East Java Attracts Second Largest Amount of FDI in Indonesia

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The Indonesian province of East Java attracted US$3.39 billion in foreign direct investment (FDI) in 2013, the second largest amount in the country after Jakarta, the capital of Indonesia. This amount represented a growth of 91.5 percent over 2010. The province has set ambitious goals to further increase the level of FDI it will receive in 2014.

In 2013, East Java accounted for 8.6 percent of the country’s FDI inflows.

The province of East Java is located on the eastern section of the island of Java.  Its capital is Surabaya, which is the second largest city in Indonesia and functions as a key industrial area and port.  It is one of 33 provinces in Indonesia.  East Java comprises an area of 47,922 km2.

Key reasons for the growth in FDI are the local government’s commitment to facilitating land acquisition and business licenses.  Currently, the average length of time to obtain a business license is 17 days.

The year 2013 saw a number of large foreign investment projects enter into East Java. These included Cargill’s US$100 million purchase of a cocoa processing factory and the US$2.5 billion investment into three geothermal projects by Turkish company Hitay.

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As the province seeks to attract ever increasing amounts of FDI, the local government has been implementing a number of changes. These include:

  • Addressing infrastructure gaps;
  • Providing substantial incentives to those investing in harbor upgrades;
  • Construction of rail links and toll roads;
  • Expanding the Juanda International Airport (three additional runways by 2017); and
  • Establishing additional city links within the province (such as the Porong-Gempol and Gempol-Pasuruan toll road projects, which are worth US$276 million).

The Indonesian government has set the ambitious goal of achieving a 15 percent increase in the amount of FDI the country receives in 2014, as compared to 2013.  This goal may be difficult to achieve, the country has seen slowing growth as of late, the International Monetary Fund has forecast a growth rate of between five and 5.5 percent for 2014, down from 6.2 percent in 2012.

However, this slowing growth has not scared away many companies.  According to the chief of Indonesia’s Investment Coordinating Board, Mr. Mahendra Siregar, Japanese investors have pledged US$3.5 billion for 2014 and half of 2015, which will be directed into industries such as electronics, automotive, finance and mining.

Indonesia’s top foreign investor countries are Japan, South Korea, China and Singapore.  When taken as a whole, Asia accounted for US$13.8 billion of Indonesia’s FDI during 2013.  Investment from the EU totaled US$2.56 billion, a substantial increase over the US$1.3 billion of 2010.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

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