Fac­ing an eco­nomic slow­down, the In­done­sian govern­ment is set to re­vamp laws on for­eign own­er­ship in cer­tain sec­tors, start­ing with tourism in­vest­ments.

Indonesia Expat - - CONTENTS - BY DANIEL R AHIMI Daniel is a Jakarta-based free­lance jour­nal­ist cov­er­ing a va­ri­ety of is­sues re­lated to fi­nance, busi­ness, and pol­i­tics in South­east Asia. For more in­for­ma­tion, visit www.con­tent­col­li­sion.co.

With Slow­ing Econ­omy, In­done­sia's Tourism Sec­tor Ready to Take on For­eign In­vest­ment

To many for­eign­ers, do­ing busi­ness in In­done­sia has long been an at­trac­tive op­por­tu­nity.

The coun­try is strength­en­ing in terms of spend­ing power, de­mo­graph­ics, and di­ver­sity. It's also be­com­ing a world-renowned hotspot for tourism. Un­for­tu­nately, the prospect of legally do­ing busi­ness in In­done­sia comes with caveats, es­pe­cially in the case of for­eign own­er­ship in busi­nesses that take money out of the lo­cal econ­omy. Most sec­tors have caps in place that limit for­eign own­er­ship to a max­i­mum of 51 per­cent, as of 2014; the lat­est of­fi­cial re­vi­sion of the govern­ment's Neg­a­tive In­vest­ments List. His­tor­i­cally, for­eign firms have been made to jump through hoops just to op­er­ate legally in the ar­chi­pel­ago. Size­able com­pa­nies look­ing to do busi­ness in In­done­sia with­out a lo­cal part­ner must usu­ally set up a for­eign in­vest­ment en­tity. In­dosight, a mar­ket en­try ser­vice for for­eign busi­nesses in In­done­sia, says this typ­i­cally means a firm must have around US$1 mil­lion in cap­i­tal on pa­per, with 25 per­cent of that amount paid up­front into an In­done­sian bank ac­count. This is not an easy thing for small or medium-sized en­ter­prises look­ing to tap into the na­tion's tourism sec­tor. If for­eign­ers want to be cow­boys about it – and many do – they need to find a trusted lo­cal part­ner to act as the busi­ness owner. It hap­pens more of­ten than some might think.

Soon, how­ever, th­ese all-too-fa­mil­iar woes may no longer ap­ply. The In­vest­ment Co­or­di­nat­ing Board (BKPM) re­cently said it would al­low for­eign­ers full own­er­ship of bars, cafes, restau­rants, and sport cen­tres in an at­tempt to bol­ster in­ter­est in the na­tion's tourism sec­tor. In­done­sia's travel and leisure space is ar­guably on the brink of thriv­ing, as more than 9 mil­lion tourists turned up from over­seas in the past 12 months. How­ever, due to the strict lim­i­ta­tions on for­eign in­vest­ment and the volatil­ity of the na­tion's political land­scape, many busi­nesses have been hes­i­tant about bring­ing their money to In­done­sia, opt­ing in­stead for neigh­bour­ing coun­tries like Malaysia and Thai­land.

It seems as though In­done­sian of­fi­cials have taken note of missed op­por­tu­ni­ties, and are now re­think­ing their strat­egy, with re­gard to for­eign- owned busi­nesses.

“With this re­vi­sion, we are try­ing to build a per­cep­tion that In­done­sia is more open. With this rule, we be­lieve the in­vest­ment com­mit­ment could in­crease by 50 per­cent from last year,” head of BKPM Franky Sibarani re­cently told re­porters. Last year, In­done­sia eased the visa re­quire­ments of 84 coun­tries for tourism-re­lated pur­poses. BKPM now claims it has been work­ing on in­creas­ing that num­ber, fur­ther so­lid­i­fy­ing its re­solve to­ward a boom­ing tourism econ­omy.

By the end of this quar­ter, BKPM says it will have also re­vised In­done­sia's Neg­a­tive In­vest­ments List. The list states all the sec­tors in In­done­sia open to for­eign in­vest­ment, as well as the max­i­mum per­cent­age of own­er­ship for­eign­ers can have in each space. Re­laxed own­er­ship laws are be­lieved to take ef­fect in sev­eral sec­tors, in­clud­ing film, e- com­merce, man­u­fac­tur­ing, and ware­hous­ing.

Ex­perts say there is a high chance of see­ing ma­jor changes when the up­dated Neg­a­tive In­vest­ments List comes out in April. While not all sec­tors are ex­pected to see the same le­niency as tourism, an­a­lysts be­lieve most in­dus­tries could see for­eign own­er­ship caps spike up to any­where be­tween 60 per­cent and 70 per­cent.

The In­vest­ment Co­or­di­nat­ing Board (BKPM) re­cently said it would al­low for­eign­ers full own­er­ship of bars, cafes, restau­rants, and sport cen­tres in an at­tempt to bol­ster in­ter­est

in the na­tion's tourism sec­tor.

But it's not all great news for for­eign­ers. Chair­man of BPKM, Ma­hen­dra Sire­gar re­cently re­vealed that the govern­ment has cho­sen to re­duce for­eign own­er­ship in other sec­tors. In on­shore and off­shore oil and gas drilling ser­vices, for ex­am­ple, for­eign own­er­ship will now be capped at 75 per­cent, as op­posed to the pre­vi­ous 95 per­cent.

There are spec­u­la­tions as to why the govern­ment is choos­ing to re­vamp laws now. The news comes hot on the heels of re­ports that In­done­sia is fac­ing slow and stunted eco­nomic growth. But even with the de­clin­ing state of the econ­omy, open­ing up prospects of full own­er­ship of tourist ven­tures like bars and restau­rants to for­eign­ers has reignited in­ter­est from over­seas in­vestors.

“In the past, peo­ple were al­ways in­ter­ested in in­vest­ing in In­done­sia. How­ever, the re­stric­tions on own­er­ship meant that we would have to find part­ners, who most of the time wouldn't have the same goals that we did, caus­ing the deal to fall through,” ex­plains Raja Lal­wani, a pri­vate in­vestor from Dubai look­ing to en­ter In­done­sia's restau­rant mar­ket. “Be­ing able to have full con­trol opens us up to more op­por­tu­ni­ties than we had pre­vi­ously thought of.”

Lin Neu­mann, man­ag­ing di­rec­tor at the Amer­i­can Cham­ber of Com­merce in In­done­sia, be­lieves that due to Pres­i­dent Joko Wi­dodo's prom­ises to ease in­vest­ment re­stric­tions, the Cham­ber must also make sweep­ing changes. “The trend has been to re­strict in­vest­ment. For the first time in ten years, you have a pres­i­dent say­ing the op­po­site,” he re­cently told re­porters.

This is con­trary to pre­vi­ously im­ple­mented laws. In the past, In­done­sia com­pletely ended for­eign in­vest­ment in the retail sec­tor, as well as heav­ily lim­ited it in the agri­cul­ture and elec­tric­ity in­dus­tries. Re­ports claim that for­eign shares in some oil and gas com­pa­nies saw own­er­ship drop from 95 per­cent to noth­ing at all. An­a­lysts be­lieve that al­though re­stric­tions weren't as heavy on in­vest­ments in tourism, the in­creas­ing num­ber of le­gal reg­u­la­tions ap­ply­ing to the sur­round­ing sec­tors caused in­vestors to be­come scep­ti­cal that In­done­sia's tourism would not suf­fer the same fate.

As with most claims from the govern­ment, ru­mours and spec­u­la­tions abound, and not much can be said with cer­tainty at the mo­ment. The pro­posed pol­icy changes have al­ready seen in­creased op­po­si­tion from of­fi­cials and law­mak­ers, which means there will be a lot of back-and-forth discourse on the mat­ter be­fore peo­ple like Raja Lal­wani will be able to open up a bar on the beach in Seminyak.

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