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Indonesia

Executive Summary

Indonesia’s 274 million population, USD 1 trillion economy, growing middle class, abundant natural resources, and stable economy are attractive features to U.S. investors; however, investing in Indonesia remains challenging. President Joko (“Jokowi”) Widodo, now in his second five-year term, has prioritized pandemic recovery, infrastructure investment, and human capital development. The government’s marquee reform effort — the 2020 Omnibus Law on Job Creation (Omnibus Law) — was temporarily suspended by a constitutional court ruling, but if fully implemented, is touted by business to improve competitiveness by lowering corporate taxes, reforming labor laws, and reducing bureaucratic and regulatory barriers. The United States does not have a bilateral investment treaty (BIT) with Indonesia.

In February 2021, Indonesia replaced its 2016 Negative Investment List, liberalizing nearly all sectors to foreign investment, except for seven “strategic” sectors reserved for central government oversight. In 2021, the government established the Risk-Based Online Single Submission System (OSS), to streamline the business license and import permit process. Indonesia established a sovereign wealth fund (Indonesian Investment Authority, i.e., INA) in 2021 that has a goal to attract foreign investment for government infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies.

Yet, restrictive regulations, legal and regulatory uncertainty, economic nationalism, trade protectionism, and vested interests complicate the investment climate. Foreign investors may be expected to partner with Indonesian companies and to manufacture or purchase goods and services locally. Labor unions have protested new labor policies under the Omnibus Law that they note have weakened labor rights. Restrictions imposed on the authority of the Indonesian Corruption Eradication Commission (KPK) led to a significant decline in investigations and prosecutions. Investors cite corruption as an obstacle to pursuing opportunities in Indonesia.

Other barriers include bureaucratic inefficiency, delays in land acquisition for infrastructure projects, weak enforcement of contracts, and delays in receiving refunds for advance corporate tax overpayments. Investors worry that new regulations are sometimes imprecise and lack stakeholder consultation. Companies report that the energy and mining sectors still face significant foreign investment barriers, and all sectors have a lack of adequate and effective IP protection and enforcement, and restrictions on cross border data flows.

Nonetheless, Indonesia continues to attract significant foreign investment. According to the 2020 IMF Coordinated Direct Investment Survey, Singapore, the United States, the Netherlands, Japan, and China were among the top foreign investment sources (latest available full-year data). Private consumption drives the Indonesian economy that is the largest in ASEAN, making it a promising destination for a wide range of companies, ranging from consumer products and financial services to digital start-ups and e-commerce. Indonesia has ambitious plans to expand access to renewable energy, build mining and mineral downstream industries, improve agriculture production, and enhance infrastructure, including building roads, ports, railways, and airports, as well as telecommunications and broadband networks. Indonesia continues to attract American digital technology companies, financial technology start-ups, franchises, health services producers and consumer product manufacturers.

Indonesia launched the National Women’s Financial Inclusion Strategy in 2020, which aims to empower women through greater access to financial resources and digital skills and to increase financial and investor support for women-owned businesses.

Table 1 
Measure Year Index or Rank Website Address
TI Corruption Perceptions index 2021 96 of 180 https://www.transparency.org/en/cpi/2021/index/idn 
Global Innovation Index 2021 87 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S.  FDI in partner country ($M USD, stock positions) 2020 $18,715 M https://apps.bea.gov/iTable/iTable.cfm?ReqID=2&step=1 
World Bank GNI per capita 2020 $3,870 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=ID

1. Openness To, and Restrictions Upon, Foreign Investment

New Zealand

Executive Summary

After weathering the pandemic better than most countries, the New Zealand economy has begun to overheat. Net debt to GDP has increased from 19.5 percent prior to the onset of Covid restrictions to 34.5 percent at the end of 2021. The increase in debt has been due in part to spending measures the government has undertaken for Covid response and recovery. These measures were able to support economic activity during extensive Covid-related domestic lockdowns and travel restrictions, but along with supply chain disruptions, they have begun to contribute to higher inflation. Nationwide labor shortages across a variety of sectors have also had a sizeable impact on the economy. In response to war in Ukraine, the New Zealand government rapidly passed historic sanctions legislation targeting individuals, companies, and assets associated with Russia’s invasion. Sanctions are expected to have a limited direct impact on the investment climate in New Zealand.

While a swift border closure and the imposition of lockdowns originally helped stamp out community transmission of Covid, the appearance of the Omicron variant in January 2022 resulted in an outbreak that put pressure on the health system. At time of writing, border restrictions were being phased out in favor of a management approach to the pandemic. The government announced its plans to open the New Zealand border to travelers from visa-waiver countries on May 1. By October, it is expected that the border will fully reopen. Since 2020, the tourism sector has suffered the most, while primary exports and the housing market have helped to sustain the economy. Unemployment is currently 3.2 percent, a record low.

New Zealand has an international reputation for an open and transparent economy where businesses and investors can make commercial transactions with ease. Major political parties are committed to an open trading regime and sound rule of law practices. This has been regularly reflected in high global rankings in the World Bank’s Ease of Doing Business report and Transparency International’s Perceptions of Corruption index. New Zealand is party to a multitude of free trade agreements (FTA). In February 2022, the country signed its latest, an FTA with the United Kingdom.

Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets. Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by a government agency.

The current Labour-led government welcomes productive, sustainable, and inclusive foreign investment, but since being elected in October 2017 and reelected in October 2020, there has been a modest shift in economic priorities to social initiatives while continuing to acknowledge New Zealand’s dependence on trade and foreign investment. Cabinet has agreed a whole-of-government framework that will drive climate change policy. This national initiative is currently underway to reduce the country’s emissions and is developing a pathway for farmers to reduce agricultural emissions. The rapidly developing digital and e-commerce landscape is supported by government initiatives that expand the knowledge base, while making a priority of digital inclusion. Along with its focus on post-pandemic recovery, the New Zealand government has invested in a digital, innovative future that aims to secure multilateral agreements with e-commerce rules that address the complexities of the evolving digital economy.

The 2022 Investment Climate Statement for New Zealand uses the exchange rate of NZD 1 = USD 0.70

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 1 of 180 https://www.transparency.org/en/cpi/2021 
Global Innovation Index 2021 26 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $12,900 https://ustr.gov/countries-regions/southeast-asia-pacific/new-zealand 
World Bank GNI per capita 2020 $41,550 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Investment Climate Statements
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