Jan

12

Foreign Direct Investment to Indonesia in 2021: The Good, the Ugly, and Things to Consider

When it comes to looking for investment options, expert advice is always welcome. On this occasion, we unveiled some consideration to investing in Indonesia.

In recent months, foreign investors pulled out of Southeast Asian equity markets as increased uncertainty caused by the coronavirus pushed them to seek safer investments elsewhere.

Consequently, this year’s stocks in Southeast Asia have decreased. Still, JPMorgan analysts believe the worst may be over. Some businesses and sectors remain enticing.

What do Experts say about Foreign Direct Investment (“FDI”) in Indonesia?

JPMorgan strategists and analysts shared their opinions last month in a press release on the Southeast Asian Nations Organization (ASEAN). “We believe the worst is likely over for ASEAN, but there remains concerned about the path and the speed of recovery,” they said.[1]

The US bank has said investors should look more at spending by industries rather than only at the nations’ distribution. JPMorgan is underweight in the finance and manufacturing sectors in all sectors in the country

But the bank is overweight in consumer staples, real estate, communication services, and select consumer discretionary stocks.

JPMorgan strategists explained that factors hampering a smooth recovery in the region include external uncertainties. For example, the result of the November presidential elections in the United States and a global economy losing steam.

Also, domestic risks, such as political uncertainties and a slower reopening of borders amid the pandemic, are likely to slow the pace of recovery, they said.

Pros and Cons of Investing in Indonesia

Strong points

  • The wide population of almost 270 million, which is a massive internal opportunity for any organization that wants to do business
  • Plenty of natural capital (timber, fishery resources, oil, natural gas, metals)
  • Superior nature habitats
  • Thanks to the growth of the middle class, domestic demand is rising.
  • The stable banking and finance industries build an economic climate conducive to sustainable development.

Weaknesses

  • High prices for unauthorized removals, up to 60 percent
  • Studies by the World Bank suggest that Indonesia’s legal and economic system is less successful than other Asian countries.
  • The corporate world also perceives justice and tax and customs administrations as inherently dishonest and arbitrary.
  • With restricted infrastructure, travel to the archipelago’s numerous islands is usually difficult, growing economic inequality.
  • The wide demographic diversity, high unemployment, and chronic poverty in certain areas worsen the inter-ethnic conflict and disrupt its stability.
  • The nation extends over more than 6000 populated islands, making it hard for transport and corporate management to extend beyond the largest island of Java, Sumatra, and Borneo.
  • The heavy dependency on commodity exports in China raises the possibility of an economic downturn in the region

How Government Motivates foreign investors

Investment benefits are open to all participants, both domestically and abroad. Specifically, there are decreases in import duty and machinery products and additional export-investor benefits and spending in some countries.

Interestingly, pioneer companies with a capital spending program worth more than $100 billion get a cut in income tax in the form of a tax holiday. Companies not entitled to tax holidays may demand a tax allowance for the intent of obtaining a decrease in tax.

Final Verdict

There are still huge investment potential and economic recovery in Indonesia. If you consider this for 2021 and beyond, it is a way to go!

However, since many unexpected things can happen, you will likely need a law firm to help you out. It helps you with the operations related to Foreign Direct Investment. On many occasions, individuals need a law firm to perform due diligence investigations, formation, compliance, merger, acquisition.

The Schinder law firm has a long history in this matter and provides preventive advice in South East Asia and extrajudicial and judicial bank claims.

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[1] CNBC, “JP Morgan says you should be putting your money in these Southeast Asian Stocks”, Yen Nee Lee, 2020, https://www.cnbc.com/2020/10/14/jpmorgan-names-top-stock-picks-in-southeast-asia-as-region-recovers.html (accessed 9 January 2021)

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