February 12, 2016
Indonesia launches ‘big bang’ liberalisation
by Avantika Chilkoti in Jakarta
Indonesia has announced plans to liberalise rules on foreign investment in a number of industries, as President Joko Widodo strives to jump-start growth and draw investors to Southeast Asia’s largest economy.
Facing criticism over creeping protectionism and regulatory flip-flops, the government has announced a big overhaul of the so-called “negative investment list” — a highly sensitive catalogue of sectors in which foreign investment is limited.
A total of 35 industries were removed from the list on Thursday, including film, tourism and restaurants, in what economists are referring to as a “big bang” move that could drive efficiency and competitiveness in local industry.
“This policy is not about liberalisation, it is to encourage economic modernisation,” Pramono Anung, cabinet secretary, told reporters.
In certain sectors foreign groups will still be unable to wholly own businesses but they will be able to invest alongside local partners. Investments in the e-commerce industry above Rp100bn ($7.3m) will also be free from restrictions, in a move that has been closely watched in recent months as Jakarta’s start-up scene has blossomed.
“The extent of creative destruction created by e-commerce is unprecedented,” Sofyan Djalil, Minister for National Development Planning, told the Financial Times in an interview last month. “On one hand we have to protect family shops but on the other hand we have to enter this new reality — I think smart policymakers have to find a mixed policy.”
The announcement is the latest in a series of reform packages from Jakarta since September, including changes to the national minimum wage and new streamlined licensing processes for large infrastructure projects.
“It’s definitely a step-up compared to the policy packages you saw before — these were relatively small-scale,” said Euben Paracuelles, an analyst at Nomura. “From the signalling standpoint I think this could cement what has been changing slowly from protectionist sentiment to a little more market friendly [sentiment].”
Elected on a promise of reviving growth and pushing through pro-business reforms, President Widodo has so far developed a reputation for inward-looking policy and growing protectionism. Last year, for example, foreign businesses expressed alarm over suggestions that expatriate workers would be required to pass a language test to work in Indonesia, while import duties were raised sharply on a range of consumer goods.
Yet the president is now looking to foreign investment to boost growth as commodity prices remain weak and economic growth in the resource-rich market slowed to a six-year low in 2015.
Since shaking up his cabinet in August, in particular, Mr Widodo has launched a big reform push. Trade minister Thomas Lembong has led a marked pivot in economic policy. Following his appointment in August, the Harvard-educated former private equity executive has moved away from protectionist rhetoric and Indonesia has expressed interest in joining the Trans- Pacific Partnership.
Foreign direct investment was up 19 per cent year on year in 2015 to Rp365.9tn ($27.3bn), according to official data, with a spike in the last quarter when sentiment improved markedly.
This week’s announcement comes amid rising concern for foreign investors in the country, which has a population of 250m and is an important market for many multinational groups.
In the past week Swedish furniture group Ikea lost a legal battle against a small local furniture business claiming the Ikea trademark. Harley-Davidson, meanwhile, has pulled out of the country following the introduction of new import tariffs and luxury goods taxes that have squeezed business.
Additional reporting by Taufan Hidayat in Jakarta