Jakarta, Indonesia — According to a new report issued by AmCham Indonesia and the U.S. Chamber of Commerce, the United States remains the likely lead source of foreign direct investment (FDI) into Indonesia and continues to be one of the country’s most impactful investment partners. The report was funded by USAID Indonesia and released today at the 7th Annual U.S.-Indonesia Investment Summit.
This year’s investment report, entitled “Making an Impact,” found that the full scale of U.S. investment in Indonesia is not evident from official government figures, largely because it does not include the upstream oil and gas sector, which has traditionally been one of the major destinations for U.S. capital.
Research conducted for the report found that once upstream oil and gas activities are considered, U.S. companies invested at least $36 billion into Indonesia from 2013 to 2017 — almost five times the $7.78 billion recorded by the Indonesian government. This means the U.S. is likely the leading source of FDI in Indonesia in recent years, outpacing Singapore, Japan, the UK, and China.
“It can be easy to sometimes downplay the incredibly important role the U.S. plays and has played in Indonesia for decades. That is why we looked closely at the figures and the way they are calculated,” said AmCham Indonesia Managing Director Lin Neumann. “We have once again found that the U.S. is likely the biggest source of FDI for Indonesia.”
Beyond the dollar figures, interviews with government officials and industry leaders in Indonesia show that U.S. companies do more than just create jobs when they invest in a country: they build a skilled workforce, transfer knowledge and technology, support local businesses, and advocate for an improved business environment that benefits all.
During President Joko Widodo’s first term, the Indonesian government focused on deregulation to attract more foreign investors; however, the report reveals that most improvements have been in the entry phase for a new business. Once the permits are issued and the businesses are set up, the usual operational and even more fundamental problems remain, including a lack of skilled workers, contract and regulatory uncertainty, and corruption.
“With President Joko Widodo’s second term beginning and his new cabinet just announced, the American business community is eager to hear his administration’s plans for economic and regulatory reforms that will continue to open Indonesia up to foreign investors. American companies are here and ready to invest to help Indonesia reach its ambitious development goals,” said Charles Freeman, Senior Vice President of Asia at the U.S. Chamber of Commerce. “We look forward to working with our counterparts to enhance our bilateral trade relationship.”
For Indonesia to achieve its full economic potential and become a more desirable destination for foreign direct investment, AmCham Indonesia and the U.S. Chamber of Commerce recommend the following structural reforms:
1. Require public consultations prior to the issuance of regulations. Governance experts have long contended that a systematic and effective system of public consultations not only leads to better regulations, but also improves compliance and reduces enforcement costs.
2. Create a dedicated government body for regulatory impact analysis. Having a government body dedicated to this, according to the World Bank, is recognized by most developed countries as a key instrument to improve the quality of regulatory decision-making and can help to substantially reduce unforeseen problems or unintended consequences of otherwise well-intentioned regulations. This includes mapping of potentially overlapping regulations.
3. Improve coordination and communications between government bodies. Across various industries, this issue is consistent. Even if a regulation is good, inconsistent implementation and communication between government bodies can diminish its potential impact.
4. Focus on long-term goals over short term gains. A common observation by industry players and analysts alike is how policymaking in Indonesia is often “reactive” to needs and issues, instead of being a well-thought-out plan for the future. With the government focus on 2045, we are hopeful that long-term planning will guide policymaking moving forward.
The 2019 "Making an Impact" investment report was released at the 7th Annual U.S.-Indonesia Investment Summit, which brings together U.S. private sector leaders and senior Indonesian government officials for discussions on the current business climate in Indonesia and the private sectors role in U.S.-Indonesia relations.
At this year’s summit, the U.S. Chamber also launched a multi-year corporate social responsibility effort to help protect and develop Indonesia’s nine UNESCO World Heritage Sites for future generations. The Indonesia Heritage Preservation Initiative will match American and Indonesian companies with tailored projects that align with their strategic priorities or expertise, while highlighting the private sector’s key role in U.S.-Indonesia relations and its commitment to preserving humanity’s greatest treasures. The launch included representatives from the U.S. Chamber, UNESCO, and founding corporate partners – the American insurance company AIG and Indonesian law firm Adnan Kelana Haryanto & Hermanto.