Sumatra in western Indonesia ranked as the fastest-growing region for greenfield FDI announcements in 2023 due to major plans by multinationals to build digital and port infrastructure and downstream processing facilities.

Almost $13bn was pledged to 13 FDI projects in Sumatra last year, up from just one project in 2022, according to fDi Markets data.

The Sumatra region, which includes provinces on Sumatra island, the Riau Islands and Bangka Belitung Islands, is a key target for companies supporting the extraction, processing and transportation of commodities. The region is endowed with reserves of oil, gas, tin, bauxite and coal, and is also a major producer of agricultural products, including palm oil, rice and rubber.

Among the investors tapping into this is French agricultural merchant and processor Louis Dreyfus Company (LDC). The company, which is headquartered in the Netherlands, is expanding its glycerin refining complex in Lampung, on the southern tip of Sumatra island.

Rajat Dutt, the head of LDC in Indonesia, says that Sumatra is “key to meet the needs of our global customers” for palm oil and coffee. Construction of LDC’s facility will begin when it receives licensing and environmental permits and is expected to be completed in the next two years.

Chinese companies seeking to diversify their supply chains were also particularly active in Sumatra last year. Nanshan Group said it will invest $878m in expanding its aluminium smelting complex at the Galang Batang special economic zone in the Riau islands. Hong Kong-based Xinyi Glass also signed a memorandum of understanding to invest $11.5bn to build a quartz sand processing plant and export hub in Rimpang. 

Port infrastructure

Sumatra’s location next to the Malacca Strait between Indonesia and the Malay Peninsula, one of the world’s busiest shipping lanes, has made it a target for exporters and infrastructure developers that support them.

In June 2023, DP World announced it would more than double capacity at the Belawan New Container Terminal to 1.4 million 20-foot equivalent units. This is part of a $7.5bn partnership with Indonesia’s sovereign wealth fund INA to strengthen the archipelago country’s shipping and port industry.

“With its geographic location, abundance of natural resources and young workforce, Indonesia is strongly positioned in global trade,” says Glen Hilton, CEO and managing director of DP World Asia-Pacific. But given that Indonesia has one of the highest costs of logistics in south-east Asia, Mr Hilton adds: “Greater investment is needed to increase operational performance, improve road connectivity and enable smoother intermodal transportation.”

Other foreign investors have expanded their presence in Sumatra in line with greater investments. Norwegian energy and marine consultancy ABL Group opened a new office in Batam to support more activity in the shipping, manufacturing and fossil fuel industries. “There are still huge energy resources to be explored both onshore and offshore,” says Deddy Setiyatno, ABL country manager in Indonesia. 

Despite the opportunities presented by its resources, Indonesia has faced scrutiny over its environmental, social and governance credentials, due to variable labour standards and the fact coal still makes up more than 60% of its energy mix. 

Alongside these developments, Sumatra has benefitted from the rush to develop digital infrastructure. Singapore-based Princeton Digital Group plans to invest at least $1bn into a data centre campus in Batam across the Singapore Strait. China’s GDS Services has also committed to building a hyperscale data centre on the island.

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This article first appeared in the April/May 2024 print edition of fDi Intelligence.