Indonesia looks to lift FDI restrictions

Indonesia is always in need of foreign investment. Source: Flickr

Jakarta is revamping its foreign-investment rules to allow foreign firms to take bigger stakes in domestic businesses and establish a presence in new industries, in an effort to boost its sluggish economic growth.

The government aims to finish discussions a range of investment easing by the end of January. Talks are focused on a list of sectors, including e-commerce and pharmaceuticals, in which foreign investment is restricted.

Foreign investors making up for Indonesian capital shortfalls have long pushed for changes to the list of restrictions that they say increases each year.

President Joko Widodo has promised to ease investment restrictions for foreigners and Indonesians in an effort to boost growth.

But industry watchers predict the reforms will hit opposition from MPs and civil servants and have to be watered down.

“If they don’t make sweeping changes to the [list], it will undermine the president’s message,” said Lin Neumann, managing director of the American Chamber of Commerce in Indonesia. “The trend has been to restrict investment. For the first time in 10 years, you have a president saying the opposite.”

Widodo has signed a government regulation on foreign-home ownership providing some scope for expatriates who wish to own property in Indonesia.

Colliers real estate Indonesian associate director Ferry Salanto said the new regulations were not greatly different from previous rules and not “revolutionary” as it still required foreigners to live and work in Indonesia.

“People expected a regulation that would allow foreigners to buy property without having to live in the country,” he said, “As is the case in Singapore.”

As part of its first economic policy package, the government announced in September that foreign ownership would be allowed for apartments worth at least 10 billion rupiah (US$723,000). Such a move would in affect liberalise the property market.

Ferry said reforms would not have a significant impact as there were few potential buyers.

“Just look at the Immigration Office data. How many expats want to buy property?” he asked.

Cushman and Wakefield assistant manager Risma Diniar said: “The interest will be just the same.” Foreigners would not be able to buy property as an investment as it required them to live and have interests in the country, she said.

It remains the case that only Indonesians may own freeholds, with foreigners entitled only to right of use and leasehold only, according to the new regulation.