Massive investment is needed for the economy to grow by 5 percent year-on-year (yoy) in 2021, with a major contribution from the private sector, according to the National Development Planning Agency (Bappenas). It further estimates that investment expenditure would have to be between Rp 5.81 quadrillion (US$372.97 billion) and Rp 5.91 quadrillion this year. “To grow the economy, investment is needed,” National Development Planning Minister Suharso Monoarfa said in a virtual presser on Tuesday. “[In our investment expenditure target], the government’s share is only between 5 and 7.1 percent, state-owned enterprises between 4.9 and 8.1 percent, and […] 90.1 percent from the private sector — or at least 85 percent.” The target marked at least an increase of 18.77 percent from last year’s investment expenditure — or gross fixed capital formation in current prices — of around Rp 4.89 quadrillion. Indonesia’s real investment expenditure, which accounted for nearly one-third of the economy, was down by 4.95 percent last year from 2019. The deepest contraction was recorded in investment in vehicles, followed by machinery and equipment. The decline in investment expenditure occurred as the COVID-19 pandemic pushed the country into its first annual contraction of around 2.07 percent last year since the 1998 Asian financial crisis. It was the largest contributor to the contraction last year.
Responding to the investment plan, Andry Satrio Nugroho, the head of the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance (Indef), said the government’s target was “not realistic” given the wide decline from last year's figure. Andry said the country’s economic recovery was expected to take place in the third quarter at the earliest, depending on the stability of the economy amid the pandemic. “I think investors will still wait and see how Indonesia’s progresses with the pandemic and whether it has recovered enough,” Andry told The Jakarta Post. The real annual growth for investment expenditure was forecast to rebound at 3.02 percent this year, according to a report released on Monday by Mirae Asset Sekuritas Indonesia. “A relatively strong performance of capital goods imports in the last two months of 2020, driven by the rupiah’s stellar performance, did not bode well for the investment figure, as most businesses were still holding back from executing their expansion plans,” Mirae Asset Sekuritas Indonesia economist Anthony Kevin wrote in the report. He added that despite improvements in the manufacturing sector in January, demand remained weak and Indonesia’s economic downturn would likely continue. Mirae Asset has revised its growth forecast for the first quarter down to a 1.5 percent yoy contraction from its previous prediction of 2.15 growth yoy. It has also revised down its full-year growth forecast to 3.85 percent, from 4.15 percent previously.
Suharso said the government, in a joint study with the University of Indonesia, estimated that the pandemic would be under control in September, as the vaccination program was expected to lower the reproduction number to 0.9 from 1.2, thus allowing faster recovery. The government remained optimistic about this year, hoping to book a rebound and annual growth of between 4.5 and 5.5 percent. For the first quarter, the government expects the economy to grow by between 1.6 and 2.1 percent yoy. This is with the assumption that the country would start rolling out its vaccination program for recipients aged 18 years and above on March 1, and that around 141 million shots would be administered to 70 million people within the timeframe. Since starting the vaccination program in mid-January, the country has inoculated around 1 million medical workers as of Tuesday. The government has estimated that it would take until March next year to reach herd immunity against the virus. “Hopefully, the economy can then start picking up faster, especially if we get additional vaccines from Pfizer, AstraZeneca and Novavax with higher efficacy,” Suharso said, adding that increasing the number of medical workers to administer the jabs would also help. Business expansion hinges on the government’s pandemic handling and demand recovery, according to Hariyadi Sukamdani from the Indonesian Employer Association (Apindo). If public activities return to normal, achieving the investment expenditure target outlined by the government is possible, he said. However, with the government imposing public activity restrictions (PPKM) in hard-hit cities and regencies across Java and Bali, the economy is expected to remain in the negative territory for the first quarter of the year, Hariyadi added. "It all comes back to the government. The uncertainty is high.”
