Venture to Indonesia with IE Singapore
Revised regulations to attract foreign investment
President Joko “Jokowi” Widodo recently ratified much-awaited changes to Indonesia’s Negative Investment List in May 2016 in a bid to attract greater foreign investment into Indonesia and spur Indonesia’s economic growth.
Revisions to the Negative Investment List (Daftar Negatif Investasi) include the complete removal of foreign ownership restrictions on businesses in sectors such as trading, tourism and healthcare, and higher ownership stakes for ASEAN investors in other selected industries.
These changes are meant to reduce bureaucratic red tape for businesses, develop Indonesia’s Small and Medium Enterprise (SME) ecosystem, as well as increase the ease of doing business in Indonesia. This essentially means foreign investors will now find it easier to invest in Southeast Asia’s largest market, and ties in with President Joko Widodoi’s ambition of increasing Indonesia’s economic growth in the long run.
Growing business opportunities beyond Jakarta
While Jakarta remains the economic capital of Indonesia, stiff competition and market saturation means that foreign investors are gradually looking beyond the capital city to grow their Indonesia operations.
Surabaya, the second largest city in Indonesia, is seen by many as the gateway to eastern Indonesia and an up-and-coming economic hotbed. With strong demand for logistics and utilities capabilities, it is a growing destination for foreign investment in Indonesia. There are already several notable Singapore firms with a presence in the region, including YCH Group, Surbana Jurong and Ascott Group.
Booming Infrastructure Needs
Large investments in Indonesia’s infrastructure are currently required if President Joko Widodo target of 7% GDP growth is to be realised by 2018. Singapore companies can partner Indonesia state-owned enterprises (SOEs) such as Pelindo I-IV, Waskita Karya and Angkasa Pura to bid for and implement related infrastructure projects.
Two areas that have been earmarked as areas of growth are sea ports and utilities. The first is due to the fact that Indonesia is an archipelago nation of 17,000 islands, and has the potential to be a “global maritime axis” – a vision that President Jokowi himself has stated. The second is critical to President Jokowi’s goal to improve the standard of living for residents. With targets such as an increase of 35,000 megawatts in the country’s electricity and clean water for the entire population by 2019, Singapore firms with expertise in power plants and water management are well-placed to help develop Indonesia’s infrastructure.
To learn more about opportunities in this sector, download our IE Insights.
Growing business ties with Indonesia
Bilateral trade between both nations remained warm through the years. Singapore has been the top three foreign investors in Indonesia for the past few years, while Indonesia is the second largest trading partner for Singapore amongst ASEAN member countries. As Indonesia continues to attract investment globally, Singapore companies can tap into growing opportunities in sectors such as infrastructure, utilities and consumer goods and services.
The Indonesia Investment Coordinating Board (BKPM) has recently rolled out a 3 hour licensing service to expedite procedures, and the announcement of reducing corporate tax from 25% to 20% sends a positive signal to foreign investors.
President Joko “Jokowi” Widodo’s recent ratification of changes to the Indonesia’s Negative Investment list is also set to spur foreign investment in Indonesia, as restrictions on ownership are set to be relaxed.
To learn how your business can better tap the resulting opportunities from revisions to the Negative Investment List, click here.
Going beyond the capital city of Jakarta - Surabaya
In addition, Singapore companies should also look beyond the opportunities in the capital city of Jakarta. Surabaya is Indonesia’s second largest city and the capital of East Java province. It is rich in human resources and the second most populous city in Indonesia (after Jakarta), with the population growing at 0.63% yearly. As the capital of East Java province, Surabaya has better supporting infrastructure than most other cities in East Java. The city is well connected by land, air and sea transport infrastructure to serve local, regional and international trips. In 2015, the total realised investment (foreign direct and domestic investment) was 28.54 trillion Rupiah (USD 2.9 billion), of which 97% (828.4 billion Rupiah) was from domestic investments. In terms of sectors, wholesale trade (excluding cars and motorcycles), as well as warehouse & transportation support services are the most common type of businesses for both foreign investors and domestic investors in Surabaya.
Learn more about Surabaya City here.