Turning Indonesia into investment magnet
Since his election as the president, Joko “Jokowi” Widodo has for many times pledged to promote Indonesia as an investment haven for domestic and foreign investors.
An increase in new investment is necessary in order to help Jokowi’s administration to accomplish one of his main “Nawa Cita” (Nine Aspirations) mission: to build and strengthen national infrastructure for the sake of equal distribution of accelerated inter-regional development.
Yet we can clearly observe that such desire is far from being fulfilled as the flows of investment in Indonesia have not yet met the President’s expectations.
Indonesia have received Rp 612.8 trillion (about US$46 billion at current exchange rate) in new investment in 2016, a 3 percent increase from Rp 545.4 trillion in 2015. These amounts seem enormous, but they are actually quite mediocre and can be considered as insufficient if we bear in mind the price-tag of Jokowi’s ambitious mega-projects across the country.
Based on the Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) issued by the office of Coordinating Economic Minister, the government would need more than Rp 4 quadrillion to accomplish all development projects by the end of 2025.
To get closer to its goal, Indonesia must improve its investment climate. Investors play a key role in making the Indonesian dream come true. However, the government tends to ignore what the investors really need in doing business in the country.
A perfect example of such illustration is the disappointment expressed by Jokowi over Saudi Arabia’s small investment in Indonesia. Jokowi was quite disappointed to learn that China received a lot more in investment from Saudi Arabia despite the special treatment he made for the Saudi’s King Salman bin Abdulaziz Al Saud during his visit to Indonesia recently.
Jokowi himself helped hold up the umbrella for the king when heavy downpour welcomed the Saudi's entourage to the Bogor State Palace in West Java, and yet China gets the gold.
This is not surprising as every intelligent investor in our current times would choose China over Indonesia. Holding an umbrella for the king and driving him around the Presidential palace are obviously not enough to seduce giant investors. For the moment, China is far more interesting in terms of investments and they are capable to assure mutual benefit.
It is sad to admit that with the many important and strategic business sectors as potential investment targets, Indonesia is not yet considered as a main choice for investors, especially foreigners. The reason behind this is simply because of the ‘unfriendly’ business environment and the stiff Indonesian investment regime.
The condition in the Indonesian business sector is far from the charismatic edge for investment. Indonesia ranks 91st in the World Bank ease-of-doing business index while other neighboring countries like Malaysia and Vietnam rank way higher. True that the government took actions in the last few months to simplify business administration, such as the revocation of extension obligation for Trade Business License (SIUP) and Company Register (TDP). But despite all of those efforts, it is undoubtedly not adequate to lure investors that Indonesia is an ideal place for them to do business.
A number of factors have impeded efforts to attract investments. First, Indonesia lacks effective private-public dialog. It is a key point to maintain good communication between the authority and private stakeholders. Without it, business aspirations won’t get easily through the ears of the government. Second, the legal certainty of business regulation in provinces is not reassuring enough to attract investors to do business in the regions. The corrupt environment and the rampant collection of unauthorized fees have also become a major problem.
Third, transparency is an issue mentioned everywhere in investment forums. The transparency leads to accountability, accountability leads to trust, and trust among business partners is the most vital component to seal an investment deal. Transparency issues in business remain a big homework for Indonesia to finish.
Lastly, what makes foreign investors hesitate the most when they decide to invest or not in Indonesia is the existence of foreign ownership restriction in some of the Indonesian business sectors. These restricted sectors to foreigners can be found in the Indonesian Investment Negative List stipulated in the President Regulation (PR) Number 44/2016. A 100 percent foreign ownership is only allowed in certain business sectors. This rigid policy has discouraged foreign investors and they instead choose to invest in other countries where a full foreign ownership is possible.
A bold move that could greatly increase investors is to amend PR 44/2016 in order to increase foreign ownership limit in important business sectors. Another solution is to grant full or majority foreign ownership for foreign investors willing to establish a company in specific territories outside Java and Sumatra.
Giving a special treatment and incentive for companies outside Java and Sumatra will help promote regional economy in the country.
Indonesia is pouring with abundant energy and have not lost its charm yet. The government should be more open in welcoming investors. It is time to loosen up the investment rigidity and raise our competitiveness in a more globalized planet, showing the world that the most promising place to invest, is here.
The writer is a lawyer at Bahar & Partners Law Firm and Alumni of Sorbonne Law School, Université Paris I Panthéon – Sorbonne. The views expressed in the article are his own.
Investment Law, Business, Foreign Direct Investment
Published in The Jakarta Post, 15th May 2017
Written by Bhirawa J. Arifi
Members of Trade Practice Group, Bahar & Partners Law Firm