Foreign direct investment in Indonesia rose 30.2% in the second quarter from a year earlier to a record 56.1 trillion rupiah ($5.9 billion), suggesting investors are shrugging off concerns about tighter regulation in Southeast Asia’s biggest economy.
The inflow of capital for investments in projects in mining, pharmaceuticals and other industries, reported Wednesday by the Investment Coordinating Board, will likely help ensure that Indonesia remains among the few countries posting relatively strong growth this year despite the euro-zone debt crisis and slowdowns in other major economies.
Indonesia’s strong economic growth in the past five years, its natural resources and an increasingly affluent population have been a magnet for investors in recent years, and the latest data suggest FDI this year could exceed the record $19.3 billion set in 2011.
In addition to the foreign investment, local companies spent a record IDR20.8 trillion during the April-June period, up 10.1% from a year earlier, the board said.
The increases come despite a lack of progress in the government’s efforts to improve its poor infrastructure and recent worries about regulations in industries such as mining that some analysts deem to be protectionist.
“It shows that the worries were unfounded,” said Chatib Basri, head of the investment board. “I’m optimistic that investment from both foreign and domestic investors will continue to rise in the third quarter.”
The board forecast total investment for 2012 at a record IDR283.5 trillion, after IDR148.1 trillion in the first half.
The quarterly increases were driven by mining and manufacturing, led by investment in North Maluku in a new $500 million ferro-nickel plant that is 90% controlled by Eramet SA, a French mining and metals group.
About $1 billion in FDI went to both mining and the chemical and pharmaceutical industries, $600 million for electricity, gas and water supply, $500 million for food, and $500 million for metal, machinery and electronics. Some $800 million came from investors in Singapore, $700 million from the U.S., $600 million each from Japan and Australia and $500 million from South Korea.
Most of the FDI went to projects in the provinces of East Java, West Java, Banten, Papua and East Kalimantan. About IDR34.7 trillion–some 45% of total FDI and local investment–went to areas outside Java, a 4.8% increase from the same period in 2011.
The board said first-half FDI rose 30.2% from a year earlier to IDR107.6 trillion. FDI in the first quarter of 2012 was $5.6 billion, previously the record high for a quarter.
The data came a day after Exalt Resources Ltd., an Australian resource and energy exploration company, announced it had signed an agreement to acquire Odni Holdings, a Singapore coal-investment company with rights to acquire stakes in six coal mining projects in Indonesia.
“We have focused on Indonesia because we believe it offers the best value opportunity for coal sector investors at this point in time,” Barry Tudor, chief executive of Exalt, said in a press release.
On July 5, the United Nations Conference on Trade and Development said in an annual survey of 174 companies that Indonesia ranked fourth among FDI destinations in the next two years, rising two notches from 2011 and following only China, the U.S. and India.
Still, some worry that an uncertain regulatory environment means Indonesia is losing out on even more investment.
In the latest example of a foreign company uncertain about where it stands in Indonesia, Australia-listed miner Intrepid Mines Ltd. said last week its employees were forced off of a gold and copper exploration project in Indonesia by the company’s Indonesian joint-venture partners.
While Intrepid thought it effectively controlled the project, which had discovered potentially billions of dollars worth of gold and copper reserves on the island of Java, its Indonesian partners have apparently sold their stake to a new group of investors who have forced Intrepid’s representatives to leave the exploration site.
Intrepid’s Sydney-listed shares, which were among the best-performing stocks in Australia recently, have plunged more than 50% this week on the news.
–Eric Bellman contributed to this article.
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