Located in the center of Southeast Asia, Indonesia is committed to attracting new investments as vehicles of growth. As a strong emerging economy and with an eye on attracting foreign investments and businesses, Indonesia offers a plethora of opportunities that deserve attention. — By William Bell
Indonesia is a constitutional democracy with an executive presidency, and it is a country ready to grow its economy. It is the world’s 16th largest economy, giving it a solid status in the global economy. Indonesia is already active in international trade and a member of important organizations like ASEAN, the UN and OPEC.
The government has focused on ensuring foreign investments continue to contribute to Indonesia’s economic growth, releasing economic reform packages, streamlining business licensing procedures and improving infrastructure. There is a growing middle base, as the country has worked to significantly reduce the poverty rate, and a high labor force participation rate. Indonesia claims a well-balanced economy in which a variety of major sectors contribute, giving investors many options, from manufacturing to consumer goods.
Foreign businesses can enter Indonesia’s economy now in order to take advantage of an economy expected to be in the world’s top six economies by the year 2030.
Some Facts to Consider
The population of Indonesia is a wonderful mixture of people consisting of more than 40 percent Javanese, and the rest being Sudanese, Malay, Batak, Madurese, Betawi and other ethnic groups. The official language is Bahasa Indonesia, but English is the business and professional language. Should a foreign business decide to do business in local communities, there are local dialects.
This is the fourth largest country by population and the third largest democracy. Jakarta is the capital city and the center for support for national industry and services. Geographically, it is part of the Malay Islands, located off the coast of mainland Southeast Asia in the Indian and Pacific oceans. Indonesia is actually an archipelago, situated on the Equator and filled with natural mineral resources.
A new government was sworn in during 2019 after elections and has priorities for 2019-2024 that include upgrading labor skills including technology skills, expanding infrastructure development, continuing the simplification of doing business in Indonesia, and reforming and simplifying bureaucracy.
Over the last few years, Indonesia has instituted significant reforms. In 2017, two packages focused on reducing time at major ports, and an online single submission system for business licenses and permits was instituted. Protectionist rules governing trade and foreign investment were removed, and in 2019, tax incentives were offered to companies for research and development, to establish vocational training centers, or to launch or expand new investments in labor intensive industries.
Proactively Reaching Out to Foreign Investors
Foreign direct investment (FDI) increased by 14 percent from 2018 to 2019. The investments were primarily in gas and water, electricity, telecommunication, and transportation. It is not surprising these were the sectors attracting the most FDI as Indonesia continues to work to modernize its infrastructure and utilities. The liberalization policy has successfully attracted billions of dollars of FDI through a series of deregulation acts, implementation of tax incentives, energy tariff cuts for labor-intensive industries, and more.
If a company wants a local presence in Indonesia, it can choose among three types of setups.
Special economic zones (SEZs) have also played a big role. It is expanding the number of SEZs, a form of infrastructure for investment, in the interest of attracting foreign supply chains being moved out of China because of higher tariffs. The SEZs are sector oriented, i.e. electronics, automotive, digital, etc.
Some sectors with high investment opportunities were opened up for 100 percent foreign ownership, including online market places with a value in excess of $7.4 million, hospital management services, restaurants, manufacturing of raw materials for medicines, and cold chain storage. The foreign investment cap was increased for tourism sectors, logistics, distribution of medical devices, distribution and warehouse facilities, and online marketplaces under $7.4 million. Construction of geothermal power plants up to 10 MW is capped at 49 percent foreign ownership.
The World Bank and UN agencies have recommended that Indonesia do more to grow investor and financial support for women-owned businesses, adding another opportunity. Strategies for investing in women-owned businesses include investing in small-scale and home industries or partnering with a local entity.
The Ministry of National Development Planning (bappenas.go.id/id/) developed a strategic plan for 2021. Like all countries, the COVID-19 pandemic caused an economic setback, so the “Accelerating Economic Recovery and Social Reform” is mostly focused on regaining lost ground.
However, there is a “2020-2024 National Medium Term Development Plan (RPJMN)” for achieving continuity of development in planned areas. This document offers investors insights on the business sectors the government plans to grow. For example, in the labor-intensive sector, the focus is on textiles, food and beverages, toys, and furniture. In the export-oriented category, there are a variety of sectors – electronics, machinery, automotive, fish and derivative products, wood product, and more. Four new SEZ projects are underway now, and 10 new industrial parks are planned.
If a company wants a local presence in Indonesia, it can choose among three types of setups. They are: Foreign company Representative Office, Foreign Trade Company Representative Office, and Construction Service Provider Representative. The application to establish a representative office can now be submitted through the online single submission system mentioned earlier. The other two types of local presence offices have different requirements.
Young and Eager to Work
If a company is looking for a country with tremendous growth potential, look to Indonesia. It has the largest population in Southeast Asia, but it also has a young one. The average age in 2019 was 30.5 years in a world where populations are aging.
People are the country’s greatest asset. A young and energetic labor force can learn new skills, advance manufacturing exports, and propel the expansion of the digital opportunities, to name a few of the advantages a young population offers.
Foreign investors can employ this eager and youthful workforce to benefit Indonesia and their own bottom line.