Indonesia Opens the Door – a Bit – to More Foreign Investment

Indonesian President Joko Widodo has fulfilled a long-awaited promise, delivering a revised list of businesses and sectors formerly closed or limited in terms of foreign investment.

The list largely follows a February policy package that described sectors previously closed to foreign investment that are now to be open with varying restrictions. They include the film industry, now completely opened up including distribution, and cold storage. Health care support services are now open to 67 percent foreign ownership. Others are limited to 49 percent – minority ownership -- including land transport services and installation of high-voltage lines.

The government announced the revision in February, but the actual document wasn’t signed until last week. Although it took effect immediately, a copy was only uploaded onto a government website today, May 24.

The president hailed the coming revision in February as a “big bang” to reverse years of stultifying regulations and nationalist restrictions on the economy, but the sectors involved are relatively small in the big picture. Left untouched are existing restrictions and regulatory blocks in mining, energy and big infrastructure, which is dominated by state-owned companies.

“This doesn’t change the game for investors but it is a step forward," said a Jakarta-based foreign business leader. "We hope the government follows this with more change and openness. This should be the beginning of Indonesia moving from saying no to investors to consistently saying yes. Right now the sectors that are addressed in the list are not major components of the economy but at least the signals are positive.”

For instance, some fields that remain barred to foreigners include ownership of downstream oil and gas production installations, retail trading for cars, motorcycles and commercial vehicles; construction services for telecoms towers also remain off limits as do overseas worker placement agencies. Investment in education by foreign companies and universities is also barred despite growing local demand for improved educational facilities.

The last revision to the “Negative Investment List,” or DNI, as the list of restrictions is known, was in 2014 and was regarded as closing the doors further to foreign investment, with the country in the intensifying grip of economic nationalists during the second term of former President Susilo Bambang Yudhoyono.

Jokowi, as the president is widely known, has been attempting to free up policy since last August, when he reshuffled his cabinet to bring in new blood and sought to back down opponents of widespread foreign investment. The campaign since has been a sort of two-steps-forward, one-step-backward affair. Twelve new packages cutting red tape, removing obstacles to investment and opening up for investment have been launched since the cabinet reshuffle but implementation has been slow and spotty.

The DNI revision list includes 68 pages of items and was written in Bahasa Indonesia and wasn’t immediately available in translation. According to the European Chamber of Commerce, sectors that remain closed for investment include alcoholic beverage production and distribution, gaming and casinos, pesticides, ozone-depleting substances and others. In total, 20 business sectors remain closed to new investment.

Another 145 business fields are open for new investment only to small and medium enterprises, or SMEs and must be organized under partnership schemes. These sectors include plantation of fewer than 25 hectares.

A list of sectors open to varying forms of foreign investment made public by Eurocham follows: Foreign Ownership (%) Business Sectors 20 Broadcasting institutions 30 Grape, orange cultivation; horticulture agro-tourism; horticulture development consultants 33 Class A medical equipment 49 Rice, corn, soybean (25 ha. Plus); car repairs; airports; non-scheduled, scheduled commercial air transport 49; 51 remaining for BUMN Raw materials for explosives, main and supporting components industry for defense equipment; 51, ASEAN countries may own 70 Natural tourism areas, ecotourism; water and cave tourism 67 Distributors (non-affiliated with producers); warehousing; hotels (two stars and one star); art gallery; services in airport; freight forwarder; fixed and wireless telecommunication network 67, ASEAN countries may own 70 Construction services (organizers and consultants); museum; travel agent; catering service; motels; golf course; promoter; maritime cargo handling services 70 only for ASEAN countries Sea transportation for passengers to foreign countries; Sea transportation for shipping; hospitals; clinics; 75 Platform business in oil and gas industry, 80 Life insurance; reinsurance; insurance agent; 85 Multifinancing; venture capital; pharmaceutical 95 Tobacco, sugarcane (25 ha. plus), geothermal drilling, 95, or 100 during concession Power plant more than 10MW, Electricity transmission, electricity distribution 100 for domestic investment Downstream oil and gas production installations; retail trading for cars, motorcycles, and commercial vehicles; retail trading for motor vehicle components; surveys (ecological, quantity, quality); construction services for telecoms towers; Overseas worker placement 100 for domestic investment; ASEAN may own 51 Promotional materials for films, advertisement, posters, photos, slides, banners, etc. 100 for domestic investment; ASEAN may own 70 Public opinion survey; market research

Courtesy of Eurocham