realization of government’s expenditure was allays below the planned budget. Many people were wondering how such could happen: plenty of money, but not spent. The answer was perhaps poor managerial capability of the governors, but in general it was truly puzzling.

Were the high ranking government officials afraid of law enforcement actions by the ant graft bodies so the governors refuse to take lead in project management in their respective office? That was probably the answer, but the fact was nearly every year there was surplus of money, which was unspent budget.

In the case then public consumption could be the source to pin hope on. Now the people are purchasing power especially that of the emerging middle class was at the peak of strength. Whatever the consumer goods, from expensive to cheap items, were bought by the people because they could afford it. It came as no surprise that domestic consumption still constituted the highest of state’s asset.

Not ignorable was the contribution of direct investment, because it had its direct impact on economy. Direct investment had its broad impact from factory building and expansion, opening of employment opportunities, promotion of welfare and reduction of poverty.

Thanks fully foreign perception of Indonesia’s economic prospect was today still positive. Indonesia’s rating of investment grade was a motivation for investors to invest their capital in Indonesia. The latest news was that foreign capital in Indonesia made their highest quarterly record in the past 3 months of this year. The attainment underscored investor’s growing interest in the emerging middle class in Indonesia.

The investment coordinating board [BKPM] reported that the total foreign investment in Indonesia over the period of January-march this year rose by 27.2% to Rp65.5 trillion, which was an increase of 22.9% in quarter IV of 2012, when foreign investment came to Rp56.8 trillion.

BKPM’s report had it that domestic investors invested their capital of Rp27.5 trillion over the same period. In the previous year, the amount was posted at Rp19.7 trillion total investment in quarter l 2013 in Indonesia rose by 23.8% to become Rp93 trillion.

Date of foreign investment [PMA] signaled that foreign investors were willing cast aside the grievances that Indonesia was getting more protective was and was not doing enough renovation of bad infra structure. In the future, many analyst and economist rated that inflow of PMA would keep increasing was expecting it to reach USD 30 – 35 billion USD.

The condition generated optimism about attainment of 2013 investment which would meet target of Rp390.3 trillion against the previous year amounting to Rp313.2 trillion. It was noteworthy that now investment orientation was shifting from plantation sector to manufacturing.

Certainly the shift was a positive thing because with the downturn of primary commodity price in the world market. Dependency on natural resources and plantation commodities must be reduced. On the contrary, the manufacturing industry must be jacked up because they created better stability and all the ensuring positive impact.

Since 2004 last, the government and business world were losing steam in developing the national manufacturing industry and tend to expand business in natural resources. Now that commodity price slumped, many companies were having setback in business so they were led “back to the straight path” and turn to manufacturing.

There was a growing interest among foreign investors in Indonesia since Fitch ratings and moody’s investor’s service promoted Indonesia’s rating from sovereign credit to investment grade by and of 2011 and early 2012.strong consumer’s demand, stable economic growth amidst economic slowdown in the western states, and abundant natural resources enhanced investors zest.

According to Mc Kinsey Global Institute report of September 2012, increased income would increase Indonesia consumers to 90 million in 2030. The figure outnumbered that of any country except china and India meaning business in Indonesia was still highly prospective.

However the World Bank still warned Indonesia in their “Indonesia economic quarterly” that it seemed investment would be hampered by failures in regulations, wrong policy making and uncertain condition toward general election of 2014.

Indonesia had to face strong competition from other export-oriented countries by the time workers’ wages, at minimum regional wages was having significant increase.

Minimum regional wags increased by 18% in all of Indonesia by 2013. In some cities and regencies the increase could even be as high as 50%. The World Bank’s warning must be responded properly by the government so continuity of economic development could be well underway.

So far Japan was the biggest PMA investor Indonesia in the first quarter with total investment in the automotive sector amounting to USD 1.2 billion. Next was South Korea with total investment of USD 800 million and the third place was Singapore with investment of USD 600 billion.

By sector, over that period invested foreign capital including miner industry totaled USD 1.4 billion, chemical and pharmaceutical industry totaled USD 1.2 billion and the metal, heavy industry and electronic industry came to USD 1.0 billion.

From the above picture, Indonesia had reason to be confident that the 6.2% - 6.5% growth would be attained, relying on direct physical investment as main contributor after domestic consumption. Investment was estimated to contribute around 35% while domestic consumption contributed 60%; government spending constituted 10%. Meanwhile contribution from overseas trading [export minus import] by net the percentage was negative, around 5 %.

 

Business New - July 26, 2013