Indonesia’s Q1 2025 FDI Growth: Mining and Smelting Sectors Lead the Surge

In the first quarter of 2025, Indonesia attracted foreign direct investment totaling approximately US$13.67 billion, marking a 12.7 percent increase compared to the same period in the previous year. This growth highlights continued investor confidence in the country’s long-term prospects, especially in strategic sectors such as mining, metal smelting, infrastructure, and logistics.

This strong investment momentum stands in contrast to Indonesia’s broader economic performance, as GDP growth slowed to 4.87 percent year-on-year in Q1, the weakest expansion since Q3 2021. The slowdown was primarily driven by weaker household consumption, softening global demand, and high interest rates in major export markets.

Mining and smelting industries capture the largest investment share

The mining and metal smelting sectors stood out as the top recipients of foreign investment. According to the Ministry of Investment, the mining sector alone accounted for approximately 23 percent of total realized investment in Q1 2025 — equivalent to around 107 trillion rupiah or roughly US$6.5 billion. These figures reflect Indonesia’s ongoing success in redirecting capital toward its mineral-rich downstream industry.

Much of this growth is linked to the government’s 2020 ban on the export of unprocessed nickel, which has pushed investors to build local smelters and processing facilities. Global demand for critical minerals like nickel, copper, and cobalt, essential to electric vehicle batteries and renewable energy storage, continues to make Indonesia a key strategic supplier in global industrial supply chains.

One major project in Q1 2025 was the commissioning of a new copper smelter in Gresik, East Java, by PT Freeport Indonesia. The US$3.7 billion facility is one of Southeast Asia’s largest and is expected to significantly increase Indonesia’s capacity to refine and export processed copper, a strategic move supporting the country’s downstreaming policy.

Infrastructure and logistics maintain a strong appeal

Beyond the mining sector, foreign investors are actively participating in Indonesia’s infrastructure buildout. The transportation, warehousing, and telecommunications sectors together attracted 66.5 trillion rupiah (approximately US$4.05 billion) in foreign direct investment during Q1 2025. This figure accounts for about 14.3 percent of all FDI realized in the quarter.

These investments align with Indonesia’s push to modernize connectivity, reduce logistics costs, and support the movement of goods and people across the archipelago. Key projects include upgrades to port infrastructure, integrated logistics hubs outside Java, and digital connectivity enhancements to support the growing e-commerce and fintech ecosystems.

Indonesia’s logistics sector is also benefiting from stronger demand for industrial real estate and the expansion of trade through regional corridors.

Regional investment extends beyond Java

Indonesia’s investment map is becoming increasingly decentralized. Out of the 465.2 trillion rupiah (US$28.2 billion) in total investment (foreign and domestic), regions outside Java attracted 235.9 trillion rupiah (US$14.3 billion). This shift reflects growing investor interest in provinces such as Central Sulawesi and North Maluku, which offer rich reserves of nickel and other industrial minerals.

Meanwhile, Java remains critical for manufacturing, logistics, and business services. West Java, East Java, Jakarta, and Banten continued to draw large-scale investments in real estate, consumer goods, and transportation.

Asia leads the FDI charge

Indonesia’s key FDI contributors remained regional neighbors. Singapore led with approximately US$4.6 billion, followed by Hong Kong at US$2.2 billion and China with US$1.8 billion. Malaysia and Japan rounded out the top five, each contributing around US$1 billion. These countries maintain strong economic ties with Indonesia, particularly in industrial supply chains, logistics, and digital infrastructure.

Sectoral strength outpaces broader economic slowdown

The divergence between FDI growth and GDP deceleration suggests that foreign investors are prioritizing Indonesia’s structural opportunities over short-term macroeconomic fluctuations. While household consumption and exports may have softened, the fundamentals in energy transition industries, logistics infrastructure, and digital services remain robust.

Over 594,000 jobs were created from investment projects in Q1 2025 alone, further highlighting the tangible impact of FDI on employment and regional development.

Investment outlook for the remainder of 2025

Indonesia’s economy grew by 4.87 percent in Q1 2025, the slowest pace since Q3 2021. Despite the slowdown, the government maintains a full-year GDP growth target of 5.2 percent. The IMF projects 4.7 percent, while the ADB and AMRO both forecast a 5.0 percent expansion — highlighting cautious optimism amid global uncertainty.

Foreign direct investment remains resilient, particularly in the downstream mineral, metal smelting, and infrastructure sectors. However, one of the most significant external factors shaping investor sentiment is the U.S. decision to impose a 32 percent tariff on Indonesian exports—a policy that was postponed by 90 days on April 9, 2025, following diplomatic engagement between Jakarta and Washington.

The delay gives Indonesia critical breathing room to secure exemptions or mitigate the potential damage. High-level negotiations are underway, and Indonesia has offered to boost U.S. imports — particularly in agriculture and energy — while also reducing non-tariff barriers.

Yet, these external developments also underscore the need for accelerated domestic reform. If Indonesia is to remain an attractive investment destination amid growing global competition and rising trade protectionism, it must move beyond reactive policy.

The remainder of 2025 presents a strategic opportunity to advance regulatory, legal, and institutional reforms. While the OSS system has improved business licensing, investors still cite opaque land acquisition rules, inconsistent law enforcement, slow permitting processes, and unpredictable tax treatment as deterrents.

Addressing these issues, especially in energy, logistics, manufacturing, and digital sectors, could dramatically enhance Indonesia’s competitiveness. Furthermore, the government must strengthen dispute resolution mechanisms, enforce intellectual property protections, and improve subnational investment facilitation to create a level playing field for foreign and domestic firms.

Conclusion

As Indonesia continues to develop its downstream capabilities and national infrastructure, it presents compelling opportunities for foreign investors. But sustaining momentum through 2025 and beyond will depend on global market dynamics and the government’s willingness to double down on pro-investment reforms.

Source: ASEAN Briefing