Indonesia Investment to Ease in 2014 as Election Looms

Investment in Indonesia may grow at a slower pace in 2014 as companies probably will delay plans before an election, providing less stimulus to an economy grappling with weaker growth and a current-account deficit.

Total investment in 2014 may grow 15 percent to about 456 trillion rupiah ($38 billion), after rising 27.3 percent last year, Mahendra Siregar, chairman of the Indonesia Investment Coordinating Board, said in Jakarta today. Total investment last year was above target and the highest since 2010, he said.

Sluggish investment, weaker external demand and higher interest rates mean Indonesia’s economic growth will slow to between 5 percent and 5.5 percent this year and next, the International Monetary Fund projected in an annual assessment on Dec. 16. The Southeast Asian nation is relying on investment to make up for flagging exports as it seeks to narrow a current-account gap that led the rupiah to be Asia’s worst performing currency in 2013.

“In the first half of this year, investment may slow as investors will wait and see to invest in Indonesia until they know who will be the winner for the election,” Eric Alexander Sugandi, an economist at Standard Chartered Plc., said in Jakarta before the data was released, referring to presidential elections scheduled for July.

The rupiah was little changed after the announcement, falling 0.1 percent to 12,125 per U.S. dollar by 12:12 p.m. in Jakarta, according to prices from local banks, after losing 21 percent in 2013.

Foreign Investment

Total investment in the October-to-December period rose 26.4 percent from a year earlier, a faster pace than 22.9 percent in the previous quarter. Foreign direct investment grew 25.4 percent, including from POSCO and Procter & Gamble Co., Siregar said.

The power and utilities industries provided the biggest contribution to foreign investment last quarter, the agency said. President Susilo Bambang Yudhoyono, whose second term ends this year, has promised to build more power stations, roads, bridges and ports to help attract investors.

The government in December announced new rules that ease some restrictions on foreign ownership, including allowing foreigners to own 100 percent of power plants built under public-private partnerships.

Mineral Processing

Domestic investment climbed 28.7 percent last quarter, led by mining. Indonesia’s PT Krakatau Steel and PT Aneka Tambang plan to invest in south Kalimantan on Borneo island, while Aneka Tambang will combine with a Japanese investor in the bauxite industry, said Azhar Lubis, the agency’s deputy chairman.

Indonesia banned mineral ore exports, including bauxite and nickel, from Jan. 12 in an effort to spur investment in mineral processing. The move is part of a wider government policy to boost long-term state revenues by turning the nation from an exporter of raw commodities into a manufacturer of higher-value products.

Indonesia expects $3.5 billion in Japanese investment by mid-2015 from expansion by existing companies, including from Toshiba Corp and in the mining, automotive and electronic industries, Siregar said on Dec. 16. Singapore led investment into Indonesia by country in the fourth quarter, with $1.5 billion, followed by Japan and South Korea.