The office of the Investment Coordinating Board (BKPM) in Jakarta. (kontan.co.id/Achmad Fauzi)
Stakeholders are looking for domestic solutions to securing investments this year after global disruptions led to a weak inflow of foreign investment in 2018.
The Investment Coordinating Board (BKPM) recorded Rp 721.3 trillion (US$51.1 billion) in investments throughout 2018, lower than the target of Rp 765 trillion, with a 8.8 percent yearly decline in foreign investment.
The BKPM deputy for investment implementation control, Agus Joko Saptono, said the board would further develop the green lane system, which accelerates the entry of imported goods for domestic production by removing physical inspections and only enforcing document inspections.
Between 2016 and 2018, 125 companies benefited from the system.
A total of Rp 374.67 trillion in imported goods used the green lane, Agus said, noting that, as a result, improvements were expected in export-oriented manufacturing, which could therefore boost investment.
“We have issued recommendations for these companies to use the green lane […] The customs and excise offices can help the companies to use it,” Agus said at a recent discussion.
Furthermore, he said the BKPM had prepared several improvements for the online single submission (OSS), a digital platform for obtaining business permits. The operation of it was taken over by the Office of the Coordinating Economic Minister in January.
Previously, BKPM head Thomas Lembong said the board would conduct a nationwide meeting with all regional investment boards to launch the next phase of the OSS.
Institute for Development of Economics and Finance (Indef) researcher Ariyo Irhamda said a poorly prepared OSS contributed to the foreign investment slowdown in 2018, in addition to monetary tightening in developed markets.
Ariyo said foreign investment dropped considerably – by 20.2 percent year-on-year in the third quarter of 2018 and 11.6 percent in the fourth quarter – at around when the government began redirecting business permit applications to the OSS.
“I checked the [OSS] website and it did not have an English version. Not all foreign firms have local partners to help them out,” Ariyo said on the same occasion. “Several investment sub-sectors were not yet available either.”
He also criticized the government for tracking only the quantity of foreign investments while ignoring quality.
Indef senior economist Muhammad Nawir Messi emphasized that the quantity of investments remained important, saying Indonesia needed an additional Rp 1.48 quadrillion in investments annually to hit economic growth of over 7 percent.
However, he said there was a lack of investment quality, as indicated by the low incremental capital output ratio (ICOR).
ICOR measures the level of investments made in a certain country compared to its production effectivity and its subsequent economic growth.
According to the World Bank, Indonesia’s ICOR was measured at 5.5 in 2016. As a high index indicates an inefficient economy, Indonesia was considered inefficient compared to other Asian countries observed in the index. Vietnam scored better than Indonesia at 5.2, followed by India, Malaysia, Thailand, Turkey and the Philippines.
“The good news is a portion of foreign investments against the GDP have been increasing since 2011,” said Nawir on the same occasion. “Nevertheless, investments in our country have not been nearly as efficient as the neighboring countries.”
According to Ariyo, the government should also address the issue of technology transfer from foreign investors.
He referred to a statement from the government about it being incapable of running the Grasberg gold and copper mine in Papua by itself after having acquired it from United States’ Freeport McMoRan, which had operated the mine for half a century.
“There are also numerous automakers that have been operating their companies in Indonesia for decades, but the government seemed to have difficulty creating its own cars,” Ariyo said.