Indonesia issues new Negative List for Investment in continuation of economic stimulus packages
This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Indonesia has issued Presidential Regulation No. 44 of 2016 on the List of Business Fields Closed to Investment and Business Fields Conditionally Open for Investment, otherwise known as the Negative List for Investment (“Negative List”). The Negative List is, in essence, the gatekeeping legislation in Indonesia for foreign investment and operates in tandem with the 2007 Investment Law by either closing off certain business sectors to foreign investment including, through reservation to local micro, small and medium size companies ("SMEs") (or, in some sectors, investment subject to mandatory cooperation with SMEs) or, through the capping of foreign ownership in Indonesian companies operating in certain business sectors.
The Negative List (like its 2014 predecessor) operates to the effect that if a business sector is not listed, then it is in theory open 100% to foreign investment. However, if there is any perceived uncertainty about where a particular business activity may be categorised, it is recommended to obtain advance guidance from Indonesia's Capital Investment Coordinating Board (the "BKPM") prior to submitting any investment application.
The new Negative List comes as part of the latest round of economic stimulus introduced by President Joko Widodo's government and, as an overall observation, serves to open more sectors than it closes or restricts. This is particularly the case in service industries and logistics, which can only be viewed as a positive way to incubate further investment in these sectors to achieve the growth targets for South East Asia's largest economy.
Enhanced opportunities for FDI
Closed sectors opened
Several business sectors previously closed to foreign investment have been opened either fully or conditionally, including, high-voltage electricity construction and installation (49%), land passenger transportation and river and lake port businesses (49%), e-commerce market places with a value above Rp. 100 billion (49%), department store businesses between 400m² and 2,000m² (67%), whilst the film industry, including film distribution, is open 100%.
Complete removal of restricted business lines
The Negative List also has removed several more business sectors that were previously conditionally open, thereby opening them up to 100% foreign investment. These business sectors include cold storage, crumb rubber industry (subject to local raw materials sourcing thresholds and partnership schemes), tourism (i.e. restaurants, bars and cafes), film industry (including film processing laboratories), direct selling, futures brokerages, pension funds, certain types of fisheries businesses, telecommunications equipment testing, toll road operations, non-hazardous waste management and pharmaceutical raw materials.
Liberalisation of restricted business lines but not fully opened including liberalisation for ASEAN investors
Several business sectors have been liberalised under the new Negative List, as follows.
| Sample of business sector | Old cap | New cap |
| Distribution and warehousing | 33% | 67% |
| Job training, travel agencies, golf courses, air transportation support services | 49% | 67% |
| Private museums, catering, convention centre services, exhibitions, zero to two star hotels, management of historical sites | 51% | 67% |
| Construction consulting services for projects above Rp. 10 billion | 55% | 67% |
| Small scale geothermal power plant (≤10 MW) | 49% | 67% |
In addition, supporting services businesses for terminals, air transportation, airports and maritime cargo handling services have had their investment caps increased to 67% as have a range of telecommunications businesses including, fixed and mobile network providers, call centres, ISP's, data communications services, telecommunications content services and integrated telecommunications content services.
Specifically for ASEAN investors, for certain business sectors, the new Negative List provides for higher foreign ownership limits including, for example, construction and construction consultation services for high risk and/or use advanced technologies and/or having a value over Rp. 50 billion, private museums, catering and billiard halls - are all opened to 70%.
Closure of business sectors but further protections availed to SMEs
The new Negative List adds one activity to the list of businesses which are closed for investment, namely, the collection of valuable objects from sunken ships.
In the new Negative List there are 145 business sectors reserved to SMEs (and cooperatives) or that require a partnership with them in order to invest (e.g. retail businesses which encompass postal delivery and online/internet ordering). Reserving a business sector to SMEs and cooperatives in effect operates to also close them to foreign direct investment given foreign investors cannot own SMEs (or cooperatives). These sectors include pre-design and consulting services, architectural design services and architectural services. The threshold work value for construction work reserved to SMEs and cooperatives has increased to needing to be at or below Rp. 50 billion (up from Rp. 1 billion).
Removal of additional bureaucratic red tape
To speed up approvals and foster accelerated investment lead times, a now greater number of business sectors no longer require recommendations from certain government authorities to enable foreign investment to proceed. These include hotels (zero to two stars), motels, recreation businesses, arts and leisure, bowling and golf courses. In another move to streamline bureaucracy, a number of business activities that overlapped with other business sectors have been moved into one business sector, hence removing duplicity and the associated uncertainty that created.
Grandfathering
As is typical in Indonesia, existing investments are grandfathered from having to comply with any of the more restrictive changes introduced by the new Negative List.
Comment
Overall, the changes to the Negative List are not as wide reaching as previous lists indicative of a maturing business environment and one cognisant of regional competition. The changes made in this iteration are widely positive and show the government's efforts at balancing investment into service industries (to further promote domestic consumption), logistics (to improve supply chain and distribution networks currently seen as a major impediment to growth) and allowing more room for the SME and cooperative side of the economy to operate autonomously in view of their significant economic and community related contributions.
