Client: Ministry of Investment/BKPM
One of the references to measure the performance of a country's investment competitiveness is through international indexes or rankings. Several studies indicate a correlation between ranking in the index and the amount of investment inflows (Jayasuriya, 2011; Corcoran et al., 2013), so that ranking performance is an important indicator for investors and policy makers in assessing the feasibility of investing in a country.
Indonesia's performance in the global competitiveness ranking has been reflected in several indices, namely the Ease of Doing Business (EoDB) by the World Bank, the Global Competitiveness Index (GCI) by the World Economic Forum (WEF), and the World Competitiveness Ranking (WCR) by the International Institute of Management Development (IMD). The correlation test in this study shows that there is a negative relationship between the EoDB and GCI index ratings on the amount of Indonesia's FDI.
Assessment of various indicators in the index provides room for improvement in Indonesia's investment competitiveness. Several issues that are important to improve in supporting the investment climate in the business world include aspects of contract enforcement, building construction permits, property registration, and employment. Meanwhile, to support long-term value creation, aspects of technology adoption and capability in innovation are crucial supporting factors.
In addition to improving competitiveness by referring to the determinants of the existing competitiveness rating, other competitiveness improvement initiatives were also carried out, both triggered by domestic policies such as downstream policies, as well as global initiatives such as the trend of implementing Environment, Social, Governance (ESG)-based investments. ) adopted by many countries in the world. The downstream policy encourages increased domestic competitiveness because this policy emphasizes the process of increasing added value which is basically in line with Indonesia's economic transformation to realize Indonesia's vision in 2045.
Meanwhile, ESG-based investment is a global trend that cannot be avoided by a country, and the readiness of a country to develop industries with due regard to ESG aspects will increase the country's industrial competitiveness. In addition, this study also briefly discusses the Production Linked Incentive scheme implemented by the Indian government in an effort to increase the competitiveness of domestic production.
Both downstream policies and ESG-based investment policies certainly have their own challenges and risks. This risk is related, among other things, to the need for large investments, as well as the absorption/competence of the workforce. To support this policy, the Ministry of Investment/BKPM can be actively involved by providing incentives, either in the form of tax holidays, tax allowances or investment allowances so that the goal of increasing competitiveness can be achieved.