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Next week, Indonesia's Investment Coordinating Board (BKPM) plans to launch an upgraded version of its Online Single Submission (OSS) system. The OSS system is a web-based business licensing system that aims at cutting the red tape that is involved when investors try to obtain business permits in Indonesia. Massive red tape is considered to be one of the major obstacles in Indonesia's investment climate.
On Friday (8/02) Indonesia Investments released the January 2019 edition of its monthly research report. The report aims to inform the reader of the key political, economic and social developments that occurred in Indonesia in the month of January 2019 and also touches upon key international developments that impacted on the Indonesian economy.
Per 2 January 2019 operations of the online single submission (OSS) system are transferred from the Coordinating Ministry of Economic Affairs to the Indonesia Investment Coordinating Board (BKPM).
The legislative and presidential elections that are scheduled for April 2019 seem to have a big impact on direct investment realization in Indonesia this year. Based on the latest data from the Investment Coordinating Board (BKPM), foreign direct investment (FDI) realization dropped 20.2 percent year-on-year (y/y) to IDR 89.1 trillion (USD $5.9 billion) in the third quarter of 2018. This constitutes the third consecutive quarterly decline in FDI realization in Indonesia.
An interesting project for investors who seek to enter - or expand their business - into the hospitality industry of Indonesia is the four-star Amos Cozy Hotel & Convention Hall. This hotel is for sale with the offering price set at USD $24 million.
In an effort to boost domestic and foreign direct investment, the Indonesian government launched the online single submission (OSS) licensing system on Monday (09/07). The system, which is based on (1) Presidential Regulation No. 91/2017 on the Acceleration of Business Implementation and (2) Government Regulation No. 24/2018 on the Electronically Integrated Business Licensing Service, was designed to cut lengthy bureaucratic procedures (red tape), thus attract more direct investment.
Seeing various startup companies - across the globe (but also in Indonesia) - having developed into influential unicorns with a valuation of at least USD $1 billion, startup companies deserve some special attention. It is true, however, that most startups end in failure and therefore it is important to fully comprehend all aspects involved when establishing, running, and buying or selling a startup company to turn it into a success.
Total direct investment (foreign plus domestic investment) in Indonesia rose 11.8 percent year-on-year (y/y) to IDR 185.3 trillion in the first quarter of 2018, showing robust investor appetite and giving rise to optimism that Indonesia's full-year direct investment target of IDR 765 trillion can be achieved. Traditionally direct investment realization is lowest in the first quarter of the year (although the upcoming elections in 2018 and 2019 may make some investors prefer to wait and see).
SKK Migas, the government's special taskforce for upstream oil and gas business activities in Indonesia, said direct investment in the country's upstream oil and gas sector reached USD $1.8 billion by the end of February 2018 (equivalent to around 13.84 percent of SKK Migas' full-year 2018 investment target in the country's oil and gas sector).
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.
Latest Columns Investment
According to the latest data from Indonesia's Investment Coordinating Board (BKPM), investment realization (consisting of both foreign and domestic direct investment) in Indonesia grew 10.7 percent (y/y) to IDR 155.3 trillion in the third quarter of 2016. Cumulatively, investment realization in Indonesia stands at 453.4 trillion in the first nine months of 2016, achieving about 76 percent of the full-year target (IDR 594.8 trillion). Most likely, the BKPM's full-year target will be achieved.
According to the Indonesia Investment Coordinating Board (BKPM), the government agency that provides investment services and forms the primary interface between the Indonesian government and businesses, it has assisted 59 companies through the three-hour licensing service that was started on 11 January 2016. Originally, this service was only available to big investors who either invest at least IDR 100 billion (approx. USD $7.5 million) or generate 1,000 new job positions for Indonesian workers. However, a Presidential Instruction also opened this special service to investment in four infrastructure-related sectors.
In the first three policy meetings of 2016, Indonesia's central bank (Bank Indonesia) cut its benchmark BI rate gradually yet aggressively from 7.50 percent to 6.75 percent as inflation, the rupiah rate and Indonesia's current account deficit were regarded as 'under control'. At the same time, Indonesia's lender of last resort acknowledged the BI rate has failed to influence borrowing costs and market liquidity effectively and therefore decided to adopt the seven-day reverse repurchase rate (reverse repo) as the nation's new benchmark starting from August 2016.
The central bank of Indonesia (Bank Indonesia) revised down its projection for Indonesia's economic growth in 2016 to the range of 5.0 - 5.4 percent (y/y), slightly below its previous forecast in the range of 5.2 - 5.6 percent (y/y). Bank Indonesia Governor Agus Martowardojo said the central bank decided to trim its projection for gross domestic product (GDP) growth this year due to sluggish global economic growth, low commodity prices, and Indonesia's slightly disappointing Q1-2016 GDP growth figure at 4.92 percent (y/y).
It is estimated that Indonesia will need some USD $450 billion in funds to finance the government's infrastructure development plans for the 2015-2019 period. However, through the state budgets the government can only deliver USD $230 billion, or roughly 50 percent of required funds. The remainder should originate from the private sector (30 percent of total funds) and state-controlled enterprises (20 percent). However, is it likely that the private sector (both foreign and domestic) is to come up with USD $141 billion for investment in infrastructure up to 2019?
The International Monetary Fund (IMF) expects Indonesia's economy to expand 4.9 percent year-on-year (y/y) in 2016, slightly up from a 4.8 percentage point (y/y) growth of gross domestic product (GDP) in 2015. On Tuesday (15/03) Luis Breuer, IMF Mission Chief for Indonesia, said the Washington-based lender projects limited growth (+0.1 percent) of Indonesia's private consumption this year. Regarding growth of investment and government spending in 2016, the IMF holds a more positive view. On the same day, the World Bank cut its forecast for Indonesia's 2016 GDP growth by 0.2 percent to 5.1 percent.
For some Indonesian investors, trends in the precious metals markets might seem difficult to understand. This is often because changing valuations are often based on external events that are not directly related to the Indonesian economy. But when we look at the global factors that typically create rising and falling price moves in the precious metals, it becomes easier to find ways of positioning investments for what is likely to come next.
In order to improve communication and avoid language barriers, the Indonesia Investment Coordinating Board (BKPM) plans to open a special service desk for Chinese investors. BKPM, the investment services agency of the Indonesian government, sees language barriers between Chinese investors and Indonesians as a major obstacle; one that blocks foreign direct investment from China into Indonesia. The new desk, specifically for investment from China or Hong Kong, should improve communication hence improving realization of China's investment plans.
The World Investment Report 2015 states that inflows of foreign direct investment (FDI) into Indonesia grew 20 percent (y/y) to USD $23 billion in 2014. As such FDI growth in Indonesia outpaced FDI growth recorded in Singapore (+4 percent y/y to USD $68 billion) and Vietnam (+3 percent to USD $9.2 billion), causing optimism that Indonesia - Southeast Asia's largest economy - will continue to form a lucrative investment destination in the Asian continent for foreign investors in the years ahead.
Indonesia is not the easiest place to invest for foreign investors. This is reflected by the World Bank's Doing Business 2014 index in which Indonesia ranks 120th. In a business forum, held last week in Beijing, Chinese businessmen expressed a number of matters that blocked or seriously delayed their investments in Indonesia. For Indonesia (both domestic and foreign) investment realization, particularly in infrastructure, is important as investments is considered the main driver for the country’s economic growth in 2016.
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