By Bagus Nur Buwono and Sheila Hilary Kandou
The Indonesian government seems to be taking positive steps towards establishing a better investment climate for local and foreign investors alike. By releasing its 10th economic policy package on February 11 2016, the government provided an overview of what the revision to the Investment Negative List (Daftar Negatif Investasi / “DNI”) would consist of. The enactment of the revised DNI under Presidential Regulation No. 44 of 2016 on The List of Business Fields Closed to Investment and Business Fields Open, with Condition, to Investment (“DNI 2016”) revokes the applicability of the old DNI stipulated under Presidential Regulation No. 39 of 2014 (“DNI 2014”). The main key points of the 10th economic package are: i) the loosening of foreign direct investment restrictions and ii) the supporting of local micro, small and medium enterprises (SMEs) and cooperative business.
Indonesia’s DNI regulates i) the lines of business that are fully open for investment (100% open for foreign and domestic investors); ii) conditionally open (open for investment with certain requirements of the business, for example, some areas are reserved for SMEs, partnership might be required, and business fields require certain conditions, such as capital ownership, specific location and specific licensing); and iii) closed for investment (prohibited from any form of investment, for reasons such as national security, heritage, and pollution). Indonesia’s DNI has been amended numerous times with DNI 2016 as its latest revision. After no more than 3 years, it is amended again, which raises questions on whether the amendments are really necessary.
The latest update of Indonesia’s DNI, according to an official release from the Coordinating Ministry for Economic Affairs, is mainly driven by the need for a better flow of FDI into Indonesia. The aim is to generate stable, inclusive, continuous and high economic growth as the country will be imminently impacted by global-scale economic transformations, such as the ASEAN Economic Community as well as the Trans-Pacific Partnership. Additionally, the government aims to disperse the concentration of investment throughout Indonesia, rather than centralising it within Java Island and within certain business sectors only, with the intention also of diversifying the national origin of foreign investors.
Thirty-five business lines have been removed from the DNI, meaning that they are now 100% open for both foreign and domestic investment. Below is a list of business lines removed from the DNI:
Still in the spirit of attracting FDI in Indonesia, there are a substantial number of business lines whose permitted foreign shareholding will be increased, with the increase varying as follows: 33% to 67% (distribution and warehouses), 49% to 67% (work training and travel bureaus), 51% to 67% (private museums, food services (catering), meeting, incentive, conference, and exhibition services, 55% to 67% (construction consultancy services with project value exceeding IDR 10 billion), to the increase from 65% to 67% (integrated telecommunication network providers).
Another noteworthy improvement to the DNI 2016 is that a significant number of business lines which were previously limited to domestic investors only, have been opened up, whether fully or with limitations, for foreign investors. Those business lines include high and extra-high tension electricity installations (up to 49% foreign ownership) and land-based public transportation (up to 49% foreign ownership).
The DNI 2016, previously mentioned under the official release from the Coordinating Ministry for Economic Affairs, consists of the simplification of business lines categories. As an example, 39 business lines such as building construction, building development and building repair have been combined into one business line under “construction services”. Clearly, this indicates the government’s desire to relax the investment requirements with the intention of creating a more convenient and manageable regulation.
Moreover, an equally important easing of investment for both foreign and domestic parties lies in the ministerial requirements. In more than 80 business lines, there will no longer be a need for investors to apply for a specific recommendation from the relevant ministries in order to establish their businesses.
Those lines of business include accommodation services as well as entertainment, art and recreational facilities (billiard, bowling, golf course, and so on). Therefore, investors will not need to go through the typically time-consuming process of applying for and waiting for the issuance of such ministerial recommendation as a condition to establishing their businesses in Indonesia.
To support and facilitate the interests of SMEs and cooperatives, the government has made certain changes through the DNI 2016. Firstly, there is a reclassification of business lines aimed at broadening the business activities of SMEs and cooperatives, and at the same time simplifying the business lines, where in the new DNI, 95 business lines are available for SMEs and 50 for cooperatives. As an example of this simplification, 19 construction consultancy business lines have been merged into one business line and are open for SMEs and cooperatives.
The DNI 2016 continues to be a headlining topic, since it has finally been enforced on May 18 2016. Investors are optimistic that the DNI 2016 will be able to implement and realise its main objectives, which are to relax investment regulations so as to further promote foreign and domestic investment, while at the same time support SMEs and cooperatives. It is hoped that the government ultimately continues to strive in its efforts to recover Indonesia’s economy by updating the DNI so as to keep up with the ever-advancing economic climate.
Bagus Nur Buwono and Sheila Hillary Kandou
Bagus Enrico & Partners
Tel: (+62 21) 2988 5959 Fax: (+62 21) 2988 5958
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