Connect with us


Slower growth pushes pro-investment reform in Indonesia

According to Oxford Business Group latest update, Asean largest economy is keen to attract more foreign investment by implementing pro-investment reform.



According to  Oxford Business Group latest update, Asean largest economy is keen to attract more foreign investment by implementing pro-investment reform.  Slower growth in Indonesia may provide an impetus to realise a range of reforms that the government is planning, changes that could open several important and attractive sectors to greater foreign investment.

On November 6, the Investment Coordinating Board (Badan Koordinasi Penanaman Modal, BKPM) announced plans to allow foreign investment in airports and ports, and to ease restrictions in the telecommunications and pharmaceutical sectors. The announcement came just hours after official figures showed GDP growth had slowed for a fifth consecutive quarter, albeit to 5.62% – still impressive by international standards.

Map of Asean Countries

Asean largest economy is keen to attract more foreign investment by implementing pro-investment reform

The BKPM chairman, Mahendra Siregar, told reporters the government would allow foreign companies to hold stakes of up to 100% in airports, airport services and ports, while permitting 49% ownership of freight terminals. Currently, state-owned companies PT Angkasa Pura and PT Pelindo own and operate airports and seaports, respectively.

With Indonesia planning to open 24 new airports by 2015, private capital and expertise in management could help support expansion. Local press reports suggest that restrictions on foreign investment in financial institutions, tourism, healthcare and advertising could also be loosened.

However, Sofjan Wanandi, chairman of the Indonesian Employers’ Association, told the local press restrictions could be imposed on the retail and logistics sectors, in which foreign ownership of 100% is allowed.

Further details of potential liberalisation have yet to be released, but on December 5, Mahendra told the press President Susilo Bambang Yudhoyono had promised his advisers the reforms would be finalised as soon as possible.

Rules last modified in 2010

News on the reforms is long-awaited. The BKPM was due to revise the so-called negative investments list (Daftar Negatif Investasi, DNI), which sets limits on foreign ownership of assets in various sectors, this year. The list, which is issued by presidential decree, was last modified in 2010, when the BKPM was headed by Gita Wirjawan, who is now trade minister.

The 2010 revisions – which were announced after some delay – eased restrictions on investment in sectors including education, construction, health care, postal services and telecommunications, while tightening other requirements.

Reform driven by slowing growth

The renewed sense of urgency about DNI revisions may be partly associated with the upcoming parliamentary and presidential elections, but most media reports suggest that it is mainly driven by concerns over slowing growth. While GDP expansion of more than 5% may be high by international standards, this remains a relatively poor country with a large and growing population, and the government wishes to continue delivering higher incomes and jobs.

One of the reasons for sluggish growth is lower investment. In the third quarter of this year, realised investments grew 22.9% year-on-year, according to Indonesia Investments, a Dutch-run organisation. This may seem a high figure, but it is low compared to recent performances – and realised investments grew just 0.7% quarter-on-quarter in Q3 2013, a significant slowdown.

A number of factors are acting as a drag on previously buoyant growth, including inflation, weak external demand, higher interest rates and a depreciation of the rupiah, Indonesia’s currency. All are affecting investor confidence.

This year the country saw an outflow from its financial markets of $1.4bn to early December, compared to a $1.7bn inflow in 2012. A recent survey by the British Chamber of Commerce Indonesia found that 60% of the total respondents remained confident about their business in the country, down from 83% last year, while the chamber’s ease of doing business rating fell to 50% from 65%.

In an increasingly competitive environment, in which many emerging markets are seeking investment to drive growth, even Indonesia, with its large and growing domestic market, ample resources and strategic location cannot rest on its laurels.

As the IMF said in an August report on Indonesia,

“More intense structural reform efforts are needed to reduce supply bottlenecks, broaden the export base, and bolster medium-term economic and employment growth…the main priorities continue to be accelerating infrastructure investment, creating a more open and predictable trade and investment regime.”

Encouraging foreign investment in important sectors such as transport and communications would be an important step in the right direction, ease stress on infrastructure and help enhance Indonesia’s ability to meet its economic potential.

Oxford Business GroupNote: This article was written by  Oxford Business Group, the highly acclaimed global publishing, research and consultancy firm. The views and opinions expressed in this article are those of the authors and do not necessarily state or reflect the views of  Thailand Business News

With some of the industry’s most experienced analysts conducting on-the-ground research throughout the year, OBG provides its global readership with the business intelligence they need to stay ahead.

Click to comment

Leave a Reply


The Indonesia-Singapore Bilateral Investment Treaty Comes into Effect

Through the upgraded DTAA, the tax rate on branch profits was reduced from 15 to 10 percent, and the tax rate on royalties for copyrighted works of literature, arts, and film, and eight percent for the use of industrial, scientific, or commercial equipment was lowered from 15 to 10 percent.



The Indonesia-Singapore Bilateral Investment Treaty Comes into Effect

The latest Indonesia-Singapore Bilateral Investment Treaty (BIT) came into effect on March 9, 2021, and replaces the previous BIT, which was signed in June 2006 and expired in June 2016.

Continue Reading


Will South-east Asia’s tech giants turn to SPACs to boost post-pandemic growth?



Will South-east Asia’s tech giants turn to SPACs to boost post-pandemic growth?

– SPACs have become a hot-button topic in global finance
– The vehicle is widely used to help tech start-ups go public
– Both Singapore’s and Indonesia’s exchanges are set to allow SPACs
– Several South-east Asian tech unicorns may use SPACs to list publicly

South-east Asia is seeing a wave of interest in special purpose acquisition companies, or SPACs, with various major tech players considering them as a means to fast-track public listings. In parallel to this, several exchanges in the region are moving to allow SPAC listings, with a view to boosting post-coronavirus growth.

SPACs are shell companies set up by investors and then listed on a given stock exchange. Their sole function is to acquire a private company, enabling it to go public without having to go through a traditional initial public offering (IPO).

A SPAC does nothing beyond its essential function – it neither produces nor sells anything, and a SPAC’s only assets are the funds raised from its own IPO.

Crucially, people who buy into a SPAC do not know what its eventual acquisition target or targets will be. This is why SPACs are often referred to as “blank cheque companies”: they give the founders a free rein to back their choice of private company. A key feature of SPACs is that they are often headed by big-name business executives or fund managers, who trade on past successes to inspire trust in investors.

While they are far from a novel phenomenon, SPACs have become a hot button topic in recent times: SPAC initial offerings quadrupled last year, with the vehicles raising a record $80bn.

Merging with a SPAC enables a company to go public and raise capital more quickly and painlessly than with a traditional IPO, circumventing some of the volatility that Covid-19 unleashed on global markets. At the same time, they function rather like venture capital, helping investors to buy into high-growth start-ups on the ground floor.

Read More

Continue Reading