Opportunities abound for foreigners, especially members of the ASEAN Economic Community (AEC), to participate in the growth of Indonesia.
- Increased foreign ownership limit across 29 industries
- 100% ownership in the cold storage, toll road, pharmaceutical raw material manufacturing, and food and beverage (F&B) industries
- Access for SMEs to 48 more business sectors
Indonesia, Southeast Asia’s largest and Asia’s 4th largest economy, has taken bold steps to boost economic growth by attracting foreign investments and increasing jobs. According to Indonesia’s Investment Coordination Board (BKPM), the country’s economy experienced the slowest growth over the last six years. Indonesia will allow greater foreign ownership in 29 industries previously restricted for non-Indonesian businesses. It is working towards allowing foreign investors to set up SMEs in 48 more sectors. In addition, the rules for 49 other sectors will be reviewed and changed in line to enable the government to spur economic growth.
The government will permit full foreign ownership in the cold storage, toll road, pharmaceutical raw material manufacturing and F&B industries. The maximum foreign investment limit in business services, conferences, golf courses, health support services and airport support will be raised to 67%. Other sectors to be reviewed include business lines such as distribution, warehousing, and travel agencies.
In an interview with Bloomberg, President Joko Widodo said there will be additional revisions. The rules for 49 sectors including retail, fisheries and the digital economy, which have largely been closed and attached with many conditions, will also be loosened. Restrictions of foreign investments into industries in the ‘negative investment list’ were revised under the previous administration in April 2014. This is a move in the right direction, as every one percentage point increment allowance will translate into an additional percentage point leverage for access to 255 million consumers.
The current administration’s investment guide list and red tape removal efforts will allow the country to tap into a wider labour market, strengthen its pool of capital for 2016 and surpass 2015’s foreign direct investment of US$29.3 billion. A longer term goal would be to achieve the targeted 7% economic growth by 2019. The administration will assist in boosting the current household consumption growth of 4.9%, which makes up more than half of the economy. The aim is to counterbalance exports which have fallen across 15 months through December 2015.
Challenging low commodity prices, weak global demand, weakening export performance, mass retrenchments (especially in the light of Ford shuttering its local operations in January), further looming job cuts from multinationals such as Toshiba, Panasonic Corp and Chevron Corp, and a heavier reliance on the domestic consumer market, are some motivators for Indonesia to open up to foreign investment.
This will help address Indonesia’s infrastructure and job creation needs, which are barely coping under current conditions. To reiterate the importance of attracting foreign investment, President Widodo has said that Indonesia is relying on investors and state-owned companies to fund 70% of its infrastructure needs.
The increasing openness of Indonesia’s foreign investment policy, infrastructure needs for its domestic market, common vision of the AEC, and attractive valuations are some notable factors for businesses to start investing or increase their level of investments in Indonesia.
Whether venturing solo, or in partnership, obtaining the right professional advice is crucial. Baker Tilly has member firms in Indonesia and throughout ASEAN to provide a high level of clarity in any venture.
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