A new report reveals that U.S. companies plan approximately US$61 billion in new investment in the country over the next three to five years — provided that the investment environment is conducive and welcoming.
The new study, commissioned by AmCham Indonesia and the US Chamber of Commerce, notes that the extent and scale of US investment in Indonesia has been greatly underestimated. The study estimates that from 2004 to 2012, U.S. foreign direct investment in Indonesia totaled US$65 billion, much more than official data indicates. This total makes the United States potentially the largest investor in the country over that period.
"Indonesia needs a continuous flow of foreign direct investment if our economy is to continue its dynamic growth. We are encouraged to see that US FDI is even greater than what has been previously known," says KADIN chairman Suryo Sulisto.
“This study shows that American investment is benefitting the Indonesian economy in ways that transcend the simple dollar figures,” says Thomas J. Donohue, president and CEO of the US Chamber of Commerce. "US companies are boosting local productivity, investing in their employees, and making significant long-term contributions to the communities in which they operate."
In addition to quantifying past economic impact, the study assesses future investment potential from US companies, as well as obstacles that could negatively impact future investment. According to the report, US companies plan approximately US$61 billion in new investment in the country over the next three to five years — provided that the investment environment is conducive and welcoming.
The study also details the tremendous downstream benefits to the Indonesian economy from US investment. The study shows that US companies directly employ approximately 183,000 Indonesians at competitive wages, and from 2007 to 2012, indirectly supported more than 1.7 million Indonesian jobs.
During the same period, these companies’ average employee-training budgets increased by 150 percent. Additionally, companies included in the study spent an average of US$5.8 million in 2012 on Corporate Social Responsibility (CSR) programs, an increase of 95 percent since 2007. The study also found that US companies in Indonesia provide their employees with a broad range of mentorship, training, tuition assistance, courses in management and language, and other learning experiences.
Further, US firms spread knowledge and technology by extending global best practices into the domestic sphere and value chain, and via labor mobility from US to domestic companies. This, in turn, positively impacts productivity in the domestic economy.
While Indonesia has enjoyed robust growth in recent years, the report cites several challenges to maintaining its attractiveness to continued large-scale FDI inflows. These challenges include:
• Regulatory uncertainty, abrupt changes in regulations, and gaps in implementation and enforcement
• Insufficient hard infrastructure, such as ports, roads, and railways, to support longer-term high economic growth
• A shortage of sufficiently skilled and educated workers.
While the study clearly demonstrates that American companies are committed investors, it also sends a cautionary signal that Indonesia urgently needs to provide greater legal and regulatory clarity and predictability to continue to attract investment, according to Wijayanto, managing director of Paramadina Public Policy Institute.
Adds Suryo Sulisto: "As for the policy issues, we hope to see greater cooperation and consultation between private investors – both foreign and local – and the government in developing business-friendly policies that will help drive growth."