Direct investment in Indonesian firms from foreign and domestic sources is expected to grow more slowly this year, the country's investment board chief said on Tuesday, noting that Southeast Asia's largest economy had lost out to Vietnam in the regional competition to attract funds.
Thomas Lembong, chief of the Investment Coordinating Board (BKPM), said total direct investment from both foreign and local investors will likely grow 12-14 percent annually in 2016, excluding investment in banking, oil and gas sectors. That compares with 17.8 percent growth in such investment in 2015.
Last year, foreign direct investment into Indonesia was $29.3 billion, while locals invested 179.5 trillion rupiah ($13.58 billion), according to the board's data. The sectors that received the most funds were transportation, telecommunications, electric power and mining.
"We have to admit there is a regional trend where Vietnam ... has worked hard in the past 8 to 9 years to be an investment magnet and it is reaping the results now. Indonesia must catch up," Lembong told a press conference at the palace, after a limited cabinet meeting with President Joko Widodo.
The economy posted its strongest growth in 2 1/2 years in the second quarter, at 5.18 percent. But the government announced a $10 billion spending cut this month, that forced the central bank on Friday to trim its growth forecast this year to 4.9-5.3 percent.
Widodo, whose five year term ends in 2019, has prioritized improving Indonesia's investment climate. He has already streamlined some regulations and opened up dozens of sectors to foreign funds in a move that he described as a "big bang" liberalization.
To get more investors this year, Indonesia will review and drop more regulations that have hindered investment, said Cabinet Secretary Pramono Anung.
Jakarta will also monitor and improve the efficiency of permit handling in 10 provinces where Indonesia received the most investment, Lembong added.