GREAT Institute maintains its projection that Indonesia’s economy will grow by 5.3–5.6 percent in 2026. Although the overall economic outlook remains positive, investment has emerged as one of the major challenges that needs to be addressed if Indonesia is to sustain its growth momentum while strengthening its competitive position within the region. Investment has continued to increase in nominal terms, but higher investment realization does not automatically mean that Indonesia’s competitiveness relative to other ASEAN economies has strengthened.
GREAT Institute economist Adhamaski Pangeran highlighted investment realization of Rp1,010.6 trillion in the first half of 2026, equivalent to approximately 49.5 percent of Indonesia’s full-year investment target. The figure indicates that investment activity remains strong and continues to support the country’s economic outlook. However, GREAT Institute argues that Indonesia’s investment performance should not be assessed solely by the increase in domestic investment value. The country’s position in the regional competition for investment also needs to be taken into account.
This is where Indonesia’s investment paradox becomes apparent. Foreign direct investment (PMA) and domestic direct investment (PMDN) nearly tripled from Rp693 trillion in 2017 to Rp1,931 trillion in 2025. In absolute terms, this represents substantial growth. Yet over the same period, Indonesia’s share of total investment entering ASEAN declined from 13.2 percent to 8.8 percent.
The decline becomes even more significant when viewed alongside ASEAN’s increasing importance in global investment flows. ASEAN’s share of global investment rose from 8.8 percent to 15 percent over the same period. This means Southeast Asia has become increasingly important as a global investment destination, while Indonesia has not increased its share of those regional investment flows at the same pace.
Indonesia’s challenge, therefore, is not that investment has failed to grow. Investment has expanded significantly. The problem is that other economies within the region are also growing and, collectively, are attracting investment more rapidly. GREAT Institute sees this as evidence that Indonesia must strengthen its ability to win regional investment competition rather than focusing solely on annual increases in nominal investment realization.
The situation draws attention to two important factors: policy predictability and industrial policy. According to GREAT Institute, the nature of investment competition has changed. Investors no longer compare countries only on the basis of production costs or incentives. Increasingly, they assess the overall ecosystem supporting long-term business operations.
That ecosystem includes industrial capacity, infrastructure, reliable energy, labor availability, market access, and regulatory certainty. Investment competition has therefore shifted from a simple cost advantage toward an ecosystem advantage. A country offering lower costs may not necessarily become the preferred destination if its regulations are difficult to predict or its industrial ecosystem cannot provide sufficient certainty for long-term investment.
In this context, policy predictability does not mean that regulations must remain unchanged indefinitely. Governments still need to adjust policies in response to economic developments and national priorities. However, GREAT Institute emphasizes the importance of policies that are comprehensive, coherent, consistent, and sufficiently predictable for businesses. Regulatory changes introduced too frequently or too rapidly can increase uncertainty and create additional risks that investors must factor into their decisions.
One example highlighted is the policy governing Foreign Exchange Proceeds from Natural Resource Exports, or DHE. The regulation underwent several changes over a relatively short period, through Government Regulation No. 36/2023, Government Regulation No. 8/2025, Government Regulation No. 2/2026, and Government Regulation No. 21/2026. These changes illustrate the importance of ensuring that policies provide sufficient consistency and certainty for businesses.
Changes have also occurred in land certification procedures. GREAT Institute referred to successive regulations through Ministry of Agrarian Affairs and Spatial Planning/National Land Agency Regulations No. 2, No. 5, and No. 9 of 2025. For investors planning projects over a long time horizon, repeated regulatory changes can become an additional factor that must be assessed before capital is committed.
The concern, therefore, is not that the government should never change regulations. Rather, it is about the quality of policy formulation and the consistency of implementation. When businesses perceive that the regulatory framework remains subject to frequent changes, they may decide to wait until the policy direction becomes clearer. This is particularly relevant for long-term investments, which require a reasonable degree of certainty before significant amounts of capital are committed.
The need for policy certainty becomes even more important when Indonesia’s investment outlook is considered alongside its 2027 economic targets. Under the 2027 Government Work Plan (RKP) and Draft State Budget (RAPBN), the government is targeting economic growth of 5.8–6.5 percent. To support that target, Gross Fixed Capital Formation (PMTB) is expected to grow by 6.5–7.5 percent and contribute around 29 percent of gross domestic product.
Indonesia’s investment target is also set to rise significantly. The government aims for combined foreign and domestic investment realization of Rp2,322 trillion to Rp2,469 trillion in 2027. At the upper end, this would represent an increase of around 21 percent from the 2026 investment target of Rp2,041 trillion.
Such a target means investment will need to grow more aggressively to support Indonesia’s future growth objectives. GREAT Institute argues that it would be difficult to expect investors to take greater risks while risks arising from regulatory uncertainty remain high. For this reason, higher investment targets need to be accompanied by improvements in policy quality and predictability.
Beyond the volume of investment, GREAT Institute also places significant emphasis on investment quality. Success in attracting investment should not be measured solely by the amount of capital entering the country. Future investment increasingly needs to generate added value, facilitate technology transfer, and improve productivity within Indonesia’s economy.
Indonesia’s downstream industrialization strategy is considered to have provided an important foundation. However, the next stage requires an industrial policy capable of directing investment toward sectors with higher technological intensity and greater added value. Strategic sectors highlighted include semiconductors, artificial intelligence, data centers, energy transition, and critical minerals.
Investment in these sectors is expected not merely to increase total capital inflows but also to strengthen productivity and Indonesia’s technological capabilities. This would allow investment to produce a broader structural impact on the economy rather than being assessed only through annual realization figures.
However, the development of high-technology industries does not mean Indonesia should abandon labor-intensive sectors. GREAT Institute argues that industrialization requires two engines operating simultaneously. High-technology industries are needed to increase productivity, technological capabilities, and added value. Labor-intensive industries, meanwhile, remain essential for creating employment on a large scale.
The two forms of industrial development perform different but complementary functions. Technology-intensive investment can raise productivity and strengthen industrial capabilities, while labor-intensive investment can expand employment opportunities. Investment policy therefore needs to consider not only the amount of capital attracted but also its impact on the broader economic structure and labor market.
Indonesia’s current investment landscape ultimately presents two contrasting pictures. On one hand, investment realization continues to rise, supporting optimism about the country’s 2026 economic outlook. On the other hand, Indonesia’s declining share of ASEAN investment demonstrates that higher nominal investment alone does not guarantee stronger regional competitiveness.
Investment competition is increasingly determined by a country’s ability to provide a complete and predictable ecosystem. Infrastructure, energy, labor, market access, regulation, and industrial policy form an interconnected environment influencing investment decisions. Indonesia therefore needs not only to provide investment opportunities but also to ensure that investors have sufficient certainty to operate over the long term.
Indonesia’s main task is consequently broader than simply increasing investment realization. The greater challenge is ensuring that investment grows faster relative to regional competitors, improves in quality, strengthens the industrial structure, promotes technology transfer and productivity, and generates employment.
Indonesia’s investment paradox therefore serves as a reminder that rising investment values and increasing investment competitiveness are not the same thing. Turning higher investment realization into greater economic strength will increasingly depend on policy certainty, regulatory consistency, a stronger ecosystem, and a clear industrial strategy.
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