In the second quarter of 2025, Indonesia experienced a notable decline in foreign investment, dropping by 6.9% compared to the same period last year. This decrease underscores the formidable challenges Indonesia faces in maintaining its competitive edge in a shifting global landscape, characterized by rising geopolitical tensions and emerging reshoring trends. These factors have compelled many businesses, particularly in the United States, to reevaluate their global strategies and prioritize domestic operations, inevitably increasing competition for investment in emerging markets like Indonesia.
In response to these pressures, the Indonesian government has recognized the critical need to strengthen its domestic capacity. The focus is now on fostering an environment that encourages local capital participation, effectively turning what could be perceived as a setback into an opportunity for homegrown investors. This strategic pivot not only aims to bolster the economy but also to enhance resilience against external shocks.
Key Facts
- FDI realization in Q2 2025: Rp 202.2 trillion — down from Rp 217.3 trillion in Q2 2024.
- Semester I 2025 total investment: Rp 942.9 trillion (49.5% of national target), absorbing 1.259 million workers.
- Domestic investment (PMDN): Rp 510.3 trillion (54.1%)
- Foreign investment (PMA): Rp 432.6 trillion (45.9%)
- Investment outside Java: Rp 476 trillion (50.5%) vs Java: Rp 466.9 trillion (49.5%)
- Sector split:
- Primary: 15.4%
- Secondary: 39.2%
- Tertiary: 45.4%
- Top subsectors:
- Basic metal industries – Rp 134.4 trillion
- Transportation, warehousing, telecom – Rp 110.7 trillion
- Mining – Rp 102.2 trillion
- Other services – Rp 85.7 trillion
- Housing, industrial zones, offices – Rp 75 trillion
Strategic Implications
The recent dip in Foreign Direct Investment (FDI) is indicative of a broader shift in the global economic landscape, characterized by a rise in protectionist tendencies and a trend toward investment nationalization. For Indonesia, this presents both a challenge and an opportunity that demands a nimble and proactive response. To successfully navigate this evolving environment, regulatory reforms must not only be implemented but also accompanied by an assertive global outreach strategy aimed at revitalizing investor confidence.
The need to mobilize domestic investors is becoming increasingly critical. It is no longer seen merely as a plan B but is emerging as a strategic pillar essential for resilience and sustainable growth. By fostering a more inclusive economic environment, Indonesia can harness the potential of local investors while compensating for the temporary lull in foreign inflows.
State-backed initiatives, particularly institutional co-investment models like Danantara, can play a vital role in instilling a sense of stability. This is crucial for attracting foreign investors who may be risk-averse in today’s unpredictable market. A robust partnership between the government and private investors can effectively signal a commitment to long-term economic stability, thereby restoring confidence among prospective international stakeholders.
Moreover, the readiness of human capital is increasingly recognized as a critical determinant in investment decisions. Accelerating talent development initiatives will ensure that the workforce is equipped to meet the demands of evolving industries, ultimately making Indonesia a more attractive destination for both domestic and foreign investments.
The geographical diversification of investment flows outside Java represents a significant and positive shift toward inclusive growth. This trend not only alleviates regional disparities but also stimulates economic activity in various parts of the country, broadening the bases for future investments.
Sectoral analyses indicate a strong inclination toward infrastructure-heavy and resource-oriented investments. Moving forward, it is imperative that these investments align with sustainable value chain strategies to ensure not just immediate economic benefits but also long-term environmental and social sustainability.
Indonesia stands at a crucial inflection point. While global economic shocks may have temporarily hindered foreign inflows, the implementation of a domestic-led strategy—anchored in regulatory reform, strategic promotion, and credible partnerships—provides a well-grounded path forward. The focus must now shift to execution, characterized by precision, pace, and the engagement of the right people.