Global Business Guide Indonesia

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Business Updates | BKPM Regional Offices to Encourage Investment in Indonesia Outside of Java

While a lot has been achieved within Joko Widodo’s short term as President of Indonesia in relation to cutting fuel subsidies and pushing ahead with infrastructure projects; shoring up the Rupiah and attracting investment has become an immediate priority to be tackled. The Indonesian government aims to attract 932.9 trillion RP ($71.54 billion USD) in investment within the next five years, as part of their economic growth plan to boost GDP output by 7%.

Joko Widodo's administration is hoping to spread out the investment activities across the country, as the majority of investment and particularly foreign investment in Indonesia thus far has been concentrated in the most densely populated island of Java. To achieve this goal, the government will need to ensure improved infrastructure availability and also to streamline the processes involved which since decentralization of authority to local governments, have posed a daunting prospect to foreign investors.

An investment helper in each corner

To achieve its investment targets, the government has instructed the Investment Coordinating Board (BKPM) to prepare special offices to provide investment-related information at a regional level. Rully Fitrah, from the Directorate of Investment Regulation of BKPM, explained that, actually, the regional One-Stop Services (OSS) are not new, but the idea is to improve them to make foreign investment easier. On 23rd February 2015, BKPM had 501 regional OSS offices, but some 60 more will be implemented by the end of 2016. Even though the entire archipelago is technically already covered, the OSS that are currently in operation provide services at varied levels within provinces, regencies and cities as well as free trade zones and special economic zones.

These offices provide basic information about feasible locations for investment, regional characteristics and available human resources. Information regarding prospective business partners that can serve as credible local partners are also made available. To date, BKPM has 180 potential accredited local partners on its books for foreign investors.

The Indonesian government is hoping that greater access to information on the economic potential of different regions will help to spread out new business opportunities and increase engagement with those businesses located outside of the most developed regions. Furthermore, BKPM had planned to revive 99 stalled investment projects worth a total of 477 trillion RP across 25 provinces.

Bureaucracy with an end in sight

Bearing in mind that bureaucracy and corruption are considered two of the biggest challenges in Indonesia for foreign investors, these regional centers are also expected to handle processes pertaining to business permit applications with a higher level of transparency. President Joko Widodo previously launched the One-Stop Integrated Services for investment at the national level through BKPM and this is now being connected with similar services at the regional level.

In the past, even with the OSS in place, obtaining investment licenses could take several years given the need to acquire approval at various layers from authorities in multiple locations. Now, the integrated licensing procedures should make the process for investment permits faster and more transparent given that the progress of the application can now be monitored online (See Reforms at BKPM; Jokowi's Administration Aims to Woo Investors). Through the online investment system, investors are also now able to register with the National Police and state held bodies such as PT PLN (Persero) which holds the monopoly over electricity distribution for independent power producer investments (See Electrifying Indonesia; Opportunities for Independent Power Producers).

So far, only one out of Indonesia’s 34 provinces is still yet to be part of the Electronic System of Information Services and Investments Licensing. All state ministries and their sectors of jurisdiction are also covered under the system for all obligatory investment permits, apart from investment activities in oil and gas as well as finance which are subject to specific regulations.

Rully Fitrah added that all the licensing authority previously held by regional authorities will now be delegated to the head of the OSS for that region.

Opportunities and challenges outside Java

The availability of infrastructure outside of Java is another major challenge for foreign investors in Indonesia. The Indonesian government is trying to address this issue as can be seen by the most recently announced infrastructure projects within the 2015 national budget. The construction of a toll road network in Sumatra is underway with plans to do the same in Sulawesi and Kalimantan. Rully Fitrah of BKPM also expressed the hope that investors will look to investment opportunities in Eastern Indonesia (See Indonesia's Economic Potential: A Look Beyond Java) particularly in the fields of infrastructure, power generation, labour intensive industries, tourism and import substitute manufacturing.

Fiscal incentives are also available to investors in key sectors in which the Indonesian government is encouraging further growth as part of their wider economic development goals. Self-sufficiency in foodstuffs has long been a goal of Indonesia given its climate and wide availability of fertile land; the need for which has become ever more pressing in the midst of a weakened Rupiah. Energy is a further area in which self-sufficiency is in reach for Indonesia. Creating new jobs for the country’s much touted youthful population is another concern for the government so labour intensive industry investment is being encouraged.

The bolstering of BKPM’s regional offices should serve to speed up the investment process for investors seeking to tap into high growth regions of Indonesia, especially outside of Java. However, they will not serve to replace the importance of establishing relationships with local community leaders and officials from provincial governments which are crucial to successfully execute an investment plan, particularly within natural resources or labour intensive projects. Foreign investors in particular should benefit from simplified procedures and the availability of more information in order to gain an insight into the particular nuances of a given province, each of which present their own unique set of challenges and opportunities.

Global Business Guide Indonesia - 14th April 2015

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)