What Indonesia’s new Negative Investment List – and its announcement – tells us about Indonesia’s business reforms

Written by Daniel Nicholls, TCF Key Expert for the EU Desk at the BKPM

If there’s one area where you can give credit to President Jokowi’s administration, it’s the dynamism of the economic reform agenda – or at least the dynamism and regularity of new initiatives and announcements.

6 months on from the first Economic Stimulus Package (announced in September 2015) and we’re now already at Economic Stimulus Package number 10. To some, this shows the dynamism and relentless commitment of the Indonesian Government in introducing varied reforms. To others, it provides an interesting, continuous exercise in providing what are endless, even fragmented updates to their bosses back home.

The most recent 10th economic stimulus package relates to the revision of Indonesia’s “Negative Investment List” (or DNI) – the Government’s somewhat intimidating name for the regulation which details where investment is either closed or subject to certain restrictions or other conditions. There are plans for a new, more investor-friendly name for this list, but that’s a work in progress.

Looking at the details of new planned DNI which have been announced so far (the actual regulation still needs to be finalised and signed into law), and there are many positive developments that demonstrate the Government’s acknowledgement of the important role FDI will play in achieving key economic development targets such as power generation and infrastructure development:

  • Cold storage, previously limited to 33% or 67% foreign ownership (depending on the location in Indonesia), will now be 100% open – a welcome development for investors looking to tap into the country’s abundant fisheries opportunities
  • Distribution and warehousing, previously capped at 33% foreign ownership (a major issue for numerous foreign companies) will now jump to 67%. For some this is still not enough, while for others, the ability to own a majority stake is an important and welcome development
  • Other areas set to allow 100% FDI include: toll road management, e-commerce, film distribution, sports centers and raw pharmaceutical materials – to name a few.

Despite these positive developments, some concern has also been expressed about other provisions, including restrictions on construction consultancy and architectural services. Others would have wished to see foreign ownership in other areas, such as MICE services, aircraft support services and telecommunication services opened up more than they have been.

Then there’s the process of announcing the DNI’s revision – it took many by surprise, as the revision was originally due for release in April this year. And then the Government suddenly unveiled its “big bang” for foreign investment on 11th February. This “big bang” was not the DNI document itself, but rather a 7-page communiqué from the Coordinating Ministry for Economic Affairs (MENCO) outlining the key provisions the new DNI will entail. While it details numerous sectors, “such as” and “etc.” make regular appearances in the document.

So it’s a useful document, but one which still leaves some gaps on the specifics, and while we wait for those specifics to be made public, the phone lines of BKPM and other institutions will continue to ring endlessly with clarification requests.

They say the devil is in the detail, and I would have thought a “big bang” is a hard act to follow – the all-encompassing announcement; the answer to everything. Well, who knows, maybe there will be another “little bang” when the actual DNI is released…

Speed is not a cure-all…

In a country where the overall licensing timeframe for investments in the electricity sector used to take a staggering 930 days to process (the timeframe has since been reduced to 250 days), it’s easy to see how the Government is keen to show efficiency and speed wherever it can.

The way in which the DNI revision has been announced is one example of this (the President was travelling to the US for a high-level summit the week after and it’s always good to arrive at high-profile gatherings with some good news which is hot off the press).

There are other examples of initiatives where headline-grabbing speedy initiatives are pushed through – including BKPM’s 3-hour permitting service, officially launched in January this year.

On one level, it’s a welcome development. It shows the Government is committed to addressing and securing “quick wins”. The number of permits and documents investors can now receive through BKPM’s service has grown to nine, while the key criteria for using this service, a minimum investment plan of Rp. 100 Billion (around US$7.5 million), can easily be fulfilled by many investors. And at least some foreign companies see the service’s value – more than ten investors have already used the service since it was launched.

On the other hand, a serious question needs to be asked: does 3 hours versus 3 days (the standard processing time for regular principal license applications) really make that much of a difference? The myriad of subsequent licenses and permits investors in some sectors will still need to obtain to commence commercial operations will often take several months, and possibly more.

And so while many of these initiatives are in themselves positive, the Government needs to take a reality check on the real impact they’ll have on doing business. Sure, there are quick-win solutions that make nice headlines, but there are also the deeper, more challenging issues that need to be addressed. Coordination is certainly still one of them. There are plenty of signs that the business environment is broadly moving in the right direction, but perhaps the Government needs to acknowledge that practical progress is not quite going to happen at the light speed it would have us believe…