Indonesia is currently still facing serious challenges in winning the manufacturing sector investment competition in Southeast Asia. Despite having an abundance of industrial zones, Indonesia's attractiveness is said to remain less competitive compared to neighboring countries such as Vietnam, Thailand, and Malaysia.
Yusuf Rendy Manilet, an economist at the Center of Reform on Economics (CORE) Indonesia, revealed that the main obstacle faced by investors is no longer land availability. This is because Indonesia already has around 180 industrial zones scattered across various regions.
The fundamental issue making investors hesitant is the efficiency of business costs. Yusuf highlighted Indonesia's high logistics costs, which reach 14.3% of GDP, far exceeding neighboring countries. In addition, the relatively high Incremental Capital Output Ratio (ICOR) indicates that capital utilization to generate output is not yet optimal.
Furthermore, revamping the logistics sector is an urgent agenda that the government must address immediately. This includes improving port connectivity, accelerating customs bureaucracy, as well as regulatory certainty regarding raw material imports and energy stability. Without these structural improvements, increasing the number of industrial zones will not have a significant impact on boosting foreign direct investment (FDI).
Responding to the discourse on expanding investment from Russia, Yusuf suggested that the government be realistic. Given that Russia is not yet among the top investors in the country and due to the influence of international sanctions, this step is seen as merely network expansion rather than a guarantee of large capital inflows into the manufacturing sector in the near future.
The government is expected to focus more on creating a mature industrial ecosystem, where the occupancy rate of industrial zones becomes the primary indicator of success. Legal certainty and operational cost efficiency will always be key considerations for global investors before deciding to invest in Indonesia.
