Indonesia

Executive Summary

While Indonesia’s population of 268 million, GDP over USD 1 trillion, growing middle class, and stable economy are attractive to U.S. investors, different entities have noted that investing in Indonesia remains challenging. Since October 2014, the Indonesian government under President Joko Widodo, widely referred to as ‘Jokowi,’ has prioritized boosting infrastructure investment to support Indonesia’s economic growth goals, and has committed to reducing bureaucratic barriers to investment, including the launch of a “one-stop-shop” for permits and licenses via the online single submission (OSS) system at the Investment Coordination Board. However, factors such as a decentralized decision-making process, legal uncertainty, economic nationalism, and powerful domestic vested interests in both the private and public sectors, create a complex investment climate. Other factors relevant to investors include: government requirements, both formal and informal, to partner with Indonesian companies, and to purchase goods and services locally; restrictions on some imports and exports; and, pressure to make substantial, long-term investment commitments. While the Indonesian Corruption Eradication Commission continues to investigate and prosecute high-profile corruption cases, investors still cite corruption as an obstacle to pursuing opportunities in Indonesia.

Other barriers to foreign investment that have been reported include difficulties in government coordination, the slow rate of land acquisition for infrastructure projects, relatively weak enforcement of contracts, bureaucratic issues challenging the efficiency of the process, and ambiguous legislation in regards to tax enforcement. Businesses have also complained about changes to rules at the government discretion with little or no notice and opportunity for comment, and lack of communication with companies in the development of laws and regulations. Investors have noted that new regulations are at times difficult to understand and often not properly communicated to those impacted. In addition, companies have complaint of the complexity of  coordination among ministries that continues to delay some processes important to companies, such as securing business licenses and import permits.

Indonesia restricts foreign investment in some sectors through a Negative Investment List. The latest version, issued in 2016, details the sectors in which foreign investment is restricted and outlines the foreign equity limits in a number of other sectors. The 2016 Negative Investment List allows greater foreign investments in some sectors, including e-commerce, film, tourism, and logistics. In health care, the 2016 list loosens restrictions on foreign investment in categories such as hospital management services and manufacturing of raw materials for medicines, but tightens restrictions in others such as mental rehabilitation, dental and specialty clinics, nursing services, and the manufacture and distribution of medical devices. Companies have reported that energy and mining still face significant foreign investment barriers.

Indonesia began to abrogate its more than 60 existing Bilateral Investment Treaties (BITs) in February 2014, allowing some of the agreements to expire. The United States does not have a BIT with Indonesia.

Despite the challenges that the industry has reported, Indonesia continues to attract foreign investment. Singapore, China, Japan, South Korea, and the United States were among the top sources of foreign investment in the country in 2017 (latest available full-year data). Private consumption is the backbone of the largest economy in ASEAN, making Indonesia a promising destination for a wide range of companies, ranging from consumer products and financial services, to digital start-ups and franchisors. Indonesia has ambitious plans to improve its infrastructure with a focus on expanding access to energy, strengthening its maritime transport corridors, which includes building roads, ports, railways and airports, as well as improving agricultural production, telecommunications, and broadband networks throughout the country. Indonesia continues to attract U.S. franchises and consumer product manufacturers. UN agencies and the World Bank have recommended that Indonesia do more to grow financial and investor support for women-owned businesses, noting obstacles that women-owned business sometimes face in early-stage financing.

Table 1

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics