Indonesian Stimulus Gets Serious with Major Negative List Revisions

By: Dezan Shira & Associates
Editor:  Cameron Turnbull 

On February 17^th, 2016, Indonesian president, Joko Widodo, announced plans to further liberalize his nation’s economic policy’s 10^th economic stimulus package aimed at stimulating foreign direct investment. 

Indonesia has long been on the radar of international investors as a rapidly developing region with serious potential. More stable and diversified than many believe, domestic consumption represents 56 percent of total GDP.  This is higher than fellow ASEAN member countries Malaysia (52.4 percent) and Thailand (52.2 percent). It also dwarfs the domestic consumption of Asian economic giant China, which comes in at just 36.5 percent.

Despite its potential, Indonesia has been slow in opening up to foreign investment. The country has a history of enacting protectionist policies, the most recent following the 2008 global financial crisis when Indonesia seriously reduced available ownership shares related to many industries.

President Joko is intent on doing just the opposite. Over the last 10 months, his government has announced ten new economic stimulus packages, all with the intention of making Indonesia a more attractive destination for foreign investment. At the ASEAN Economic Community conference in San Francisco on Feb 17^th, 2016 President Joko told a room full of business leaders that while Indonesia has recently made strides in becoming more attractive to foreign investment, it is still not enough, and he is determined to continue the deregulation of the economy with regards to FDI.

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Negative List Updates

The official message is quite clear, Indonesia is open for business. But it isn’t just empty political fodder. The recent economic policy announcements show real promise for foreign investment in Indonesia. For example, Indonesia’s “Negative List,” an official document outlining the sectors in which foreign investment is prohibited or restricted, was revised in early February. In it, the government announced that 35 sectors would be removed from the list completely, meaning companies in those  sectors could legally operate as 100 percent foreign owned enterprises.

Additionally, certain sectors such as warehouse distribution, travel agencies, and telecom services have had their maximum allowed level of foreign investment increased to 67 percent. The following are some of the most notable industries that have seen substantial adjustments to ownership caps under this round of reform:

Emerging Opportunities for Investment

There are major opportunities for new foreign investors in several industries as a result of this adjustment. Take the film industry for example.

Indonesia’s fiercely protectionist policies under former president Suharto resulted in an underserved and underdeveloped film industry. Now that film production, distribution, and exhibition are completely open to foreign investment, the country is ripe with potential.

Indonesia is a relatively young country, with a median age of 29,  and is becoming more and more affluent. From 2006 to 2011, per household annual disposable income grew by 5 percent per year. Euromonitor International predicts this number will continue to rise, increasing by 54 percent between 2013 and 2030.  

When you combine this with the fact that there are only 1100 movie screens in the entire country of 250 million people, it is clear that Indonesia is an untapped market for film production, distribution and film related services like cinemas and special effects. 

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Maximizing Your ASEAN Expansion

According to a prediction made by the Economist, Indonesia will be the world’s 4^th largest economy by 2050. The report indicates that Indonesia will be jumping from their 2012 ranking of 16^th to 4^th, outdone only by the well-known economic giants of China, India, and USA who will occupy 1^st, 2^nd, and 3^rd place respectively.

The future is bright for this country, and as President Widodo’s economic policies open more and more industries to foreign ownership, the opportunities for foreign investment are boundless. The Indonesian leader has stressed that the recent negative list revision process is far from over, and foreign investors should pay attention to developments over the next few weeks.

Despite the opportunities presented by the Indonesian market, tapping into ASEAN’s largest consumer base can still prove to be a complex task and careful due diligence is strongly advised. With decades of experience helping companies set up business operations in the region, specialists at Dezan Shira & Associates are well placed to help companies overcome these challenges. For more information, please get in touch with our specialists at asean@dezshira.com.

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