Micro Business

The Importance of the Role of Investment in Indonesia’s Economic Growth during the Pandemic

Economic growth is usually always associated with a fertile business climate. But in fact, this also does not escape the role of investment in economic recovery in Indonesia. When viewed more deeply, actually investment itself is the root of all efforts to restore and grow the economy in Indonesia, especially amid a pandemic.

If you want to predict or analyze Indonesia’s economic conditions, both in 2020 and 2021, the things you need to know are the latest economic growth figures, the role of investment, and the efforts that have been made by the government. Here’s the full review.

Indonesia’s slowing economic growth

The World Bank, which has just released a prediction of economic growth in 2020, which is minus 2% – minus 1.6% year on year, is also evidence that Indonesia’s economic slump has reached its lowest point in the last two decades. If you look at the realization of economic growth in the first and second quarters, it can be seen that the growth rate is still at a minus level.

The realization of Indonesia’s economic growth itself reached minus 5.32% in the second quarter and it is estimated by the Minister of Finance Sri Mulyani that economic growth will rise to minus 2.9% – minus 1%. This data indicates that Indonesia is certain to enter the brink of recession. Even so, the Indonesian government is still optimistic, judging from the data obtained in the first and second quarters, that there will be positive economic growth from October until the end of the year.

This effort to calculate Indonesia’s economic condition does not escape three important components, namely household consumption, the business sector for investment, and the foreign sector for export-import.

Investment affects GDP

From the three components mentioned earlier, it can be concluded that the three are interconnected. If there is a decrease in one component, it will directly affect the other two components. This is what proves the role of investment in Indonesia’s economic recovery, especially amid the current pandemic.

National income or GDP is closely related to investment. Investment in the form of increased investment will have a positive impact on the production process in an increasingly active business, which will also have an impact on increasing household consumption.

Throughout the first semester of 2020, BKPM noted that there has been an investment realization of IDR 402.6 trillion, which covers 49.3% of the realization target in 2020. This is good news, given the unfavorable conditions due to the pandemic. Seeing this figure, BKPM is also optimistic that Indonesia will be able to meet the 2020 investment realization target.

So, what is the role of investment in economic recovery in detail? First, this investment has a positive correlation with the country’s infrastructure development. An increase in GDP will support the government’s development efforts, while the government will be more active in building infrastructure to support and attract investors.

Second, this investment will also grow the business climate. The more investments or investments made, the more new businesses will emerge. Such as MSMEs, medical devices, and housing which are some of the business sectors that are growing during this pandemic. Third, the number of emerging businesses will create more job opportunities, which will support the growth of consumer purchasing power and household consumption.

Efforts that have been made by the government

There are so many efforts that have been made by the Indonesian government to encourage economic growth, especially to encourage the role of investment in Indonesia’s economic recovery. One of the most popular is the inauguration of the Manado – Bitung toll road which will further enrich investment and tourism prospects in the North Sulawesi region.

Then, the government has also provided various policies that have made it easier for investment in Indonesia, such as the provision of tax incentives, assistance regarding credit and guarantees, ratification of the Job Creation Law (Omnibus Law), the establishment of a special task force for foreign investment, as well as the ease of the application process for business permits and investment by BKPM.

The hope is that Indonesia can optimize the role of investment in economic recovery by reconstructing labor-intensive investments and partnering with business players, including MSMEs. It can be said that the focus of the Indonesian government itself is not only on restoring the Indonesian economy, but also ensuring that the Indonesian economy will continue to advance in the coming years through a strong investment foundation.

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