Indonesia: Investing

FDI in Figures

Foreign direct investment (FDI) in Indonesia, which had collapsed due to the Asian economic crisis in 1997-1998, was clearly increasing after 2007, as the country again became attractive to investors, thanks to the progress in the reform of the business regulation framework. After having suffered from the global recession in 2009, FDI flows started to increase significantly in 2011 and have since expanded their base. Foreign exchange reserves have more than doubled from their 2008 level. However, FDI flows remain inadequate given the economy's size and potential. Strengthening the political and economic stability has removed some investment risk and improved the overall atmosphere on the market. However, some obstacles remain, such as the rising cost of credit, poor investment climate, excessive and the unpredictable nature of regulation, poor infrastructure, the control of the risk of terrorism and a high level of corruption.

Why You Should Choose to Invest in Indonesia

Protection of Foreign Investment

Procedures Relative to Foreign Investment

Freedom of Establishment

Not guaranteed

Acquisition of Holdings

A majority holding interest in the capital of an Indonesian company is legal, except in certain sectors of activity.

Obligation to Declare

The agency for the promotion of foreign investment in the country allows you to obtain information about the necessary authorizations for setting up business in Indonesia.

Competent Organization For the Declaration

Agency for the control of food and drugs (BPOM)
Bureau for the coordination of investments (BKPM)

Requests For Specific Authorizations

A list of sectors which are closed or partially open under certain conditions to foreign investment is available in the Indonesia's Investment Law.

 

Learn more about Foreign Investment in Indonesia on Globaltrade.net, the Directory for International Trade Service Providers.

 

Office Real Estate and Land Ownership

Possible Temporary Solutions

If the right of ownership (Hak milik) is not granted, foreign investors can nevertheless have the right to build and to use land for thirty years, renewable, (Hak guna bangunan), or a right of use (Hak pakai) for 25 years, renewable.

The Possibility of Buying Land and Industrial and Commercial Buildings

Neither non-Indonesian private individuals nor foreign companies have access to property ownership in Indonesia, but companies of the PMA type have certain restricted rights in this respect.

Risk of Expropriation

Article 21 of the Law of 1967 on foreign investments stipulates that the government must not nationalize foreign investments except if a Law is passed, or if national interests are at stake. According to the BKPM, the right of a company to receive compensation is respected in the case of expropriation. Since the Law of 1967 on foreign investments was passed, no expropriation has been carried out.

Investment Aid

Forms of Aid

Among the measures supporting FDI are reductions of duty on imported inputs and capital equipment, additional incentives for investment in export or for investment in certain regions, a bill on taxation which generates a simplification of fiscal incentives and an adjustment of VAT.

Privileged Domains

Exemption from duty, simplified formalities for requests for building permits and other permits.

Privileged Geographical Zones

There are seven Customs areas and 40 industrial parks. The industrial parks are spread all over the country, but 32 of them are located in Java. There are some on the island of Bintan, at Medan (in the North of Sumatra), at Banten (Java), at Bekasi, at Bogor and Tangerang (in the West of Java), Semarang (in the center of Java) and at Makassar (in the South of Sulawesi). There is also an area under transborder Customs called Sijori including Singapore, Johor (Malaysia) and Riau (Sumatra) in Indonesia.

Free Zones

The State gives incentives to foreign and national industrial companies which choose to set up business in one of the 7 Customs areas. The government announced in 2006 a development plan for 7 special economic areas or "islands of excellence" situated in strategic places. The first ones were created on the islands of Batam (south of Singapore), Bintan and Karimun.

Organizations Which Finance

With decentralization, the local authorities are bidding higher and higher concerning incentives to investment.

Indonesia benefits from the assistance plan of the European Union and of USAID. For the USAID program, the national organization in charge of carrying it out is the Indonesian Plan of assistance to commerce (ITAP), whose task is to reinforce the capacities of public administrations in analysis, negotiation and setting up of bilateral and multilateral trade agreements. The ITAP works directly with the Ministry of Commerce to ensure training which will help Indonesian companies to find more openings on the international markets. The Program of support for commerce (TSP), which is in charge of carrying out the assistance program of the EU, devotes itself mainly to training and broadcasting information, as well as market research. The beneficiaries of this program are those who engage in international commercial activities in Indonesia, in particular exporting SMEs, who can thus increase trade with their counterparts in other countries and in the EU. European companies which buy in Indonesia will find more reliable products, more in conformity with European standards, while European companies which export to Indonesia, or which operate in the country, should also benefit from simplified import procedures.

Investment Opportunities

The Key Sectors of the National Economy

Energy (oil, gas, electricity), agriculture (coffee, oil palms, rubber), mining resources and forestry, the textile and paper industries.

High Potential Sectors

Among the sectors with a strong potential for expansion are: telecommunications (especially cordless and infrastructures), transport, energy (oil, gas, electricity), water treatment and engineering, construction, security, the medical and pharmaceutical industries, aeronautics, IT, the chemical industry, the retail trade, franchise services.

Privatization Programs

The State is carrying out a privatization program in the sectors of telecommunications, energy (gas), banks.

Tenders, Projects and Public Procurement

Tenders Info, Tenders in Indonesia
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

Arms manufacturing, the sector of alcoholic drinks, concessions for exploiting natural forests, woodcutting companies, growing genetic material, transport services by taxi/bus, small sailing companies, trade services and support services, except large scale retail sales, the wholesale trade, the provision of exhibition and congress services, the provision of certification services, quality, the provision of market research services, the provision of warehousing services outside sea ports and the provision of after-sales services, radio and television broadcasting, the provision of services, the provision of radio broadcasting services and closed circuit television broadcasting and the audiovisual and written press, and the production of cinema films.

Sectors in Decline

Craftsmanship, insurance (saturated), tourism (linked to the economic climate), tobacco

Finding Assistance For Further Information

Investment Aid Agency

Board of Investment of Indonesia

Other Useful Resources

Indonesian Chamber of Commerce and Industry

Doing Business Guides

Indonesia Tax and Business Guide, Deloitte
Indonesia Commercial Guide 2010 - Buy USA

Any Comments About This Content? Report It to Us.