Indonesia’s population of 268 million, GDP over USD 1 trillion, growing middle class, and stable economy all serve as attractive features to U.S. investors; however, different entities have noted that investing in Indonesia remains challenging. Since 2014, the Indonesian government under President Joko (“Jokowi”) Widodo, now in his second and final five-year term, has prioritized boosting infrastructure investment and human capital development to support Indonesia’s economic growth goals. As he began his second term in October 2019, President Jokowi announced sweeping plans to pass omnibus laws aimed at improving Indonesia’s economic competitiveness by lowering corporate taxes, reforming rigid labor laws, and reducing bureaucratic and regulatory barriers to investment. However, with the fallout from the Covid-19 pandemic, the government shifted its focus to providing fiscal and monetary stimulus to support the economy. Regardless of the outcome of further reforms, factors such as a decentralized decision-making process, legal and regulatory 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 manufacture or purchase goods and services locally; restrictions on some imports and exports; and pressure to make substantial, long-term investment commitments. Despite recent limits placed on its authority, the Indonesian Corruption Eradication Commission (KPK) continues to investigate and prosecute corruption cases. However, 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, weak enforcement of contracts, bureaucratic inefficiency, and ambiguous legislation in regards to tax enforcement. Businesses also face difficulty from changes to rules at government discretion with little or no notice and opportunity for comment, and lack of consultation with stakeholders in the development of laws and regulations. Investors have noted that many new regulations are difficult to understand and often not properly communicated to those affected. In addition, companies have complained about the complexity of inter-ministerial coordination that continues to delay some processes important to companies, such as securing business licenses and import permits. In response, in July 2018 the government launched a “one stop shop” for licenses and permits via an online single submission (OSS) system at the Indonesia Investment Coordinating Board (BKPM). Indonesia restricts foreign investment in some sectors through a Negative Investment List that Indonesian officials have indicated will be scrapped as part of omnibus legislation. 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 2014, allowing some of the agreements to expire in order to be renegotiated. The United States does not have a BIT with Indonesia.
Despite the challenges that industry has reported, Indonesia continues to attract significant foreign investment. Singapore, Netherlands, United States, Japan and Hong Kong were among the top sources of foreign investment in the country in 2018 (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.
|Measure||Year||Index or Rank||Website Address|
|TI Corruption Perceptions index||2019||85 of 180||https://www.transparency.org/cpi2019|
|World Bank’s Doing Business Report “Ease of Doing Business”||2020||73 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2019||85 of 126||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2018||$11,140 M|| https://apps.bea.gov/international/
|World Bank GNI per capita||2018||$3,840||https://data.worldbank.org/indicator/