UNAIR NEWS — The recent decision by South Korean electric vehicle battery manufacturer, LG Energy Solution Ltd., to pull out of a major investment project in Indonesia has sparked widespread attention. The $11 trillion rupiah project was canceled due to shifts in the global electric vehicle battery industry. Professor Rossanto Dwi Handoyo, SE, MSi, PhD, a senior faculty member at Universitas Airlangga’s Faculty of Economics and Business (FEB), shared his insights on the issue.
Prof. Handoyo noted that Indonesia holds strong potential as a destination for electric vehicle battery investments, primarily due to its rich natural resources. However, he emphasized that foreign investors weigh many factors beyond resource availability when considering where to invest.
“Investors are closely watching the broader investment climate in Indonesia. If they feel the environment is unfavorable, they will not hesitate to withdraw,” Prof. Handoyo said.
Global economic pressures
According to Prof. Handoyo, the United States is working to reestablish itself as a manufacturing powerhouse, not merely a consumer market. This policy shift has led Washington to impose steep export tariffs on various countries, including Indonesia, which now faces duties as high as 47 percent. These trade tensions have created further uncertainty for investors.
“Higher export costs make our products less competitive in the U.S. market. LG likely intended for its Indonesian-produced goods to target the American market, which now poses significant challenges,” he explained. While global economic shifts are the primary driver of this trend, domestic issues within Indonesia are also eroding investor confidence.
Challenges to attracting foreign investment
Indonesia is in direct competition with neighboring countries for foreign investment, and it often loses out to nations with more appealing policies. Vietnam, for example, offers attractive incentives like tax holidays, making it a more enticing option for foreign investors, Prof. Handoyo noted.
For industries that require significant capital and advanced technology, he emphasized the need for a highly skilled workforce—a resource Indonesia currently struggles to provide. “Most of our labor force is still largely unskilled and lacks the necessary education,” he said. This talent gap further deters companies in high-tech, capital-intensive sectors, such as battery manufacturing, from setting up operations in Indonesia.
On top of labor challenges, weak law enforcement continues to undermine Indonesia’s investment appeal. Prof. Handoyo cited widespread extortion by local communities and even corrupt government officials as serious concerns. “The government is aware of how damaging these practices are, yet often remains ineffective in addressing them,” he added.
Author: Afifah Alfina
Editor: Yulia Rohmawati
