Investment Trends during Indonesian Presidential Elections

The Indonesian presidential elections have consistently been pivotal in the nation’s political landscape. The new policy will shape the future of its governance and significantly impact the realm of foreign investment. 

As Indonesia gears up for its upcoming democratic event, it’s crucial to examine how the Indonesian election can affect foreign investments moving forward.

Political Landscape in 2024

Prabowo Subianto, who serves as the Minister of Defense and the Chairman of the Gerindra Party, is running in the upcoming 2024 presidential election. He faces competition from two younger contenders. One of them is Anies Baswedan.

He is the former governor of Jakarta, who pledges “change” but has been nominated by the influential National Democrat Party, a long-time member of President Joko Widodo’s governing coalition.

Prabowo’s second rival is Ganjar Pranowo, the former governor of Central Java, who received a presidential nomination from PDIP’s Megawati. While avoiding a potentially risky endorsement, President Joko Widodo (Jokowi) is leaning towards his former rival Prabowo.

Prabowo has also publicly committed to continuing Jokowi’s policies. To bolster the credibility of this commitment, Prabowo has chosen Jokowi’s eldest son as his running mate.

How does the Indonesian Presidential Election Affect the Market?

The 2024 election holds the potential to influence investments. Based on previous elections, Indonesia’s investment growth has been somewhat impeded as investors adopt a “wait and see” approach.

According to experts, in the first half of 2023, there hasn’t been any moderation in the investment sector. However, we see signs of a slowdown in credit and savings growth as we approach the third quarter of 2023.

What is The Economic Outlook for Indonesia in 2024?

Piter Abdullah, the Executive Director of the Segara Research Institute, believes that elections do not influence a company’s investment decisions. This statement is supported by the sustained growth of investment levels in political years.

Piter explains that, so far, no investments have been negatively impacted by changes in leadership. The Indonesian government’s regulations have remained consistent. The changes that occur do not threaten the investments, and this is what investors consider.

Similarly, Peter Fanning, the Deputy Secretary-General of the Indonesia-Australia Business Council (IABC), stated that Australian investors with knowledge about Indonesia know the country’s potential. 

As the 2024 election approaches, the risks affecting the investment climate still exist, although they are relatively low. Companies tend to have a long-term target. While they seek certainty and stability, elections happen everywhere and do not permanently disrupt established plans.

Attractive Key Sectors and Industries in Indonesia

Specific sectors have consistently attracted foreign investors. Industries such as transportation, warehousing, telecommunications, metal products, equipment, and primary metals are the ones that show immersive strength.

The five attractive sectors received the most attention from foreign and domestic investors during January-September 2023. 

• Primary metals, metal goods, non-machinery, and equipment (IDR 146 trillion)
• Transportation, warehouses, and telecommunications (IDR 120 trillion)
• Mining (IDR 113.3 trillion)
• Industrial and office area housing (IDR 83.7 trillion)
• The chemical and pharmaceutical industry (IDR 76.8 trillion)

This diversity in investment interests showcases Indonesia’s dynamic opportunities to international investors in various sectors.

Investment Performance January – September 2023

Investments outside Java have already taken the lead. A recent report shows that a total investment of IDR 545.8 trillion has been made. It accounts for 51.8% of the total investment, while investments in Java amount to IDR 507.3 trillion, making up 48.2%.

Throughout the first nine months of this year, the incoming investments have created job opportunities for 1.36 million people. The initiative shows a significant increase compared to the previous year.

Investment Performance for Q2 (April-June) 2023

Transportation, warehousing, and telecommunications sectors were the most significant contributors to investment realization in Q2 of 2023. The attractive sectors netted a total investment value of IDR 43 trillion.

Following closely, other highest contributors to investment were the primary metals, metal goods, non-machinery, and equipment sectors with IDR 42.4 trillion; mining with IDR 37.9 trillion; and the industrial and office area housing sector with IDR 30.4 trillion.

The manufacturing industry accounted for 47.9% of the overall investment realization in Q2 of 2023. Between 2022 and the second quarter of 2023, the manufacturing sector consistently ranked as one of Indonesia’s leading contributors to investment.

How to Mitigate Political Risks during Elections

Businesses should consider several approaches to mitigate the political risks during political uncertainty. Those are:

1. Risk Analysis

Before making investment decisions, thoroughly research and assess the local infrastructure of an area.

2. Stay Informed about Global Issues

You can prepare and plan for potential risks by actively keeping up with local developments and policies.

3. Consult with Local Partners

You can build relationships with local consulting firms to gain better insights into the market, the local political system, and specific risks.

InCorp Indonesia provides company registration services to help you set up a business in Indonesia.

4. Utilize Local Banking

Work with local banks in the region where you conduct business to reduce financial and political risks.

5. Invest in Political Risk Insurance

Buying political risk insurance to protect your organization’s assets is advisable. 

Foreign Investment Outlook After the 2024 Election

The government assures that the upcoming general election on February 14, 2024, will not disrupt investment stability in Indonesia. Hageng Suryo Nugroho, a Presidential Staff Office Advisor, stated that in the past ten years, elections have never caused political instability in Indonesia.

The Indonesian National Authority confirms that various political issues related to the 2024 general election and the change in the presidency will not affect the Nusantara National Strategic Area (IKN) development.

Dhony Rahajoe, Deputy Head of the IKN Authority, explained that this optimism stems from viewing the IKN as a project with a secure and continuous vision, mission, and progress.

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While the 2024 election day may bring some uncertainty to businesses, the investment trend is expected to stay relatively strong. Some government officials have also assured the continuity of strategic projects, such as IKN, during and after the election.

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