A “Big Bang” opening up of Indonesia’s economy?

By Ardi Wirdana

The Indonesian government has opened up several sectors of its economy that were previously closed off to foreign investment, in what Indonesian President Joko Widodo has called a “big bang” liberalisation of investment rules.

As part of its tenth economic policy package, the Indonesian government has made major revisions to its controversial “Negative Investment List”, a list of business sectors that are closed for foreign investors. It removed 35 main sectors from the list, allowing for companies in these sectors to be fully owned by foreign investors.

This move has been described as the country’s biggest opening up in a decade.

“There are 49 sub-sectors [affected], so in my opinion, this is a big bang,” President Widodo told Reuters recently.

He added that that he was confident the policy will help Indonesia attain GDP growth rates of 5.3 percent this year, after that figure fell to 4.8 percent last year.

Among the industries that are fully opened for foreign capital are the communication and information, health, manufacturing, and general works sectors.

In the communication and information sector, businesses that are fully opened up to foreign investment include telecommunication cafes and telecommunication devices test labs.

The health sector, meanwhile, will see industries like that relating to raw material for medicine, hospital business consultancy, health laboratory clinics and medical check-up clinics taken out of the negative investment list.

In the manufacturing sector, the only industry opened up for full foreign ownership will be the crumb rubber industry, which previously only allowed 49 percent of its shares to be owned by foreign entities. The general works sector, meanwhile, will allow full foreign investment in toll roads and waste management companies.

Most changes, however, will be seen in the tourism and creative economy sector, which will see up to 15 industries being opened up fully to foreign investors. Those industries include the operation of restaurants, bars, cafes and sport centres. The filming industry is anticipated to be one that is most affected by the changes; almost all industries related to filming, such as film making, film editing and film sound facilities, will be opened to foreign investment.

Chief Economic Minister Darmin Nasution said that such drastic measures had to be taken to boost investment in Indonesia amid the declining global trade, which inevitably means weakening investment interest.

The minister was also concerned about how Indonesia was faringwith regard to attracting investment, compared to its neighbors.

“We do not want to drift along in the slow current. Especially with our investment ranking in ASEAN, which is below Malaysia and Thailand,” he told local reporters at the President Office recently.

The government’s decision, however, have been greeted with caution by some experts and observers. Eko Listianto of the Institute for Development of Economics and Finance (Indef), for example, told Republika that the policy will lead to “massive losses” to Indonesia in the long term. He argued that opening investment to foreigners will suffocate local players who will find it almost impossible to compete financially with their foreign counterparts.

The chairman of the Indonesian Investment Coordinating Board (BKPM) meanwhile assured Indonesians that the government would have prepared various supporting regulations to ensure that the local players will also reap the benefits of the policy.

In the case of the filming industry, for example, the government will open up the filming industry fully to foreign investors, but there will be a rule that requires cinemas to fill 60 percent of total show hours with Indonesian films. As such, this will generate a demand for more Indonesia films to be made, in order for cinemas to meet this requirement.