Indonesia Investment Notes

Macroeconomics and Economic Growth

Key Equation

Y=C+G+I+(X–M)Y = C + G + I + (X – M)

Where:

  • Y = National Income (GDP)

  • C = Consumption

  • G = Government Expenditure

  • I/S = Investment / Savings

  • X = Export

  • M = Import

Economic growth is achieved by increasing national income, which requires exports (X) to be greater than imports (M).

Factors Determining Economic Growth

  1. Availability of resources

  2. Technology

  3. Productivity

  4. Trade

Innovation further spurs economic growth by:

  • Economies of Scale: Reducing average cost per unit as production increases.

  • Automation and Efficiency: Enhancing productivity and consistency.

  • Lower Variable Costs: Reducing ongoing costs after initial investment.

  • Consistency and Quality: Maintaining higher production standards.

R&D Expenditure

  • Developing countries: R&D is primarily funded by the government.

  • Developed countries: R&D is mainly funded by the private sector.

3i Strategy for Upper Middle-Income Countries

  • Investment and Infusion (1i to 2i): Focus on technology adoption and domestic spread.

  • Innovation (2i to 3i): Emphasize economic productivity over capital.

Winning the Competition

  • High Productivity: Requires higher HR quality, technology utilization, and innovation.

  • Efficiency: Requires proximity to natural resources, sufficient infrastructure, and high investment incentives.

Key Indicators for Efficient Production

  • Sufficient infrastructure and connectivity.

  • Streamlined licensing via the OSS (Online Single Submission) system.

  • Relevant and regularly updated regulations.

  • A competent workforce achieved through education and training programs.

Infrastructure Development

President Jokowi's administration focused on national infrastructure development to reduce logistics costs, promote equitable investment distribution, and attract foreign investment.

ICOR and Economic Growth

  • Since 2015, Indonesia's ICOR has been greater than its economic growth, indicating low investment efficiency.

  • Improving human resource quality is essential to enhance capital utilization efficiency.

Human Development Index (HDI)

Indonesia ranked 112th out of 199 countries in 2024.

Government Efforts to Improve Skills

  • Super tax deductions for businesses providing vocational training programs.

  • The Prakerja Card program to improve human resource competency.

  • Presidential Regulation Number 68 of 2022 on revitalizing vocational education and training.

Investment Climate Improvement

  • Risk-based licensing approach for simpler licenses.

  • Harmonization and simplification of regulations through the Omnibus Law UU 6/2023.

  • Centralized investment authority delegated to the Ministry of Investment/BKPM.

Policies in the Pipeline

  • Simplification of business license issuance.

  • Updates to the Priority Investment List to open up more sectors for foreign investment.

  • Revisions to align with current economic conditions.

Triple Helix Collaboration

Synergy between Industry, Academia, and Government to achieve common goals.

Global Risks

  • Weakening economic growth

  • Natural resource crisis

  • Armed conflict

  • Social polarization

  • Misinformation & disinformation

  • Trade war

These risks are interrelated, affecting economic, environmental, and geopolitical landscapes.

Climate/Environmental Issues

Businesses must address climate/environmental issues as a major global risk, but competition can fuel a