Jakarta. Indonesia needs to improve its ability to attract productive foreign investment as its foreign direct investment (FDI)-to-GDP ratio has fallen to 1.61%, one of the lowest levels among major Southeast Asian economies, the International Economic Association Secretary General Lili Yan Ing said at the Jakarta Investment Gateway 2026 on Tuesday.

Lili said Indonesia must shift away from its long-standing reliance on natural resource-based exports and focus on creating higher-value industries to sustain growth and remain competitive in an increasingly uncertain global economy.

"Since the early 1960s, 9 out of 10 of Indonesia's main exported products have been natural resource-intensive. The story remains the same until today," Lili said.

She added that Indonesia has yet to fully transform its economic structure despite decades of growth, arguing that the country should move "from extraction to value creation."

Indonesia's manufacturing sector has remained stagnant at around 19-20% of GDP, while exports continue to be dominated by resource-intensive products.

Lili noted that Indonesia's FDI-to-GDP ratio has declined over the past three years and now stands at just 1.61%, below Vietnam's 4.31%, Cambodia's 9.3%, and Laos' 10%.

"How can Indonesia improve capital to productivity gains?" she asked.

According to Lili, Indonesia's challenge is not merely attracting more capital but ensuring that investment generates productivity improvements and broader economic benefits.

She underscored that Indonesia's incremental capital-output ratio (ICOR), a measure of investment efficiency, remains around 6, indicating that capital inflows have yet to translate into stronger productivity gains.

Lili also warned that excessive state involvement in the economy could discourage private-sector participation.

"Many private companies have been screaming how state-owned enterprises and Danantara have been crowding out the role of private sectors," she said.

She argued that continued state dominance across key sectors could limit private-sector dynamism and reduce the broader economic benefits of investment.

Lili said Indonesia should focus on improving the quality of economic growth rather than pursuing headline growth targets alone, arguing that stronger productivity and human capital development are more important for long-term competitiveness.

She also called for greater regulatory certainty and stronger institutional independence, saying investors place significant weight on the credibility of economic and legal institutions.

In addition, Lili urged Indonesia to diversify its trade and investment relationships as rising geopolitical tensions and protectionist measures continue to reshape global supply chains.

"Diversification is not an option, it is a must," she said. "I hope the president and his cabinet really listen to the market.”

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