Indonesia Revises Negative Investment List to Boost Foreign Investments

The Negative Investment List of Indonesia stipulates which sectors within the Indonesian economy are open to foreign investment as well as the percentage shares of foreign ownership that are permitted.

In several sectors, the Indonesian government permits higher foreign ownership if investors engage in public- private partnerships (PPPs) with the government.

The following revisions have been announced:

Expanded Foreign Ownership:

	Foreign Ownership
	Previous	New
A. Energy and Mineral Resources      Electricity Generation > 10MW	Maximum 95%	Maximum 100% through PPPs during concession period Without PPP maximum 95%
B. Transportation     i. Provision of Port Facilities	Maximum 49%	Maximum 95% through PPPs Without PPP 49%
ii. Organization of periodic testing        of motor vehicles,        Terminals Development	Closed to FDI	Maximum 45% (recommendation from the Transportation Ministry required)
C. Healthcare      Pharmaceuticals Industry	Maximum 75%	Maximum 85%
D. Creative Economy      Production of films	Closed to FDI	Maximum 51% for investors from ASEAN
E. Finance      Venture Capital	Maximum 80%	Maximum 85%

Reduced Foreign Ownership:

	Foreign Ownership
	Previous	New
A. Energy and Mineral Resources     i. Electricity Generation 1-10MW	Maximum 100% through PPP	Maximum 49%
ii. Drilling Services on land	Maximum 95%	Closed to FDI
iii. Drilling Services in sea	Maximum 95%	Maximum 75%
iv. Oil and Gas support services	Maximum 95%	Closed to FDI
v. Installation of electric power        utilization	Maximum 95%	Closed to FDI
B. Communication and Information     i. Operation of Telecommunications        Services	Maximum 100%	Maximum 49%
ii. Data Communications Systems        Services	Maximum 95%	Maximum 49%
iii. Internet Services	Maximum 65%	Maximum 49%

In the first quarter of 2014, direct investments grew 14.6 percent (year-on-year) to IDR 106.6 trillion (USD $9.4 billion). Although this constitutes a new record, the slowing pace of foreign direct investments is reason for concern. Whether the revision of Indonesia's Negative Investment List will immediately lead to increased investments is questionable as the sectors that are opened up involve long-term investments and will require considerable planning, research and time before a foreign investor decides to invest in the sector.

The Indonesia Investment Coordinating Board (BKPM) targets IDR 456.6 trillion (USD $39.7 billion) worth of investments in 2014, a 14.5 percentage growth from investment realization in 2013 (IDR 398.6 trillion).

Indonesia hopes to see more foreign investment as the economy has been slowing since 2012. Earlier this week, Statistics Indonesia announced that GDP growth was only 5.21 percent (yoy) in the first quarter of 2014, the slowest quarterly growth pace since the fourth quarter of 2009. The economic slowdown is caused by weak exports and limited domestic consumption (both government and household consumption), which is partly the result of prudent fiscal management. However, through more FDIs, the government aims to boost economic growth and employment opportunities.

Bureaucracy remains a major concern too. Economist Purbaya Yudhi Sadewa stated that 25 permits are currently needed in order to start oil or gas exploration in Indonesia and it can take about two years before all permits have been granted. After exploration, another 25 permits are needed to start production.

Foreign and Domestic Investment in Indonesia (in IDR trillion)

	First Quarter 2014
Domestic Direct Investment	34.6
Foreign Direct Investment	72.0
Total Investment	106.6

Foreign and Domestic Investment in Indonesia (in IDR trillion)

	2011				2012				2013
	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Domestic Direct Investment	14.1	18.9	19.0	24.0	19.7	20.8	25.2	27.5	27.5	33.1	33.5	34.1
Foreign Direct Investment	39.5	43.1	46.5	46.2	51.5	56.1	56.6	65.5	65.5	66.7	67.0	71.2
Total Investment	53.6	62.0	65.5	70.2	71.2	76.9	81.8	83.3	93.0	99.8	100.5	105.3

^{Source: Indonesia Investment Coordinating Board (BKPM)}

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