Indonesia investment landscape with glowing circuits and economic growth charts

Investing in Indonesia: What Factors Really Drive Foreign Investment?

Soraya Malik in Business & Economy December 2025 • 4 min read.

"Uncover the key economic indicators and social factors that impact foreign direct investment (FDI) in Indonesia's key industrial sectors."

Indonesia, with its vast natural resources and large population, presents a compelling market for foreign investors. The country's potential to attract both local and international businesses is significant, yet realizing this potential requires a stable and supportive economic environment.

A critical component of Indonesia's industrial growth is a reliable and evenly distributed electricity supply. Over the past decade, electricity consumption within the state-owned electricity company (PLN) network has steadily increased, from 174 TWh in 2012 to 255 TWh in 2021. This demonstrates electricity's leading role in driving energy consumption compared to other sources.

Parallel to infrastructure development, Indonesia has also made substantial social progress, reflected in its rising Human Development Index (HDI). This index measures key dimensions such as education, health, and public welfare. While Indonesia's HDI has shown consistent growth, recent years have seen a slight deceleration, particularly between 2019 and 2020 due to the COVID-19 pandemic. However, the HDI has since rebounded, reaching 72.29 points in 2021, signaling ongoing improvements in social development.

Decoding the FDI Puzzle: Key Factors Influencing Investment Decisions

Indonesia investment landscape with glowing circuits and economic growth charts

Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI) in Indonesia reached Rp1,207.2 trillion between January and December 2022. The leading sector for FDI was the Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry, followed by mining, electricity, gas and water.

However, the distribution of FDI across these sectors has been uneven, underscoring the need for targeted policies to support industries that are not yet fully developed. The mining industry, for instance, has consistently attracted the highest FDI revenues compared to other sectors, recording over US$35 billion between 2012 and 2021.

Mining Industry: Leads in FDI revenues, exceeding US$35 billion (2012-2021).
Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry: Ranked second in FDI attraction.
Electricity, Gas, and Water Industry: Also a significant recipient of FDI, crucial for infrastructure development.

Geographically, FDI is concentrated in certain regions, with Java dominating FDI realization at US$263,279.6 million between January and September 2023. This concentration highlights regional disparities in investment and the need for broader distribution strategies.

Future Research: Unlocking Indonesia's Investment Potential

Future research should explore a broader range of industries with larger data sets over longer periods. Incorporating additional variables like GDP, exchange rates, or inflation will provide a more comprehensive understanding of FDI inflows. By identifying these factors, investors can gain deeper insights, and policymakers can develop targeted strategies to boost FDI and promote balanced economic growth throughout Indonesia.

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This article is based on research published under:

DOI-LINK: 10.56472/25835238/irjems-v3i7p135,

Title: Analysis Of Factors Affecting The Entry Of Foreign Direct Investment Into Indonesia (Case Study Of Three Industrial Sectors In Indonesia)

Subject: econ.em

Authors: Tracy Patricia Nindry Abigail Rolnmuch, Yuhana Astuti

Published: 04-08-2024

Everything You Need To Know

What is the Human Development Index (HDI), and how has Indonesia's HDI changed over time?

The Human Development Index (HDI) is a measure of key dimensions like education, health, and public welfare. Indonesia's HDI has shown consistent growth, reflecting social progress. It experienced a slight deceleration between 2019 and 2020 due to the COVID-19 pandemic but rebounded, reaching 72.29 points in 2021, signaling ongoing improvements in social development.

Which sectors in Indonesia attract the most Foreign Direct Investment (FDI), and why is this important?

Between January and December 2022, the leading sector for FDI was the Basic Metal, Metal Goods, Non-Machinery, and Equipment Industry, followed by mining, electricity, gas and water. The mining industry has consistently attracted the highest FDI revenues. This is important because the distribution of FDI across sectors highlights the need for targeted policies to support industries that are not yet fully developed. FDI supports economic growth, job creation, and technological advancements in these sectors.

How does the electricity supply in Indonesia influence foreign investment, and what are the trends?

A reliable and evenly distributed electricity supply is a critical component of Indonesia's industrial growth. Electricity consumption within the state-owned electricity company (PLN) network has steadily increased, from 174 TWh in 2012 to 255 TWh in 2021. This demonstrates electricity's leading role in driving energy consumption and is crucial for attracting and supporting foreign investment in various sectors.

Where is FDI concentrated geographically within Indonesia, and what are the implications?

FDI is concentrated in certain regions, with Java dominating FDI realization at US$263,279.6 million between January and September 2023. This concentration highlights regional disparities in investment. It implies a need for broader distribution strategies to ensure that other regions also benefit from foreign investment, promoting more balanced economic growth across the country.

Beyond current key factors, what additional variables could enhance the understanding of Foreign Direct Investment (FDI) inflows in Indonesia?

Future research should explore a broader range of industries with larger data sets over longer periods. Incorporating additional variables like GDP, exchange rates, or inflation will provide a more comprehensive understanding of FDI inflows. Analyzing these factors will help investors gain deeper insights and enable policymakers to develop targeted strategies to boost FDI and promote balanced economic growth.