ASEAN KEY DESTINATIONS
RI may lose out to India in luring global investors
Indonesia may lose potential investment to India, which has become one of most attractive investment destinations in Asia owing to its relatively stable economic conditions and higher economic growth.
Su Sian Lim, HSBC economist for Southeast Asian region or ASEAN, said in Jakarta on Monday that India was better at fixing its domestic economy than Indonesia.
“In the past, they have often been put in the same basket. Comparisons have been made about growth, about structural reform, whose external vulnerabilities are worse and so on and so forth, but right now it looks to me, from all angles, India is doing better,” she said in a discussion on investment flow trends from ASEAN.
“The story is quite different in Indonesia [from India’s story] with ongoing pressure in commodity prices. It has hit the economy quite hard,” she said.
HSBC predicts that such cyclical slowdown will result in Indonesia’s economy expanding by only 4.7 percent this year, its lowest level in six years. Indonesia’s GDP grew just 5.02 percent last year, down from 5.6 percent in 2013.
“In 2016, it’s not going to be significantly better. We’re expecting Indonesia to expand to 4.9 percent,” she added. HSBC’s forecast is lower than the 5.5 percent growth that the government has planned in the 2016 draft state budget.
On the contrary, HSBC estimates that India’s economic growth will surge to 7.8 percent in 2015, from 7.3 percent last year, and continue to expand to close to 8 percent in 2016.
According Lim, such expansion prospects will potentially attract investments — including foreign direct investment (FDI)—into India from Indonesia and its neighbors in ASEAN.
The Indonesian government hopes the implementation of the ASEAN Single Market later this year makes the country a more attractive foreign investment destination not only to companies within ASEAN but also those from outside the region.
Even though both India’s and Indonesia’s newly elected leaders have vowed to improve the economy through structural reform, Lim argued that Indonesia was still facing numerous issues domestically that could hamper its competitiveness. As previously reported, Indonesia is eyeing a total of Rp 343.7 trillion (US$24 billion) in FDI in 2015 through a series of moves, including simplification of the “one-stop integrated service” at the Investment Coordinating Board (BKPM).
This year’s figure is an increase from Rp 307 trillion booked in 2014 and by June, the amount of FDI had already reached Rp 174.2 trillion, equal to half the target.
Lim said that the Indonesian government’s recently launched economic policy package offered a lot of benefits to foreign investors, but added that “they are going to take some time before investors actually react.”
Meanwhile, BKPM deputy chairman of investment monitoring and controlling Azhar Lubis brushed off the concerns. “We often hold talks with investors from South Korea, Japan and China and they all say that Indonesia remains a prospective investment destination,” he said.
However, he acknowledged that they would like to see what the government could do with its infrastructure plan, including electricity infrastructure, to meet the investors’ business needs.
Separately, Indonesian Institute of Sciences (LIPI) economist Latif Adam said that the government should “pay attention” to economic development in India.
“We have the same characteristics, a large population and big domestic market, but keep in mind that Indonesia has a larger middle-income bracket ratio that the government can benefit from,” he said.
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