Three Challenges Faced by South Korea to Invest in Indonesia

December 29, 2024 | 09:18 pm

TEMPO.CO, Jakarta - Researcher from Yonsei University, Ko YoungKyung, said there are several challenges faced by foreign governments, especially South Korea when they want to invest in Indonesia. One of the obstacles is the uncertain regulations.

"Three things that become challenges (for Korea). First, uncertain regulations and policies, (second) trust issues, and (three) lack of supporting infrastructure," said Ko YoungKyung at the Indonesian Next Generation Journalist Network on Korea Workshop from the Korea Foundation and the Foreign Policy Community of Indonesia in Jakarta in early December 2024.

Ko YoungKyung explained that uncertain regulations make South Korean entrepreneurs unsure about investing large amounts and long-term in their homeland. One of the policies that he said makes it quite difficult for Korean investors to invest in Indonesia is the increase in the Domestic Component Level (TKDN) requirement from 40 to 60 percent.

He also considered the electric vehicle tax relaxation policy to be more beneficial for electric vehicle manufacturers from China than Korean companies that have built factories in Indonesia. Not to mention when there is an offer to invest in the Indonesian Capital City (IKN). "The lack of infrastructure in IKN is a barrier for Korean investors," he said.

South Korea, said Ko YoungKyung, has invested more in Vietnam. One Korean company that has invested in Vietnam for quite a long time is Samsung Electronics, since 1996. Even its research has been conducted since the 1980s.

Actually, Indonesia, said Ko YoungKyung, has various factors to attract South Korean companies to invest their capital. Some of the factors are the many natural resources in Indonesia, such as nickel, coal, and wood. He also believes that production costs in Indonesia are very competitive.

Ko YoungKyung also sees that Indonesia's 275 million population can also expand the market for South Korean products. The middle to upper income community is also growing. Finally, the large number of Generation Z and millennials in Indonesia are looking for trending products.

Ko YoungKyung also gave some suggestions to attract more investors from the ginseng country. First, the importance of the highest leaders of both countries building trust in dialogues such as at Presidential Summits. "The need for policy consistency and providing clear communication if there are changes," he said.

Deputy for Investment Promotion of the Ministry of Investment and Downstream/Investment Coordinating Board (BKPM) Nurul Ichwan responded to the issue of policy uncertainty. According to him, one of the reasons for the inconsistency of policies and regulations is because Indonesia is still a developing country. "This often happens in developing countries. Because, sometimes new things happen and there are no regulations yet," he said.

He gave an example of carbon storage and capture which was initially not regulated in Indonesia. When regulations were made, there was an influence on other laws and regulations such as Law Number 22 of 2001 concerning Oil and Gas. That is what is sometimes considered as policy uncertainty. "We will definitely continue to improve regulations. For example, regulations related to artificial intelligence (AI). Including crimes in its use," said Ichwan

According to Ichwan, data from the Ministry of Investment and Downstream/BKPM recorded five countries with the largest investment in Indonesia. Singapore is in first place with an investment value of US$14.35 billion (around Rp228 trillion), followed by Hong Kong with US$6.06 billion (around Rp96.4 trillion), China with US$5.78 billion (around Rp91.9 trillion), the United States with US$2.82 billion (around Rp44.8 trillion), and Malaysia with US$2.72 billion (around Rp43.2 trillion).

South Korea is in seventh place as the country of origin of the largest investors for Indonesia in 2023 and 2024. Last year, investment from South Korea reached US$2.5 billion (around Rp39.7 trillion). Meanwhile, from January to September 2024, the investment value has approached US$2.4 billion (around Rp38.1 trillion).

According to Ichwan, there are many opportunities for South Korean investors in the nine priority sectors of the government at this time. "The nine sectors are renewable energy, industrial downstreaming, food security, and semiconductors. In addition, the digital economy and data centers, export-oriented manufacturing industry, health, and education and vocational," he said.

Ichwan said that the government has made a number of efforts to invite direct investment (FDI) from a number of countries, including South Korea. For example, building qualified human resources and mastery of appropriate technology. The government also continues to encourage vocational training that is in accordance with company needs.

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