From FDI Pledges to Realised Projects in Indonesia

ASEAN officials gathered in Manila recently for the first session of a new training series focused on developing bankable infrastructure projects. As reported by ASEAN.org, the initiative by the ASEAN Committee on Sustainable Infrastructure (ACSI) aims to improve the capacity of member states to prepare and execute complex projects, a foundational step for absorbing investment.

For a country like Indonesia, which has attracted significant foreign direct investment (FDI) pledges in recent years, this focus on project execution is timely. The gap between announced and realised investment often comes down to institutional capacity. The training series highlights a shared regional understanding that headline commitments are only the start of a long process.

The Execution Challenge

Indonesia presents a compelling case for large-scale investment. Its economic scale, growing consumer market, and rich endowment of minerals critical to the energy transition have drawn substantial interest from global firms. High-profile announcements in electric vehicle battery production, green hydrogen, and industrial parks signal the country's ambition to move up the value chain.

However, the journey from a memorandum of understanding to an operational facility is fraught with practical hurdles. As the book "ASEAN Rising" notes, "Realised flows depend on the slower work of land, permits, power and talent reaching the ground." This is the domain of institutions, where the technical details of project development determine the pace and success of investment. Issues such as land acquisition, regulatory approvals, reliable electricity supply, and the availability of a skilled workforce are recurring constraints that can delay or deter projects.

Building Institutional Capacity

The government has made concerted efforts to address these bottlenecks. Omnibus laws on job creation were designed to streamline regulations and improve the ease of doing business. Yet, the effective implementation of these reforms across different levels of government remains a work in progress. Central government directives must be translated into consistent and predictable procedures at the provincial and local levels, where many of the key permits are issued.

Initiatives like the ACSI training program are part of the solution. By building a cadre of officials proficient in global standards for project finance, feasibility assessment, and risk management, ASEAN aims to create a more efficient ecosystem for infrastructure development. For Indonesia, this means improving the ability of its institutions to prepare projects that meet the stringent requirements of international investors and development banks. It is a direct investment in the absorptive capacity of the economy.

What to watch

The primary indicator to watch is the conversion rate of announced FDI into realised FDI in Indonesia over the next two to three years, particularly in strategic sectors like mineral processing and green energy. Progress will depend on the government's ability to sustain its reform agenda and translate improved institutional knowledge, supported by programs like the new ASEAN training series, into faster, more predictable project execution on the ground. The flow of capital will follow the path of capable institutions.