Foreign investors are ‘making it rain’ on Indonesia

Last month, Indonesian (IDX, quote) trade minister Gita Wirjawan announced that Indonesia’s foreign direct investment rose 30.3% in the first quarter of 2012, to a record high of $5.6 billion from $4.3 billion during the same period last year.

Image courtesy Mac Coates: http://www.everystockphoto.com/photographer.php?photographer_id=142335

Indonesia's capital Jakarta lashed by monsoon rains

“The rise of foreign direct investment has been the highest in Indonesia`s foreign investment history on a quarterly basis,” said Gita, also head of Indonesia’s capital investment coordinating board.

April saw the government sell $2.5 billion in 10- and 30-year bonds, while state oil and gas company Pertamina raised another $2.5 billion selling 10- and 30-year bonds to Asian, European and American investors.

Foreign investors sank $1.1 billion in mining; $800 million in warehouses, transportation and telecommunications; $500 million in food crops and plantations; $500 million in the basic metal, metal goods, machinery and electronics industries; and another $400 million in transportation equipment and related industries.

While Singapore was Indonesia’s largest foreign investor, acquiring $1.2 billion in assets, Gita attributed strong Japanese and South Korean investment for the record increase.

But what may be even more attractive to investors are the maturing tastes of Indonesia’s rising middle class.

With the economy growing more than 6% last year and interest rates at a record low, foreign companies like Ikea, giant French supermarket chain Carrefour (CRRFY, quote), Starbucks (SBUX, quote), South Korean department store Lotte (LTTTF, quote) and luggage-maker Samsonite (SMSOF, quote) are moving in to satisfy new demand for home furnishings, foreign foods and travel items.

Consequently, Ikea is set to open its first outlet in the archipelago in 2014 and Starbucks, which has over 100 Indonesian locations, is planning to expand even further.

“We are going to continue to see Indonesia as a big growth opportunity for the company,” John Culver, Starbucks’ head of China and the Asia Pacific, told Bloomberg.

With more Indonesians traveling domestically and internationally, Samsonite is seeking to increase sales by “double digits” this year, according to CEO Tim Parker.

Still, Gita understands that Indonesia must continue to enact policies that will attract investment amid a dim global outlook and to tackle chronic infrastructural obstacles.

“Foreign investment performance has been increasing right now,” he said, “but economic conditions in various regions like Europe and the U.S. have not yet fully recovered. So, hard work is still needed to improve the investment climate and ensure that investment prospects in Indonesia are bright.”

Indonesia is not insulated from the global economy – growth slowed moderately last quarter, but economists remain positive that consumption and foreign investment will keep the country’s economy stable, reports the Financial Times:

“The economy expanded 6.3% in the first quarter of 2012, down from 6.5% growth in the previous three-month period but in line with most forecasts. The slight drop in growth represents the first slowdown in a year.”