July 30, 2024
JAKARTA – South Korea has surpassed the US and Japan to become the third-largest foreign direct investor in Indonesia as two Seoul-based companies kickstarted the archipelago’s first electric vehicle (EV) battery plant.
Investment Minister Bahlil Lahadalia revealed that South Korean foreign direct investment (FDI) amounted to US$1.3 billion in the second quarter of this year, exceeding inflows from the US and Japan at US$900 million and $800 million, respectively.
“South Korea overtook Japan; it’s normally Japan [that invests more]. This is very dynamic,” Bahlil said in a press conference in Jakarta on Monday.
The minister did not detail what specific investment had pushed up South Korea’s position but explained that Singapore and China remained in the lead with $4.6 billion and $3.9 billion, respectively.
South Korean auto manufacturer Hyundai Motor Group teamed up with LG Energy Solution (LGES) in a joint venture called PT HLI Green Power to erect Indonesia’s first EV battery plant in Karawang, West Java.
Inaugurated on July 3, the Karawang factory can produce up to 10 gigawatt-hours of battery cells a year and is meant to produce batteries for 50,000 Hyundai KONA Electric SUVs, AFP reported.
Speaking at the launch ceremony, President Joko “Jokowi” Widodo claimed the plant was “the first and largest” in Southeast Asia.
Jokowi said the factory was part of the Rp 160 trillion ($9.8 billion) in investment commitments from Hyundai and LG, which would be rolled out “in stages” over the course of years.
The President also launched a new industrial complex in Batang, Central Java, on Friday that is set to house more than a dozen manufacturers.
One of the tenants, Bahlil revealed, was South Korean KCC Glass Corporation, which he claimed would be “one of the world’s largest” glass manufacturing facilities, scheduled for production in October.
He said that LG would also build a cathode manufacturing plant in the new industrial complex.
Despite its large second-quarter sum, South Korean investment had been lackluster in the first three months of this year, which then led to a relatively low ranking for the first half.
Singapore and China were Indonesia’s biggest investors in the first half with $8.9 billion and $7.7 billion, respectively.
However, unlike the quarterly data, the US and Japan stood above South Korea for FDI in the first half, as US firms poured $2 billion into Indonesia and Japanese firms $1.8 billion.
South Korean investment in Southeast Asia’s largest economy still outstripped FDI from any European country.
Overall, Indonesia received Rp 217.3 trillion in FDI in the second quarter, which was 16.6 percent more than in same period of last year and up 6.3 percent from the preceding quarter. Domestic direct investment, meanwhile, amounted to slightly less at Rp 211.1 trillion in the same three-month period but grew at a much faster rate of 29.1 percent on the year and 7.1 percent on the quarter.
BCA chief economist David Sumual told The Jakarta Post on Monday that South Korea was on track to become one of Indonesia’s largest investors and might go neck and neck with China and Japan in the long run.
David said South Korean investment was “decently diverse”, since it went not only to the EV ecosystem, a key focus of the Indonesian government, but also to other manufacturing industries.
Given the growing dominance of Asian countries in FDI flows to Indonesia in recent years, David suggested that Western countries were missing an opportunity.
In an effort to ramp up investment from the US, Jakarta was seeking to structure new deals for nickel mining and processing in a way that would not give Chinese firms stakes of more than 25 percent, so that the archipelago could qualify for tax breaks under the US Inflation Reduction Act (IRA), the Financial Times reported on Friday, citing anonymous sources.
The IRA restricts certain benefits or incentives for firms with significant ownership or control by companies from countries the US administration labels “foreign entities of concern,” including China, Russia, North Korea and Iran.
Meanwhile, Reuters reported on Friday that Chinese companies were in talks with potential investors from Indonesia and South Korea to reduce their stakes in Indonesian nickel smelters.
Septian Hario Seto, an undersecretary at the Office of the Coordinating Maritime Affairs and Investment Minister, said those were business-to-business efforts with no government intervention, according to the Reuters article.
BCA’s David said that, should the government impose a rule aimed at limiting Chinese ownership in future deals, it would have to apply to firms from any country, as “equal treatment” of all investors and regulatory certainty were of the “utmost importance”.
Bank Permata chief economist Josua Pardede told the Post on Monday that East Asia currently had the world’s fastest economic growth, which explained the dominance of China, Japan and South Korea in investment in Indonesia.
However, on a “one-to-two-year time horizon”, the US might still invest more than South Korea in the archipelago, but that projection could change depending on the result of the upcoming US election, he said.
“If we simulate Trump winning, then it’s possible that [US FDI to Indonesia] will decline, and then South Korea’s acceleration will [see its investment] overtake [that from] the US,” said Josua.