Indonesia Misses Out on Billions Because of Troubled Investment Climate
The Indonesian government said it will take a number of steps to tackle several classic problems that obstruct investment realization in the country. Based on internal research, the government counted a total of 190 cases where investors' investment commitment failed to be realized between 2010 and 2017. This led to an estimated IDR 351.2 trillion (approx. USD $26.2 billion) in missed domestic direct investment and USD $54.6 billion in missed foreign direct investment.
Internal research shows both positive and negative developments. A positive development is that - after the issuance of Presidential Regulation No. 91/2017 on the Acceleration of Doing Business in in September 2017 - the government detected a significant increase in investment commitments. The aforementioned regulation aims at smoothing the act of doing business in Indonesia by accelerating the licensing process (time-wise) and reduce costs through deregulation.
The government said - after the release of the regulation - it managed to attract investors for a total of 1,054 projects (per 14 December 2017), having a combined value of USD $42.6 billion.
However, internal research also shows that many investors experienced obstacles in Indonesia and therefore decided to delay - or cancel altogether - their investment commitment in Indonesia. A total of 190 cases were counted where investors decided not to continue with their investment plans even though they had already obtained a principle license (Izin Prinsip) from the Investment Coordinating Board (BKPM).
Several obstacles were detected that led to missed investment in Indonesia. For example, in several cases regulations changed after the investor had obtained the principle license. No exact details were given, but apparently investors had to face a new reality due to new regulations that made their business plans less lucrative and therefore decided not to go-ahead with their plans.
Other classic problems that undermine the attractiveness of Indonesia's investment climate are the lengthy and costly process to obtain all required licenses, high logistics costs (due to the lack of infrastructure development and insufficient energy supply), the difficulty (and high costs) to buy land, high interest rates at local banks, and the low quality level of human resources working at regional governments. Sometimes the lack of coordination and cooperation between the central and regional government causes confusion about the regulatory framework related to an investment project (especially outside the industrial zones). Another issue is that some investors were promised a tax allowance by the government but are yet to receive this incentive.