Indonesia received some US$43 billion in foreign investment in 2022, the highest in the country’s history and an increase of 44 percent from 2021. This was mainly supported by the metal mining industry through which the Indonesian government is seeking to develop its downstream capabilities, particularly for nickel.
According to recent data released by the Indonesian Investment Coordinating Board, or the BKPM, Indonesia received US$43 billion in foreign investment in 2022, the highest in the country’s history and an increase of 44 percent from 2021. When combined with domestic investments, Indonesia saw 1,207 trillion rupiah (US$80 billion) in investments, an increase of 34 percent from the previous year.
Foreign investment in Indonesia in 2022 was dominated by the metal mining and mining sectors, which saw more than US$16 billion in FDI combined.
For 2023, the government is expecting 1,400 trillion rupiah (US$92 billion) in combined foreign and domestic investments, and 1,650 trillion rupiah (US$108 billion) in 2024.
Top FDI sources in 2022
The top five sources of foreign investment in Indonesia are as follows:
- Singapore – US$13.3 billion;
- China – US$8.2 billion;
- Hong Kong – US$5.5 billion;
- Japan – US$3.6 billion; and
- Malaysia – US$3.3 billion.
Notable sectors that attracted major foreign investment
Indonesia’s basic metal industry tops FDI received in 2022
Indonesia’s basic metal industry sector received the most foreign investment in 2022. Data from the BKPM showed that the sector saw US$11 billion worth of FDI or some 24 percent of the total FDI the country received in 2022.
The country is seeking to exploit its abundance of mineral resources to develop its downstream mineral industry, particularly for nickel. Indonesia is home to the world’s largest nickel reserves, which are at an estimated 22 million tons, and the country is leveraging those reserves as well as other minerals to attract FDI in the development of local smelters. As such, the export value of processed nickel contributed significantly to government revenues in 2022, reaching US$30 billion; a huge increase from just US$1 billion in 2015.
Nickel mining is one of the top sectors where Indonesia is expected to see increased foreign investment in 2023.
Nickel is an important component in the production of stainless and electric vehicle (EV) batteries. Indonesia is aiming to be a global EV manufacturing hub and has targeted to become one of the top three producers of EVs and EV batteries in the world by 2027. The government has courted major EV makers, such as Tesla and China’s BYD, to establish their operations in the country.
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Further, Hyundai Motor Group, in collaboration with LG Energy Solutions, is building one of Southeast Asia’s largest EV battery factories in Indonesia – targeted for completion in 2023 and to start production in 2024. The facility is expected to have a capacity of 10 Gigawatt hours (GWh) (one gigawatt equals 1 billion watts of electric power).
FDI in the metal mining sector is expected to continue as Indonesia aims to ban more raw minerals for exports
FDI in Indonesia’s metal mining industry is expected to continue as the government looks to ban more raw minerals for export.
The ban on raw bauxite is expected to begin in June 2023 with the government hopeful that state revenue received from processed bauxite can increase from US$1.3 billion to US$4 billion. The government is also mulling a ban on copper ore and refined tin exports. Indonesia is already the world’s largest exporter of refined tin and has one of the largest copper reserves globally.
The government had previously banned the export of raw tin in 2014. However, the government is eager for investors to establish production facilities to produce other tin products, such as tin powders, tin rods, and tin chemical production.
Further, with the continued volatility of oil prices caused by the Russian-Ukraine conflict coupled with the race to reach net-zero emissions, there is a surge in demand for critical minerals. These are commodities deemed essential to generating low-emission energy – nickel, lithium, graphite, and cobalt for energy storage; uranium, rare earths, and silicon for wind, solar, and nuclear energy creation; and aluminum and copper for energy transmission.
With the abundance of these minerals in Indonesia, the country will be at the forefront of the global energy transition.
Mining
FDI in Indonesia’s mining sector reached US$5.1 billion according to the BKPM in 2022, placing the sector second behind the metal industry. In addition to mineral ores, the country is home to an abundance of coal and gold of which the majority is exported.
Indonesia is the world’s third-largest exporter of coal and the world’s largest exporter of thermal coal. Around 687 million tons of sedimentary rock were produced in 2022, from which 494 million tons were exported. For 2023, the government is targeting coal exports to reach record 518 million tons out of a total production of 695 million tons.