New law to draw more investors and create more jobs

INDONESIA has enacted landmark new legislation, called the Omnibus Law, which seeks to strengthen the country's economy by increasing competitiveness, creating jobs and improving the overall ease of doing business, particularly for foreign investors. Effective from March 4, 2021, the new regulation transforms Indonesia's previous negative investment list into a positive investment list.

Investment in Indonesia is driven by its investment promotion agency, the Indonesia Investment Coordinating Board (BKPM). It is a non-ministerial government agency which is in charge of implementing policy and service coordination in investment in accordance with the provisions of the government regulations.

The agency's main role is to be the primary interface between businesses and the government to boost investment - both foreign and domestic, through the creation of an overall conducive investment climate in the country. The Chairman of BKPM reports to the Coordinating Ministry for Maritime and Investment Affairs and to the President.

The Director of the Indonesian Investment Promotion Centre (IIPC) in Singapore, Mr Mohamad Faizal, says in an interview with The Business Times that the new Omnibus Law will help businesses by creating a more favourable investment climate in the country and at the same time help in generating more jobs for its people. IIPC Singapore is one of the overseas offices of the Ministry of Investment/BKPM.

BT: When was the Omnibus Law introduced and why?

BKPM: The new Omnibus Law was introduced in Indonesia on Nov 2, 2020, to strengthen the economy by increasing competitiveness, creating jobs, and making it easier to do business in Indonesia.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

BT: What is the thinking behind this law and its background?

BKPM: The thinking behind introducing the new Omnibus Law was to amend the many laws and government regulations that came in the way of foreign investment coming into Indonesia. We believe that the new Omnibus Law can stimulate domestic and foreign investment and thereby help to transform our economy.

BT: Who benefits from the new Omnibus Law and how?

BKPM: We believe that the business community can benefit from the new Omnibus Law because they will be able to obtain a clear timeline to realise their investment. By realising their investment, they will help to create more jobs for the Indonesian people.

BT: How is it focused on increasing the ease of doing business?

BKPM: With the Omnibus Law, the process to get the business licence is a lot easier now because it simplifies Indonesia's existing regulations by combining or scrapping many business licences.

BT: How has the business licensing been simplified?

BKPM: Under the Omnibus Law, a foreign investor will be able to get a business licence through an online single submission (OSS) system, eliminating the need to go through multiple ministries or other government institutions. This also includes the new OSS Risk Based Assessment version that can filter to determine which business sector needs a business licence or only business registration.

BT: How does the new Omnibus Law introduce a new concept of risk-based business?

BKPM: This is done by putting the businesses into low, middle, and high-risk categories. Under the new system low-risk businesses only need a registration number and medium- risk businesses need a standard certification. Only high-risk businesses still need a full business licence.

BT: How have the foreign investment restrictions been eased?

BKPM: The Indonesian government has now opened the majority of the business sectors that can apply for 100 per cent foreign investor ownership. For instance, this has been done by introducing the Positive Investment List to replace the previous Negative Investment List regime.

BT: What are the highlights of the positive list that have been introduced to replace the previous negative list?

BKPM: The new list was introduced on Feb 2, 2021. One of the highlights is for the wholesale distribution sector. Before the Positive Investment List was introduced, the ownership allowed for foreign investors for wholesale distribution was 67 per cent. Now it is open for 100 per cent ownership. We believe that the new system will greatly support the important supply chain sector and that the flow of goods will become easier to access.

BT: Importantly, how do Singapore investors stand to benefit from the new Omnibus Law?

BKPM: Singapore investors can benefit by taking advantage of the more open regulations for foreign investors to develop their company (especially for Singapore SMEs) and also the Singapore government can encourage them to enter the Indonesian market by opening an Indonesian entity and grow in the regional market before going global to enter the international markets.

BT: Why and how is Indonesia a good investment location for foreign investors as South-east Asia's largest economy?

BKPM: With its abundance of natural resources and a relatively young population of 270 million people that represents both a sizeable workforce and a huge pool of consumers, Indonesia has many opportunities for foreign investors to grow their business in the country. Indonesia is also considered as one of the countries with a good investment climate with investment grade rating from several notable rating agencies.

BT: How has investment now been made easier for foreign investors?

BKPM: The new Omnibus Law introduced by the Indonesian government is also known as the job creation law. With this law, the government of Indonesia is now more open to businesses especially to foreign investors because they can enjoy the new investment positive list that reduces the type of restricted businesses for foreign investors.

BT: How does the new Omnibus Law help in attracting foreign investment to Indonesia?

BKPM: The Omnibus Law aims to remove obstacles in licensing to do business in Indonesia as in the past applying for a business licence was quite challenging for foreign investors. Before the introduction of the Omnibus Law, some regulations at the national level and at the regional level were not synchronised well.

BT: What is the risk-based assessment investment permit system?

BKPM: The risk-based assessment system for an investment permit is an online system launched by President Joko Widodo on Aug 9, 2021 to automatically assess business applications that need a permit. Low-risk businesses only require a business registration number (like business consultation).

Meanwhile, the high-risk businesses will require an additional permit (like environmental permit for business in the forestry sector). This system will also reduce the need for a direct meeting with government officials.

BT: How do the strong bilateral relations between Indonesia and Singapore help Singaporean investors?

BKPM: Singapore is consistently among one of Indonesia's top foreign investors. In 2020 alone, Singapore's realised investments into Indonesia amounted to US$9.78 billion and the governments of Indonesia and Singapore enjoy a strong economic relationship, with key members of both administrations meeting frequently in the Working Group for Investment. Such strong relations pave the way for closer economic collaboration and attract Singapore investors to Indonesia.

BT: How much foreign investment did Indonesia attract last year overall and from Singapore? How does it compare with the previous year?

BKPM: In the first half of this year, Indonesia received total foreign direct investment (FDI) of US$15.65 billion. Singapore's FDI in Indonesia was US$9.78 billion in 2020, out of the total FDI of US$28.67 billion. In 2019, Singapore's FDI in Indonesia was US$6.51 billion out of the total FDI of US$28.21 billion received by the country.

BT: Which are the sectors that attracted the most foreign investment in Indonesia and why?

BKPM: Accumulative data of investment realisation in 2020 shows that the basic metals, metal goods, non-machinery and equipment industry contributed the largest FDI with the amount valued at US$5.97 billion, which was 20.8 per cent of the total. At the same time, FDI in trade and reparation attracted the highest number of projects during the same period, with a total of 12,682 projects. Investments in upstream oil and gas sector, banking, non-bank financial institution, insurance, leasing, home industry, and micro and small business are excluded.

BT: What does the Working Group on Investment do?

BKPM: The Working Group on Investment is one of the six bilateral economic working groups that have been set up between Indonesia and Singapore, and is a key platform for Indonesian and Singapore economic cooperation. This working group is focused on cooperation between Indonesia and Singapore to enhance investment and also to provide initiatives that will strengthen networks and identify new collaboration opportunities.

The leading government agencies for the working group on investment are the Ministry of Investment (BKPM) from Indonesia and Enterprise Singapore (ESG) from Singapore.

BT: Please tell us about the growing opportunities beyond Java.

BKPM: The Indonesian government is laying emphasis on developing regions outside Java. One such region is eastern Indonesia - a region that still remains underdeveloped with favourable fundamentals such as an abundance of natural resources, lower levels of competition and a growing middle class propelling the region's growth.

This is reflected by the fact that some of Indonesia's fastest growing provinces are in eastern Indonesia like North Maluku (16.89 per cent), Central Sulawesi (15.39 per cent), and Papua (13.14 per cent) having higher economic growth compared to the national figure of 7.07 per cent registered in the second quarter of this year.

BT: Which are the highly competitive investment locations?

BKPM: Cities in Java such as Surabaya, Semarang and Bandung, are developing rapidly as foreign investment pours into the region. Central Java - where the labour costs are approximately half that in Jakarta - is attracting significant attention. The region is home to the recently opened Batang Integrated Industrial Estate, and experiencing an upturn in growth for manufacturing.

BT: What is special about the Batang Integrated Industrial Estate in Central Java province?

BKPM: The Batang Integrated Industrial Estate is the only industrial estate in the country that is owned and managed by the Indonesian government. The prices there are very competitive compared to the other privately managed industrial estates and it can give incentives such as free rent for the first five years (terms and conditions apply).

BT: In your view, why should Singapore investors consider Batang Integrated Industrial Estate for their potential investment?

BKPM: Batang is located in Central Java with easy access to a seaport, airport, and a toll road. The manpower minimum wage there is among the lowest and the land price is lower than in West Java or Jakarta. Plus, it is supported by the central and regional government agencies.