Professor Ahmad Badawi Saluy from Paramadina University has responded to the recent shutdown of several foreign manufacturers in Indonesia.
He emphasizes the need for the Indonesian government to create a more investor-friendly business environment. Clear regulations and a more accommodating bureaucracy are essential to prevent foreign investors from leaving the country.
Several foreign industries that previously manufactured goods in Indonesia have relocated to neighboring countries such as Vietnam, Thailand, and India. Experts view this trend as a warning sign that Indonesia’s domestic industry is facing significant challenges.
Why Are Foreign Investors Leaving Indonesia?
According to Ahmad Badawi, Indonesia’s investment potential remains strong, but the challenging business environment is driving investors away.
“Indonesia has great market prospects, but if the investment climate is not conducive, investors will reconsider their decisions. Their main goal is to maximize profits,” he stated during an online public discussion hosted by the Institute for Development of Economics and Finance (INDEF) on February 27, 2025, as reported by kompas.com.
Regulatory Improvements Needed
Badawi highlighted key concerns for investors, particularly in financial risk management and business regulations.
“Investments often rely on financial institutions, meaning investors must ensure timely returns and account for interest rates. If our bureaucracy is too complex, taxes are high, or there is discriminatory treatment, these factors will weigh heavily in their decisions,” he explained.
Additionally, rigid labor regulations and uncertainty in industrial relations pose significant challenges. Labor costs and workforce stability are crucial factors in investment decisions.
“The labor situation in Indonesia is perceived as unstable. Frequent labor strikes can disrupt production, making investors uneasy,” Badawi added.
To retain and attract investors, the Indonesian government must prioritize economic security, business incentives, and investment protection.
“For example, Vietnam provides a more investor-friendly environment with clear labor laws and a bureaucracy that supports business operations. These factors make foreign investors feel more secure and comfortable doing business there,” he noted, as cited by bisnis.com.
Factory Closures Impact Employment
The departure of foreign industrial investments is also affecting employment in Indonesia’s manufacturing sector. The absorption rate of manufacturing workers stagnated at 13.83% in 2024 out of the total 144.64 million working population.
Furthermore, Indonesia lags behind in industrial technology adoption, with usage at only 4.5%, compared to Vietnam’s 41%, Malaysia’s 43.2%, and Thailand’s 25%.
Among the companies that recently shut down operations in Indonesia is PT Sanken Indonesia, a Japanese electronics firm that closed its manufacturing facility in MM2100 Industrial Estate, Cikarang Barat, West Java.
Similarly, Yamaha’s piano manufacturing plant also ceased operations earlier this year, resulting in the layoffs of 1,100 employees. Riden Hatam Aziz, President of the Federation of Indonesian Metal Workers’ Union (FSPMI), stated that two Yamaha musical instrument factories would be closing their production lines in phases.
This trend presents a significant challenge for the Indonesian government in fostering a more attractive investment climate to retain foreign investors and sustain job opportunities in the country.
Source: Kompas.com, bisnis.com
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