Indonesian FDI gearing back up

Official figures show 51% rise in fresh investment approvals.

Investments in Indonesia may not be topping the $30-billion-a-year charts as they did in the mid-1990s heyday, but they are on the rise thanks to increasing confidence in the stability of Indonesian businesses and the possibility that corruption is on the wane.

Fresh investment approvals - both from domestic and overseas sources - rose by 51% in the first six months of the year compared to the same period last year to Rp 80.85 trillion (US$8.5 billion), according to the Investment Coordinating Board.

Foreign Direct Investment (FDI) approvals increased 72% to $5.93 billion compared to the corresponding period a year earlier.

As for money in hand, as opposed to just promises, foreign companies have invested $3.4 billion into projects in the country in the first half of the year.

"I think there are some positive signs taking place," says Sebastian Paredes, president director of Bank Danamon, noting that the Philip Morris-Sampoerna deal was key to boosting investor confidence. On May 31 Philip Morris paid $2.8 billion for Philip 57.5% of Sampoerna's shares. This followed a previous acquisition in mid-March of 40% of Sampoerna's shares worth $1.8 billion.

"I think that in oil, in energy, coal, mining and all that, we are beginning to see some very interesting opportunities for infrastructure financing," he adds.

Indeed, new approvals include: 53 projects worth $540.7 million in the construction sector; 34 projects worth $531 million in the transportation sector and 22 projects worth $520 million in the mining sector.

The investment coordinating board does not track investments in banks or oil. As such it has not included the net impact of deals such as Khazanah Nasional Berhad's agreement to purchase a 52% stake in Indonesia's PT Bank Lippo, nor the agreement between state oil-and-gas firm PT Pertamina and subsidiaries of ExxonMobil Corp to develop Indonesia's oil-rich Cepu contract area of Java.

But these deals give investors confidence that the government is intent on making business a level playing field, says Ami Tantri, a JPMorgan Indonesia equity researcher in Jakarta.

The country's FDI approvals reached their peak in 1995 with a record $39.66 billion, but collapsed to $13.64 billion in 1998 at the height of the Asian financial crisis. War in resource-rich Aceh, rampant corruption and unpredictable laws contributed to a 26% decline in approved foreign direct investment to $10.3 billion for all of 2004.

But since President Susilo Bambang Yudhoyono was sworn in last October, he has officially approved investigations into 49 state and local government officials - as part of his anti-corruption campaign designed, in part, to prove to the world that Indonesia is a safe investment haven.

Still at issue is whether a peace accord reached in Helsinki over the weekend between Indonesia's government and the Free Aceh Movement rebels in Aceh province will hold. War has raged since 1976, leaving nearly 12,000 people dead, and confidence in the province weak.