Welcome mat pulled back
Indonesia pares expanded list of businesses open to foreigners after protests from local groups. By Ismira Lutfia Tisnadibrata in Jakarta
The Indonesian government is making further tweaks to its newly revised list of businesses open to foreign investment, following protests from some business groups.
The government removed 54 sectors, many of them dominated by small and medium enterprises (SMEs), from its so-called negative list as part of an economic stimulus package announced on Nov 16. The package also included the expansion of a tax holiday programme and the easing of other regulations in a bid to improve the investment climate.
A few days later, authorities revised their announcement and said that only 25 out of the 54 sectors listed would be open to full foreign investment.
The sudden about-face on a newly released policy only added to the confusion surrounding it, amid backlash from business representatives who said they were not consulted before the policy was announced.
Rosan Roeslani, the chairman of the Indonesian Chamber of Commerce (Kadin), called on the government to revise the list. Senior officials discussed the list with chamber members at their annual two-day meeting in Solo, Central Java last Tuesday and Wednesday.
Darmin Nasution, coordinating minister for economic affairs, told the gathering that the 25 sectors proposed for liberalisation did not involve small businesses to any significant extent.
“I will have more talks with related ministers about this and I expect by Monday (Dec 3) that I can submit the draft to the president, and it will be issued as a presidential regulation for its legal basis,” Nasution told journalists last Wednesday on the sidelines of a seminar held by the Institute for Development of Economics and Finance (Indef ).
Rosan said relaxing the negative list
could reduce the potential of local SMEs to grow since it would enable foreign investors to fully own businesses in certain sectors.
“We really appreciate the government’s decision to postpone the [final announcement of the ]list, while consulting on this issue further with business players,” he said.
The chamber, he added, would continue to focus on supporting local SMEs since they account for more than 95% of all jobs in the country.
“We expect [foreign] investments that allow transfer of technology, that improve the quality of our human resources, and support the interest of the national industry to strengthen it,” Rosan said.
President Joko Widodo, addressing the closing session of the chamber meeting on Wednesday, reaffirmed his government’s commitment to support SMEs and shield them from full foreign ownership by means of the negative investment list.
“We are aware that SMEs’ contribution to our economy is very significant,” he said. “There are roughly 62 million SMEs in the country, employing 116 million people, which accounts of 80% of Indonesia’s workforce. SMEs contribute 60% of our GDP,” he said.
According to the Investment Coordinating Board (BKPM), the negative list identifies specific sectors that are closed to foreign investors, or are open through joint ventures with local entities under specific regulations. It is subject to periodic and gradual revisions in line with changing economic circumstances.
Among the sectors in which 100% foreign ownership is allowed are brokers, cold storage business, direct sales through marketing networks, distribution affiliated with production, bars, cafes, restaurants and sports facilities, and biomass pellet industry for renewable energy. In the information and communication technology sector, 100% ownership is allowed if the minimum investment is 100 billion rupiah (US$7 million).
Indef executive director Enny Sri Hartati said that since the latest package was aimed at rejuvenating the economy and boosting growth, authorities should have consulted first with their constituents, namely business owners and operators.
“A stimulus or an incentive should have been welcomed but this one was met with protests from the business community. What happened during the policymaking process?” she asked rhetorically.
The resulting confusion over whether the revisions would affect SMEs also led to “irrationality among the business community”, she told Asia Focus.
But simply relying on relaxing the negative list to attract more investment will not be enough, said Indef economist Bhima Yudhistira Adinegara.
“Big investors will be more attracted to come because of the ease of doing business, instead of a relaxed negative list,” he told Asia Focus.
“And if we compared this to other Southeast Asian countries, Indonesia lags behind Vietnam.”
Indonesia fell one place to 73rd on the influential Doing Business 2019 index released recently by the World Bank. However, its score of 67.96 was better than the East Asia and Pacific average of 63.41. Vietnam ranks 69th on the list, Malaysia ranks 15th, Thailand 27th and the Philippines 124th out of 190 economies surveyed.
According to data from the BKPM, investment realisation in Indonesia in the third quarter of 2018 totalled 173.8 trillion rupiah ($12.1 billion), with 89.1 trillion from foreign direct investment and the rest from domestic investors.
Vice presidential candidate Sandiaga Uno, who with running mate Prabowo Subianto will challenge President Widodo in the April 2019 election, said their economic team was reviewing the economic package given the controversy surrounding the new policy.
He and Prabowo expect to make economic issues and the government’s spotty track record in stimulating the economy a centrepiece of their campaign. Sandiaga said that support for SMEs and the number of jobs that they can create would be at the heart of their economic message.
“We don’t want to make more noise. We will wait and let the dust settle. But we are very concerned about the package because it will affect the number of SMEs,” Sandiaga said on the sidelines of the Indonesia Economic Forum in Jakarta on Nov 22.
“We are now calculating the number of SMEs and the number of jobs that we would like to create as new and quality jobs.
“If they have to compete in specific industries with foreign investors that have greater access to capital, I don’t think it would be a level playing field.”
“Big investors will be more attracted to come because of the ease of doing business, instead of a relaxed negative list” BHIMA YUDHISTIRA ADINEGARA Economist