Promising Outlook for Investment in Indonesia
By : Yonathan Gautama
Indonesia, the fourth most populous nation, is growing solidly through the crisis Indonesia's economy. Currently, Indonesia is accelerating into a new phase of globalization dominated by the fast-growing big emerging market economies. Indonesia also is turning into a business opportunity as a growing chunk of its 240 million people become middle-class consumers.
If it meets its growth projections, Indonesia will become one of the world's 10 biggest economies by 2015, the clear power within Southeast Asia and a significant counterweight to the China. Moreover, Government debt is modest and the balance of payments is in a current account surplus, though inflation pressures are a concern. Per capita gross domestic product is approaching $US3000, well above India's. And the IMF tips it to grow to $US4400 by 2015, about midway between China and India.
All these aforementioned opportunities also have been supported by the law and regulations regarding investment. With the joint consent of the house of representatives of the republic of indonesia and the president of the republic of Indonesia has already promulgated the law number 40 of year 2007 concerning investments (“The Law”). The developments of Indonesia’s policy about investment in line with the need of develop country to the raw material and the market for surplus of production[1].
What’s inside the law?[2]
This Law embraces all direct investments in all sectors. This Law also gives an assurance of equitable treatment of investments. In addition thereto, this Law mandates the Government to increase coordination among the Government agencies, between the Government agencies and Bank Indonesia, and between the Government agencies and regional governments. The regional governments together with private and Government agencies or institutions must be more empowered both in the enhancement of potential investment opportunities in regions and coordination of investment promotion and services.
The regional governments implement as extensive autonomy as possible in order to organize and administer themselves investment affairs on the basis of the principle of regional autonomy and assignment duties or decentralization. Therefore, the increased institutional coordination must be measurable through the speed of the granting of licensing and investment facilities at a competitive cost. In order to meet the principle of economic democracy, this Law also mandates preparation of laws and regulations concerning business fields that are closed and conditionally open, including business fields that must be in partnership or be reserved for micro, small and medium enterprises, and cooperatives.
In pursuant to article 1 [1] The Law, investment shall refer to all forms of activities of capital investment both by domestic capital investors and foreign capital investors for conduct of business in territory of state of Republic Indonesia. Such Capital investment in view of Capital Investment Act means direct capital investment and does not include indirect or portfolio investment (vide elucidation art. 2).
All business fields or business types shall be open for investment activities, except for business fields or business types that are declared to be closed and conditionally open. Business fields or business types that are closed and conditionally open shall be provided for by Regulation of the President in a list under the standard for classification of business fields or business types applicable in Indonesia, to wit classification based on Klasifikasi Baku Lapangan Usaha Indonesia (KBLI) and/or the International Standard Industrial Classification (ISIC).
Business fields that are closed to foreign investors shall be both production of weapons, ammunition, explosive devices, and armaments and business fields that are explicitly declared to be closed by law.
The Government shall provide facilities to investors who invest. Facilities to be provided to an investment may be in the form of:
a. Income tax through a reduction of net income to a specified extent of the total investments made within a definite period;
b. Exemptions or relief on import duty of production capital goods, machines, or equipment not yet produced at home;
c. Exemptions or relief on import duty of production raw materials or components for a definite period and with specified requirements;
d. Exemptions or deferment of Value-Added Tax for a definite period on import of production capital goods or machines or equipment not yet produced at home;
e. Accelerated depreciation or amortization;
f. Relief on Land and Buildings Tax dedicated to specified business fields in specified regions or areas or zones;
a. Absorbing many workers;
b. Falling under a high priority scale;
c. Engaged in infrastructure constructions;
d. Transferring technology;
e. Engaged in a pioneer industry. Pioneer industry is an industry with wide-ranging links, that gives added values and high externalization, introduces new technology, as well as has strategic values for the national economy.
f. Located in a remote area, a less-developed area, a contiguous area, or another area deemed needy;
g. Keeping the environment sustainable;
h. Conducting research, development, and innovation activities;
i. In partnership with micro, small and medium enterprises or cooperatives; or
j. Engaged in an industry that uses domestically-produced capital goods or machines or equipment.
Indonesia’s Investment Climate
Indonesia’s economy in the past few years has grown and represents a promising future for foreign investment. The key to future growth for Indonesia remains internal reform, increased investment from outside investors, political stability and a strong presence in the global economy. First off, it is important to look at the current economic situation in Indonesia.
In 2011, Standard & Poor's Ratings Services had raised its long term foreign currency sovereign credit and debt ratings on Indonesia to 'BB+' from 'BB'. The outlook is positive. At the same time, Standard & Poor's affirmed the 'B’ short-term foreign currency rating. The rating upgrade reflects continuing improvements in the government's balance sheet and external liquidity, against a backdrop of a resilient economic performance and cautious fiscal management.
Rating constraints include Indonesia's low per capita income, structural and institutional impediments to higher economic growth, and relatively high inflation. In addition, the country remains vulnerable to external shocks partly because the domestic capital markets are shallow; but this risk has lessened."
Foreign Investment’ system in Indonesia recognizes One-Stop Service which it means that an administrative activity of licensing and no licensing with delegation or assignment of authority from an institution or agency with licensing and no licensing authority, the administrative process of which begins from the stage of application to the stage of issue of documents, which is done in one place (vide art. 1 [10] The Law). One-stop services aim to help investors have access to simplified services, fiscal facilities, and information on investments
Nowadays, Indonesia Investment Coordinating Board has launched an electronic automation platform for investment licenses and non-licensing services (NSWi) to not only reduce the number of procedures and amount of documentation needed to invest in Indonesia, but also to bypass the need to physically come to our offices to apply for certain services. The system was first launched in January 2010 in the Free Trade Zone and Free Port of Batam.
The Promising Sectors in 2011
As our view to predict in what sectors in 2011 lead the enhancement of foreign investment in Indonesia, we preferable to observe the 2010’s trend sectors. Indonesia Investment Coordinating Board released data that the top five sectors in foreign investment of the year 2010 were plantations (Rp 4.5 trillion); transportation, storage and telecommunications (Rp 3.1 trillion); foodstuffs (Rp 2.8 trillion); chemicals and pharmaceuticals (Rp 1.4 trillion); and other services (Rp 1.1 trillion)[4].
Indonesia Investment Coordinating Board’s data showed to us that foreign investment in the fishery sector of the year 2010 increased 71, 67 % to U.S. $ 18 million compared to 2009 amounting to U.S. $ 5.1 million. This year in 2011 such enhancement will be continued and become one of the promising sectors in foreign investment[5].
Besides, mining sector will also be predicted to increase. Government believes the foreign investment can reach 3, 5 billion US dollars in this year. Foreign company is likely interested to dig the mine due to high prices. These statements are conveyed by Director General of the Ministry of Energy and Mineral Resources Mining in Jakarta.[6]
Office market, as one of the subsector is still considered to have high demand in 2011. According to the Chairman of the Board of Trustees of the Center (DPP) Real Estate Indonesia (REI) the property sector, which accounts for the high numbers are from the office market, where demand is greater than supply. Meanwhile, according to economists from the Institute for Research and Community Service (LPPM), Atma Jaya Catholic Jakarta, the property market contributed in economic growth in Indonesia is quite important. Property sector accounted for 7 percent economic growth in 2010[7].
Furthermore, the prospect of plantation development in 2011 was still bright and can be indicated through the new employment of 300 thousand people or an increase of 32.74% compared to 2010 and involving 20.45 million planters. This statement released Director General of the Ministry of Agriculture Plantation. In addition, the views of estate development investment also increased by 51.73 billion IDR or grew by 14.50% compared to 2010. From the value of exports, plantation commodities increased by 17.65% compared to 37.52 billion USD. Trade balance surplus will increase 17.73 % to 33.97 billion USD. In relation to a minimum income of planters into 1,660 per householder hectares per year, the prospects for plantation developments is illustrated through indicators of plantation area increased by 2.27% to 20.86 million hectares compared to year 2010. A second indicator is viewedfrom a plantation crop production increased by 6.59% compared to 2010 or increase to 36.90 million tones[8].
[1] Investment in Indonesia “Neocolonialism and Its Destruction to Peoples Economy” http://www.networkideas.org/
[5] http://www.kkp.go.id/index.php/archives/c/58/4163/investasi-asing-sektor-perikanan-naik/, see also Suhana, Kepala Riset Pusat Kajian Pembangunan Kelautan dan Peradaban Maritim. Kekuatan Asing Kembali Kuasai Sektor Perikanan
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