An Investor’s Guide to Indonesia: Red Tape for Foreign Cash

For foreign investors looking to capitalise on Indonesia’s future, here are some things to think about before jumping into the archipelago with both feet.

If you’re a foreigner sizing up the investment potential of young businesses in Indonesia, the item would likely be naive to think that will there are any safe plays, guarantees, or easy wins. If you’re looking for certainty in Southeast Asia, your best bet will be to stay in Singapore where the political climate features a stable track record in addition to the regulations are more efficient.

yet if you’re looking toward the future in addition to prefer the road less travelled, there are certain things you’ll need to familiarise yourself with before jumping into Indonesia’s business world with both feet.

In Singapore, the item takes about one to two days to incorporate a completely new business entity. According to Hawksford Singapore, one of the nation’s leading business portals, that will brief timeframe applies to most cases, provided that will the entrepreneur has the necessary documents, a company name, director in addition to shareholder details, along using a registered address within the country, in addition to a couple of different easy-to-come-by verifiers.

In contrast, until recently the item took around 53 days to start up a business on paper in Indonesia, according to recent data via the earth Bank. A local market entry service for foreigners called Indosight highlights some of the pain points associated with starting a business in Indonesia, which included processing a PT-registered letter with the local government in addition to a 21-day waiting period to get things squared away with the Ministry of Law in addition to Human Rights. Foreigners looking to set up shop in Indonesia must also become well-versed with the country’s Negative Investments List.

Indonesia’s Negative Investments List specifies sectors of the local economy in which foreign investment will be limited or even blocked completely. the item imposes seemingly arbitrary ownership limits in addition to caps across a variety of industries. These limitations range between zero in addition to 95 percent ownership allowance. The list will be broad, yet some of its sectors include marine affairs in addition to fishery, public works, transportation, energy in addition to mineral resources, healthcare, financial, communication in addition to informatics, tourism in addition to others.

Indonesian resources Flickr user World Resources Institute

World Resources Institute (CC)

In May, Andrew White, managing director of the American Chamber of Commerce in Indonesia ran an opinion piece within the Jakarta Globe, which explained that will the list was first issued in 1998 in addition to will be supposed to be revised every three years, although the government has not kept to the schedule as promised.

White believes the limitations imposed by the list are arbitrary. He claims that will its red tape serves as both a stumbling block in addition to a source of confusion to investors, as most companies, venture capitalists, in addition to private equity firms are looking for long-term certainty, in addition to an investment permissions list that will will be subject to change every three years can only create uncertainty. “The investment limitations in oil in addition to gas are particularly ill-timed given Indonesia’s desperate need to spur production in addition to reduce its reliance on imported fuel,” says White.

In September, Indonesia’s Ministry of Administrative in addition to Bureaucratic Reform announced that will registering a company within the archipelago just became easier with 1 online submission form that will offered a one-stop-service in addition to aggregated processes via several different ministries. In theory, these one-stop-services cut the amount of time down via 53 days to a mere six days.

yet some folks still remain sceptical. “The idea will be always not bad yet the execution will be always determined by action plans they have in place in addition to what sort of concrete steps they will do,” Euben Paracuelles, a Singapore-based economist at Nomura Holdings told Bloomberg about the one-stop-service. Paracuelles believes one-stop permitting would likely require “very strong coordination” between the ministries in addition to the investment board, which Indonesia simply doesn’t have yet.

The plan signalled the first effort by President Joko Widodo, aka Jokowi, to tackle the red tape responsible for the earth Bank naming Indonesia among the hardest economies in which to start a company, according to Bloomberg. In hopes that will Jokowi will replicate his policies as governor in throwing out unnecessary bureaucracy, digitizing tax collection, in addition to revving up infrastructure efforts in Indonesia, investors have gone ahead in addition to grabbed nearly US$4 billion worth of Indonesian stocks that will year.

However, with regard to foreign investment, much scepticism remains. Foreign investors need dozens of permits via different departments, including the Indonesia Investments Coordination Board for approval to start operating. They also have to go to various ministries for land use permits, import duties, in addition to exports. Companies that will want to come to Indonesia to look for oil need 289 permits.

Indonesia transportation Flickr user djembar lembasono

Djembar Lembasono (CC)

Indonesia also clocks in among the lowest in terms of its ability to enforce contracts. that will will be important for investors to think about, as each potential funder will be going to have a different risk tolerance when the item comes to hiring employees in addition to dishing out salaries. If you’re the kind of investor that will needs to know your employees are legally bound to your company for a predetermined period of time, you may want to rethink setting up shop in Indonesia for right now.

Many foreign investors find that will the best way to cope with all of the archipelago’s red tape will be to simply incorporate in Singapore or choose companies that will are Singapore-registered yet which are allowed to operate in Indonesia.

According to International Enterprise Singapore, the government agency responsible for generating the nation’s external economy, bilateral trade between Indonesia in addition to Singapore has remained warm throughout the years. Singapore has been one of the top three foreign investors in Indonesia for the past few years, while the archipelago will be the second largest trading partner for Singapore in ASEAN.

As Indonesia continues to attract interest via foreign investors, Singaporean companies are in a unique position to tap into sectors such as infrastructure, utilities, consumer goods in addition to services.