Horticulture Sector Indonesia: Flexible toward Foreign Ownership Cap
The Indonesian government's decision to limit foreign ownership in the horticulture sector to a maximum of 30 percent (through Law No. 13/2010 on Horticulture), from 95 percent previously, continues to cause a polemic as such protectionism may be a big disadvantage to the development of Indonesia's horticulture sector. Moreover, the law works retroactively implying that existing companies owned by foreign investors need to divest their majority ownership interests. In Law No. 13/2010 foreigners were given four years to divest their shares.
The Indonesian Agriculture Ministry now seeks a middle way between respecting the foreign ownership cap promulgated through Law No. 13/2010 on Horticulture and safeguarding the country's investment climate. Spudnik Sujono, Director General of Horticulture at the Agriculture Ministry, said the government will continue to limit foreign ownership in horticulture at 30 percent but will give a more flexible time frame for divesting foreigners' stakes. In fact, there may be no deadline at all. These and other details will be written in a new Agriculture Ministry Regulation that is set to be released soon.
Benny Kusbini, Chairman at the Indonesian National Horticulture Council (DHN), requests the government to look beyond the nationalistic viewpoint. The horticulture sector of Indonesia needs new technology and investment in order to grow further. Foreign investment plays a crucial role in the transfer of such technology to Indonesian counterparts. According to Kusbini, a better approach would be to see more gradual protectionism in the sector, hence giving time to Indonesian companies to professionalize. Moreover, the ASEAN Economic Community (AEC) is set to start at the year-end meaning the start of a freer market in the region. If Indonesia's horticultural products remain uncompetitive, this would then imply that the country is bound to see much more imports of horticultural products.
Law No. 13/2010 on Horticulture
| Article 100 |
| The Indonesian government encourages capital investment in the horticulture sector, particularly domestic capital investment |
| Foreign capital investment is only allowed in large enterprises |
| Foreign capital investment is limited to 30 percent |
| Article 131 |
| Within four years after this law comes into effect, foreign investors have to comply with regulations set in article 100 |
Despite generally favorable climatic and geographic conditions, Indonesia's agriculture sector grows at a slower pace than the economy at large due to low quality seeds, lack of knowledge, and lack of high quality equipment. Furthermore, transportation and storage are two key issues that remain unsolved.
Investment in Indonesia's Horticulture Sector 2010-2014
| Investor | Value (IDR million) |
Composition |
| Domestic | 823,000 | 27% |
| Foreign | 2,260,000 | 73% |
| Total | 3,083,000 | 100% |
Source: Kontan