Triggered By Global Uncertainty, Decreased Foreign Investment Not Only In Indonesia

US dollars and rupiah (Photo: Antara)

JAKARTA - The recent decline in foreign direct investment (FDI) is considered due to global uncertainty and experienced by many countries, not only Indonesia.

Chief Indonesia and India Economist HSBC Global Research Pranjul Bhandar noted that FDI's weakening in recent months has occurred in many countries, especially emerging markets. With high trade and tariff uncertainties, many corporations are reluctant to invest cross-border capital.

"So, this is more of a consequence of global uncertainty, not a special problem for Indonesia," Pranjul said, quoting Antara.

He hopes that the FDI current will flow again after the uncertainty of the tariff subsides and the new rules are confirmed, although the impact will vary between countries.

"If the new tariff rules are final, global corporate investment can start again and FDI will also flow," said Pranjul.

He saw opportunities for Indonesia to attract FDI in medium manufacturing (mid-tech) which was labor-intensive such as textiles, clothing, footwear and furniture.

Pranjul also noted that ASEAN had benefited from this sector during the first Donald Trump administration, and a new wave might occur in the next period.

Indonesia has produced these goods, but the scale needs to be enlarged. For example, the export of Indonesian clothing has only reached 25 percent of Vietnam," he said.

On the same occasion, Head of Equity Strategy Asia Pacific HSBC Global Research Herald van der Linde also agreed with Pranjul.

According to him, global investment has weakened due to tariff uncertainty, causing many companies to delay factory construction, including in Indonesia.

However, the shift in global supply chains provides opportunities for ASEAN. Therefore, Indonesia is expected to be able to attract more FDI in the medium manufacturing sector which is labor-intensive and requires skilled workers, so as to encourage demand for labor.

"This is more of a medium-term issue. Other countries are also trying to achieve the same thing. Vietnam and Malaysia have succeeded, and I think Indonesia should make sure not to be left behind (in terms of attractive FDI)," the Herald said.

Based on data from the Ministry of Investment and Downstreaming/Investment Coordinating Agency (BKPM), investment realization in the second quarter of 2025 reached IDR 477.7 trillion. Of this amount, the portion of FDI was recorded at 42.3 percent or IDR 202.2 trillion.

The realization of FDI in the second quarter of 2025 decreased when compared to the previous quarter which amounted to Rp230.4 trillion.

On an annual basis, FDI also decreased compared to the realization in the second quarter of 2024 which amounted to IDR 217.3 trillion.

In the second quarter of 2025, the largest FDI realization sub-sectors included the basic metal industry, metal goods, non-machinery and equipment amounting to US$3.6 billion (28.8 percent).

Then followed by mining amounting to 1.3 billion US dollars (10 percent), other services 1.1 billion US dollars (8.8 percent), chemical and pharmaceutical industries 0.7 billion US dollars (5.1 percent), as well as housing, industrial estates, and offices 0.6 billion US dollars (4.9 percent).