‘Don’t be allergic to investment’: Government goes all out to lure funds in 2019. The government has gone all out in luring investment to Indonesia as part of its efforts to revive the country’s manufacturing sector and improve its export performance to spur economic activity amid looming external risks.
When he addressed his supporters in Sentul, West Java, in July, President Joko “Jokowi” Widodo emphasized that attracting investment would be one of his priorities in his second term.
“No one should be allergic to investment. This is how we create as many jobs as possible. Therefore, anything that obstructs investment must be trimmed, such as slow or complicated permit processes, especially illegal levies,” said Jokowi.
Investment, which accounts for more than a third of Indonesia’s gross domestic product (GDP), has steadily declined since last year’s third quarter. Year-on-year (yoy) investment growth stood at 4.21 percent in the third quarter of this year, significantly lower than the annual growth rate of 6.96 percent booked in the third quarter of 2018, Statistics Indonesia (BPS) data show.
Indonesia’s economy expanded by 5.02 percent yoy in the third quarter of this year, with household spending and net exports – thanks to imports falling more steeply than exports–buoying overall GDP growth.
After his inauguration on Oct. 20, Jokowi laid out the groundwork of several policies aimed at opening up the country to more foreign investment.
The government is currently drafting at least two omnibus laws that have become priority bills in the House of Representative’s National Legislation Program (Prolegnas), one on job creation and the other on taxation.
Funds in 2019
The omnibus law on job creation, the draft of which is set to be submitted to the House in January, will amend 1,194 articles of 82 laws deemed to be deterring investment. The bill will touch on 11 clusters of issues, including licensing procedures, land procurement and labor regulations.
The omnibus bill on taxation, meanwhile, will effectively lower the country’s corporate income tax to make it more competitive, among other measures.
Funds in 2019
The corporate income tax rate, currently set at 25 percent, will be reduced to 22 percent in 2021 and to 20 percent by 2022. An additional 3 percent reduction will be given to companies that go public.
The omnibus law on taxation will also revise tax penalties, eliminate dividend tax and streamline tax collection by regional administrations.
Jokowi also streamlined decision-making in his Indonesia Onward Cabinet, granting coordinating ministers veto power to shoot down policies made by ministers deemed contradicting the government’s overarching goal of luring investment.
At the same time, the President has granted the Investment Coordinating Board (BKPM) the authority over business licensing to improve the ease of doing business.
Funds in 2019
The country’s rank in the World Bank’s Ease of Doing Business (EODB) index stagnated at 73rd – unchanged from last year, as the bank highlighted Indonesia’s rigid regulations on employment and minimum wages.
In terms of competitiveness for attracting foreign investment, Indonesia suffered two blows as it slipped five positions to 50th place out of 141 countries on the World Economic Forum’s (WEF) Global Competitiveness Index in 2019. Meanwhile, Vietnam gained 10 places to reach rank 67, while Malaysia and Thailand were ranked 27th and 40th, respectively.
Indonesia also failed to attract firms relocating from production bases in China following the US-China trade frictions, as neighboring countries such as Vietnam and Cambodia embarked on deregulation and other policy to lure investment.
From June to August 2019, 33 Chinese companies announced plans to set up or expand production abroad. Twenty-three of them are going to Vietnam and the remaining 10 to Cambodia, India, Malaysia, Mexico, Serbia and Thailand, according to a World Bank analysis presented to Jokowi in September, a copy of which was obtained by The Jakarta Post.
“Ministers are making too many rules, and increasingly so,” the bank writes, highlighting more than 6,300 ministerial regulations issued from 2015 to 2018, representing 86 percent of central government laws and regulations. That compares with 5,000 regulations representing 82 percent of central government laws and regulations issued from 2011 to 2014.
In a recent speech before representatives of regional administrations, Jokowi called on all stakeholders to debottleneck regulations and business procedures to make it easier for investors to realize their plans.
Funds in 2019
“[If] problems of investment cannot be solved, exports cannot be increased. That is why my message to the regional [leaders] is that, if there are export-oriented investment […], just close your eyes and give them the permits as soon as possible,” stressed Jokowi.
The private sector has welcomed the reform agenda laid out by the government, although they are cautious as to whether it will have the desired impact.
“The resolution of investor deterrents and their desired impact on inflows will depend on consistent implementation,” said Chris Wren, executive director of the British Chamber of Commerce (BritCham) in Indonesia, recently.
Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for international relations Shinta Kamdani voiced a similar view.
“We have to recover the market’s trust in the government’s intention to implement positive policies and improve the business climate and legal certainty,” said Shinta. “If only a few regulations are executed well in the field, foreign and domestic investors will see [that Indonesia] does not have legal certainty.” ‘Don’t be allergic to investment’: Government goes all out to lure funds in 2019 (Marchio Irfan Gorbiano, The Jakarta Post) Booming Indonesian Business