Jakarta Globe | Insight
Foreign investors have dismissed concerns that rising religious radicalism will derail future investments into the world's largest Muslim-majority country and Southeast Asia's largest economy. (Antara Photo/Zabur Karuru)

Foreign Investors Not Deterred by Radicalism

Jakarta. Foreign investors have dismissed concerns that rising religious radicalism will derail future investments into the world’s largest Muslim-majority country and Southeast Asia’s largest economy.

Foreign investors, who have poured over $133 billion into various projects across the country over the past decade, believe the current administration has been exceptional in preventing terror attacks.

Mark Magee, vice chairman of the European Chamber of Commerce (Eurocham), said many European investors are not overly concerned with rising radicalism in Indonesia specifically, due to its upwards trend in countries across the globe, including those in Europe.

“We are living in one world. Specifically, with regards to Indonesia, we see [radicalism] as a global issue. So, if you are investing, this is one of the risks that you must look at. There is a whole range of risks that anybody investing in a new country [must consider],” Magee told the Jakarta Globe.

Magee, who is also a director at IKEA Indonesia, believes that the Indonesian government has been effective in tackling radicalism and drawing more foreign direct investments into the country.

Magee continued, saying that investors prize the country’s ability to hold successful democratic elections and maintain peace during government transitions.

“Indonesian elections are always tense […] but the message from European investors is that we are confident in the government’s ability to maintain law and order so that good business practices may continue,” he said.

Investors’ confidence in doing business in the country remains high, according to the 2016 Joint European Chambers Business Confidence Index, released in April. More than one-third of businesses based in the country are poised to make further investments over the next two years.

Growing Investment

Foreign investors are expected to pour as much as $29 billion in new investments this year, more than four times the sum of foreign investments a decade ago. Data from the Investment Coordinating Board (BKPM) also reflected investors’ confidence, which reported that total FDI increased by 15.5 in the second quarter this year to $8.2 billion from the same period in 2016. Most new investments were channeled into raw material processing and infrastructure developments.

E.N. Venkat, a partner at Indian venture capital firm Aavishkaar, which has invested in several many Indonesian start-ups, said: “We are tending not to look at short term trends. We are planning to be in [Indonesia] for a long time, and from what I see the foundation for growth remains strong.

Indonesia, home to more than 250 million people, grows annually by around 5 percent. The country’s currency has been stable over the past few years, while Bank Indonesia, the country’s central bank, has stored reserves to fend off any external shocks, Venkat said.

China, one of the largest investors in Indonesia, also continues to expand its investments in the country despite rising anti-Chinese sentiment in the country.

“By far, there has been no significant impact from growing anti-China sentiment. Investments [from China] are still increasing and the quality is also increasing as most of the investment is in capital-intensive sectors, like in oil and gas and tourism,” said BKPM chairman Thomas Lembong.

Chinese investments reached $2 billion in the first half of 2017, nearly a 100 percent increase from the corresponding period last year.

Hong Kong Financial Secretary Paul Chan Mo-po, who recently visited Indonesia to look at new investment opportunities into infrastructure projects here, said investments shouldn’t be affected by radicalism.

“I think it’s a question of management and also a question of understanding if the project to be picked is in the genuine interest of the country […] then I think the people will naturally support it,” Chan said, adding that investors may need to “tread carefully” based on individual projects to minimize risk.

Red Tape, Labor and Infrastructure

Lin Neumann, the managing director at the American Chamber of Commerce in Indonesian (Amcham), said investors consider government regulations, the rule of law, market conditions, infrastructure and the availability of labor before pursuing projects in the country.

“Investors remain keen to invest here but decisions to invest are impacted much more by the factors above than by worries over intolerance or radicalism,” Neumann said.

Indonesia jumped 15 places in the World Bank’s “Doing Business 2017: Equal Opportunity for All” report to 91 out of a total 190 countries assessed, reflecting progress under President Joko “Jokowi” Widodo to ease regulations and spur business.

Compared to other countries in the region, Indonesia is a stable and functioning democracy with a popular, elected president, Neumann said, adding that government security forces have been effective in containing threats in recent years.

“We believe that Indonesia remains by and large peaceful and tolerant and we sincerely hope it stays that way,” he said.

Writing and additional reporting by Dion Bisara