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Green investment – Indonesia in transition

Market Insights | November 27, 2023

2022 was a stunning year for the Indonesian economy in terms of foreign direct investment (FDI).  $43 billion flowed into the country, the highest figure ever, an increase of 44% on the previous year.  With domestic investment on the rise too, combined investment in Indonesia was up 34% on 2021. 

Almost one third of that FDI came from Singapore, and all of the top five FDI sources were from East Asia.  And the main target for these foreign investments?  Indonesia’s metals industry.  But why?

A hub for EV and EV battery production

The archipelago nation is home to an abundance of mineral reserves, including the world’s largest deposits of nickel (estimated at 22 million tons), an essential component in the production of stainless and electrical vehicle batteries.  Batteries and EVs are, of course, a sector of key (and growing) importance to the world economy.  No wonder that Indonesia aims to become a top-three manufacturing hub for EVs and EV batteries in the next few years; little surprise too, that Hyundai and LG are jointly building 10 GWh EV battery facility right now, just east of Jakarta, in Karawang, and that the government is keen to attract other EV giants establish production to its shores.

Though nickel mining and processing are by no means “green” industries, their contribution to the development of more sustainable transport is vital, and Indonesia will continue to experience the benefits not only in terms of FDI for these sectors, but also in EV production, its own green infrastructure, supporting industries, and the economy as a whole. 

Other companies are joining in too – domestic coal and energy producer Adaro, for instance, has announced a 10-year pivot towards clean energy, and also plans to spend $1 billion on Adaro Aluminium, specifically to meet the demand for EV components.

The Jakarta government has committed itself to providing strong support for EV and battery manufacturing (both fiscal and non-fiscal), as well as charging infrastructure, and aims for only electric-powered cars and motorbikes to be on sale by 2050.  2020 targets for charging stations were not realised, though, and current incentives for the ownership of EVs are not yet strong enough to bring about wholesale change in vehicle-buying habits.

Power generation

Indonesia has great potential for solar power generation – its largest floating solar plant came onstream this year in Semarang with a peak capacity of 562kW, and Singapore’s Sunseap has reached agreement to build 3000MWh plant in the Riau islands to produce electricity for local use, as well as for export to Singapore. 

However, despite targeting 23% of its energy mix to come from renewables by 2025, and rise to 31% by 2030, Indonesia lacks the new green energy production required to meet the needs of manufacturing and charging, and is still highly reliant on coal-powered generation.  Though the government has signalled a moratorium on new coal plants 2023, still 21GW-worth of coal plants remain in the pipeline; regulatory incentives are not aligned, and still favour fossil fuels, according to a recent report by Bain and Temasek. This situation raises questions about how Indonesia will transition away from reliance on fossil fuels; it also underlines the ongoing need to upgrade and maintain existing power plant.

Major transition

2022 was a breakthrough year in terms of FDI, and the coming years will be no-less transformational for Indonesia’s industrial sector.  Melcher’s experienced team in Jakarta are the essential local partner for a wide range of international equipment and component producers, as they play their part in this industrial renaissance. 

As the corporate sector forges ahead with new investment, with an emphasis on the global green economy, we are watching to see how government achieves the greater alignment of regulations, planning permissions, incentives, that will be needed in order to fully realise its targets.

Melchers in Indonesia Melchers operates through its local partner PT Melindo Dipta, established in 1981 in Jakarta specifically to handle and develop Melchers operations, and the business of Melcher’s international client companies, in Indonesia.  With offices in Jakarta and Surabaya, PT Melindo Dipta is a strong partner for the distribution of a wide range of machinery products and after-sales service within Indonesia.

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