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Indonesia Investment

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Tips:Investment:Openness to Foreign Investment Indonesias growing middle class, strong domestic demand, stable political situ
  Investment:

Openness to Foreign Investment

Indonesia’s growing middle class, strong domestic demand, stable political situation, and

sound macroeconomic policy paired with gross domestic product (GDP) growth of 6.5%

in 2011 make Indonesia an attractive destination for Foreign Direct Investment (FDI).  In

2011, Indonesian government officials verbally welcomed increased FDI, aiming to

create jobs and spur economic growth, and courted foreign investors, notably focusing

on participation in a large number of public private partnerships to develop Indonesia’s

infrastructure.  However, vague and conflicting regulations, poor infrastructure, and

corruption continued to be significant concerns for foreign investors.  U.S. firms

lamented the lack of ministerial coordination and a body empowered to act as a final

authority in the case of regulatory uncertainty. 

  Restrictions on FDI are, for the most part, outlined in presidential decree 36/2010,

commonly referred to as the Negative List.  The Negative List aims to consolidate FDI

restrictions from numerous decrees and regulations to create greater certainty for foreign

and domestic investors.  The 2010 iteration of the Negative List clarified that companies

are grandfathered in the case of increased foreign ownership restrictions.  However,

exceptions remain; in the case of wholly foreign owned security service companies, their

licenses were not renewed, despite grandfathering provisions.  In 2010, the share of

foreign ownership permitted was increased in health services, creative industries,

construction services, and multilevel marketing, but decreased in cell towers, security

services, and inspection services.  For investment in certain sectors, such as mining and

higher education, the Negative List is useful only as a starting point, as additional licenses and permits are required from individual ministries.  Foreign capital investment, through the stock market, is not governed by the Negative List.  Foreigners may

purchase equity in state-owned firms through initial public offerings, and capital

investments in publicly listed companies through the stock exchange are not subject to

Indonesia's negative list unless an investor is buying a controlling interest.  

 The Investment Coordinating Board (BKPM) is responsible for issuing investment

licenses to foreign entities and has taken steps to simplify the application process

through better coordination between various government institutions.  BKPM launched a

National Single Window for Investment which will eventually allow foreign investors to

apply for licenses and other services online.  Although BKPM is meant to act as a onestop service institution, investments in the mining, oil and gas, plantation, and other

sectors require further licenses from related ministries and authorities.  Likewise, certain

tax and land permits, among others, typically must be obtained from local government

authorities.  Though Indonesian companies only require one approval at the local level,

businesses report that foreign companies must obtain both administrative and legislative

approval in order to establish a business. 

  The Coordinating Ministry of Home Affairs, Ministry of Administrative Reform and

Bureaucracy Reform, and BKPM issued a circulating letter on September 15, 2010, to

clarify investment that crosses provincial and regional boundaries.  Investment in one

regency is managed by the regency government; investment that lies in two or more

regencies is managed by the provincial government; and investment that lies in two or

more provinces is managed by central government, or central BKPM.  

Natural Resources: Indonesia’s vast natural resource wealth has attracted significant

foreign investment over the last century.  Though the potential for gain is evident, a

variety of government regulations have made doing business in the resources sector

increasingly difficult.  For example, Government Regulation 79 retroactively removes

previously-agreed recoverable oil and gas production costs from some production

sharing contracts (PSCs).  Also, the 2009 mining law requires mining companies to

renegotiate their contracts of work to increase government tax and royalty rates.
 


Keyword: Indonesia Investment

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