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In this page: FDI in Figures | What to consider if you invest in Indonesia | Protection of Foreign Investment | Procedures Relative to Foreign Investment | Office Real Estate and Land Ownership | Investment Aid | Investment Opportunities | Sectors Where Investment Opportunities Are Fewer | Finding Assistance For Further Information

 

FDI in Figures

Global foreign direct investment (FDI) flows in the first half of 2021 reached an estimated USD 852 billion, showing stronger than expected rebound momentum, with an increase of 78% of the partial-year growth rate on the previous year according to UNCTAD’s Investment Trends Monitor released on October 2021. The global FDI outlook for the full year 2021 has also improved from earlier projections. The current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels. Nevertheless, the duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty. Other important risk factors, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect final year results. (UNCTAD, October 2021). Covid’s impact on developing markets and shifting investment from China are major trends that will impact foreign investment in 2022.

According to UNCTAD's World Investment Report 2021, FDI investment in Indonesia declined by 22% between 2019 and 2029, recording USD 19 billion, because of a 58% drop in investment in the manufacturing industry as a result of the economic crisis triggered by the Covid-19 pandemic. Moreover, two key sources of FDI fell: inward investment from Japan dropped by 75% to USD 2.1 billion and investment from Singapore by almost 30% to USD 4.6 billion. In 2020, the FDI stock reached USD 240 billion. Prior to the outbreak of the Covid-19 pandemic, FDI flows to Indonesia had grown and their base had expanded due to resilient economic growth, low public debt and prudent fiscal management. FDI growth was attributed to a series of economic policy packages that had been implemented by the Indonesian government over the last years, mainly focusing on deregulation, law enforcement and business certainty, interest rate tax cuts for exporters, energy tariffs cuts for labour-intensive industries, tax incentives for investment in special economic zones and lowered tax rates on property acquired by local real estate investment trusts. Moreover, Indonesia lowered the minimum equity requirement for foreign investors and abolished the approval requirement for several business transactions involving foreign investors. The policy of liberalisation has enabled Indonesia to rank 17th among the top 20 host economies. Japan remained the largest source of investment, followed by Singapore, the UK, Thailand and the USA. The stock of FDI is concentrated in the manufacturing, financial intermediation, trade and mining sectors.

The Indonesian government has managed to improve the overall economic climate by consolidating political and economic stability and through structural reforms that have removed some investment risks. However, several obstacles remain, such as the rising cost of credit, excessive and unpredictable regulation, the poor quality of infrastructure, the terrorism risk and a high level of corruption. In the long term, however, Indonesia's current economic situation may well be the right time to invest in the country, especially in its financial instruments. President Widodo has announced plans to improve the country's position in the Doing Business report published by the World Bank with the goal of reaching 40th position globally. Following a bold reform programme aimed at liberalising the economy and reducing investment barriers, Indonesia fell one spot to 73rd out of 190 in the last Doing Business 2020 survey. At the same time, however, a recent Constitutional Court decision granting more regulatory authority to regional governments could pose a challenge to ongoing investment climate improvements.

The latest United Nation Asia-Pacific Trade and Investment Trends Report provides additional information on FDI in Indonesia and Asia-Pacific in 2021 and 2022.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 23,88318,59120,081
FDI Stock (million USD) 235,348240,564259,268
Number of Greenfield Investments* 1196373
Value of Greenfield Investments (million USD) 5331038,217

Source: UNCTAD, Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 

FDI FLOWS BY COUNTRY AND INDUSTRY

Main Investing Countries 2020, in %
Singapore 23.2
Thailand 17.7
Hong Kong 14.5
Japan 11.5
South Korea 8.5
China 4.8
Taiwan 3.8
USA 3.4
Main Invested Sectors 2020, in %
Financial intermediation 24.5
Manufacturing 22.1
Transportation, Storage, and Communication 12.1
Wholesale and retail trade 11.5
Mining and quarrying 10.2
Electricity, gas and water supply 8.2
Construction 5.4

Source: Bank Indonesia - Latest available data.

 
Form of Company Preferred By Foreign Investors
As a general rule, foreigners can only invest through setting up a limited liability company (Perseroan Terbatas  or PT). A PT can be a joint venture set up by a foreign investor and an Indonesian partner, or a company whose ownership is exclusively foreign and in which foreign holdings can reach 100%.
Form of Establishment Preferred By Foreign Investors
A company is the favored form of setting up business.
Main Foreign Companies
Total, Shell, British petroleum, Credit Lyonnais, ING Bank, ABN Amro Bank, Nike, Reebok, Adidas, Carrefour, Danone, Accor...
Sources of Statistics
Bureau for the coordination of investments (BKPM)
Institute of statistics (BPS)

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What to consider if you invest in Indonesia

Strong Points

Advantages for FDI in Indonesia:

  • Large population of over 277 million inhabitants, which is a huge internal market for any company wishing to do business there
  • Abundant natural resources (timber, fishery resources, oil, natural gas, metals)
  • High biodiversity
  • Domestic demand is growing, thanks to the development of the middle class.
  • The soundness of the banking and financial sectors creates an economic environment favourable to sustainable growth.
Weak Points

Disadvantages for FDI in Indonesia:

  • High cost of illegal removals, which can rise to as high as 60%
  • World Bank studies show that the legal and economic framework is less effective in Indonesia than in other Asian countries
  • Justice and tax and customs administrations are still perceived by the business community as generally corrupt and arbitrary.
  • Limited infrastructure; access to the different islands of the archipelago is generally complicated, which increases economic inequalities.
  • The great diversity of the population, a high level of unemployment and extreme poverty in some regions exacerbate inter-ethnic tensions and thus weaken the stability of the country.
  • The country is spread out on over 6000 inhabited islands, making transport and business management difficult if a company wants to expand beyond the largest island of Java, Sumatra and Borneo.
  • China's high dependence on commodity exports increases the risk of the country's economic slowdown.
Government Measures to Motivate or Restrict FDI
Incentives for investment are accessible to all investors, national and foreign. More specifically, these are reductions of duties on imports and equipment goods and additional incentives for export investors and investments made in certain regions. A reduction in corporate income tax in the form of a tax holiday is available to pioneer industries with a capital investment plan of more than IDR100 billion. Companies that are not entitled to tax holiday may claim a tax allowance, in order to obtain a tax reduction.

Indonesia restricts foreign investment in some sectors through a Negative Investment List. The 2016 Negative Investment List allows greater foreign investments in some sectors, including e-commerce, film, tourism, and logistics. In health care, the 2016 list loosens restrictions on foreign investment in categories such as hospital management services and manufacturing of raw materials for medicines.

In June 2019, the Indonesian government issued GR 45/2019, which sets out a series of tax incentives for businesses that invest in labor intensive industries, training programs, as well as research and development (R&D). Taxpayers investing or expanding in labour-intensive or pioneer industries can benefit from a reduction in net income of 60% of their total investment in the form of tangible assets, comprising any land used for major commercial activities over a certain period. Investors wishing to start apprenticeship programmes or training activities to develop workers on the basis of "certain skills" may obtain a reduction in gross income of up to 200% of the total costs incurred. Taxpayers who engage in R&D initiatives are eligible for a 300 per cent tax reduction in gross income of the total costs incurred.

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Protection of Foreign Investment

Bilateral Investment Conventions Signed By Indonesia
Indonesia has signed bilateral agreements for the protection of investments with 72 countries, listed here.
International Controversies Registered By UNCTAD
The ISDS Navigator contains information about known international arbitration cases initiated by investors against States pursuant to international investment agreements. Indonesia is involved in 7 cases as Respondent State.
Organizations Offering Their Assistance in Case of Disagreement
ICCWBO , International court of arbitration, International chamber of commerce
ICSID , International Center for settlement of Investment Disputes
Member of the Multilateral Investment Guarantee Agency
Indonesia is a member of MIGA convention.
 
Country Comparison For the Protection of Investors Indonesia East Asia & Pacific United States Germany
Index of Transaction Transparency* 10.0 5.9 7.0 5.0
Index of Manager’s Responsibility** 5.0 5.2 9.0 5.0
Index of Shareholders’ Power*** 2.0 6.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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Procedures Relative to Foreign Investment

Freedom of Establishment
Not guaranteed in all sectors. Indonesia restricts foreign investment in some sectors through a Negative Investment List.
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 Investment Coordination Board, or BKPM, acts as an investment promotion agency, regulatory body and agency responsible for approving planned investments in Indonesia. Consequently, it is the first point of contact for foreign investors, particularly in the manufacturing, industrial and non-financial services sectors.
Competent Organisation For the Declaration
Agency for the control of food and drugs (BPOM)
Bureau for the coordination of investments (BKPM)
Requests For Specific Authorisations
Restrictions on FDI are outlined in Presidential Decree No.44/2016. The Negative Investment List aims to consolidate the restrictions on FDI resulting from numerous decrees and regulations, in order to create more certainty for foreign and domestic investors. The 2016 revision of the list has relaxed restrictions in a number of previously closed or limited fields.
Among the partially open sectors for foreign investment, there are:

  • A construction services business is open for up to 67% foreign investment (70% if the foreign investor is from an ASEAN nation).
  • A distribution business that is not affiliated with a manufacturing business is open for up to 67% foreign investment; however, the distribution business becomes open to 100% foreign investment if it is affiliated with the manufacturer.
  • An insurance business is open for up to 80% foreign investment.

Before conducting business in the abovementioned sectors , approval must be obtained from the competent organization BKPM.

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Office Real Estate and Land Ownership

Possible Temporary Solutions
Temporary office solutions: Regus, Jakarta Virtual Office
The Possibility of Buying Land and Industrial and Commercial Buildings
The Government has recently approved a regulation enabling foreign individuals to purchase property of a certain value locally. For example, foreign individuals can buy a house with a minimum value of IDR 10 billion in DKI Jakarta. In addition to the value of the property, the foreigner must meet the requirements of the Ministry of Agriculture regulations.
For investment purposes, foreign investors must set up a Foreign Investment Company (PMA Company) according to BKPM rules. Therefore, the PMA Company will hold the property title instead of the foreign investor (right to build and right to use the land).
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.

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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, an adjustment of VAT, a tax holiday and a tax allowance.
Privileged Domains
Incentives are granted to pioneer industries that could provide additional value and high external output, introduce new technologies (for example, in relation to industries such as upstream metal, oil refinery, sea transportation, and/or processing), have strategic value for the national economy. To conclude, the incentives are designed to encourage more foreign direct investment that expand the skilled labor base, develop industry and R&D.
Privileged Geographical Zones
There are four type of Economic Zones: Industrial Parks, Special Economic Zones (SEZs) and Tourism Zones and Free Trade Zones. The Government of Indonesia encourages the development of Industrial Parks that aims to control the use of space, increase efforts of environmentally sound economic development, accelerate the growth and improve the competitiveness of investment, and provide certainty in the planning and construction of infrastructures in support of economic development and investment. The SEZs are designed to maximize industrial activities, export, import and other related activities which has high economic value. Furthermore, the areas are given certain facilities and incentives in order to increase the competitiveness among the countries nearby. Finally, the government has listed 10 priority tourism destinations for development.
Free-trade zones
The State gives incentives to foreign and national industrial companies which choose to set up business in one of the Free Trade Zones: Sabang, Bintan, Karimun and  Batam.
Public aid and funding organisations
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.

 
 

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Investment Opportunities

The Key Sectors of the National Economy
Energy (oil, gas, electricity), agriculture (coffee, palm oil, 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 mobile and infrastructure), transport, energy (oil, gas, electricity), water treatment and engineering, construction, security, the medical and pharmaceutical industries, aeronautics, IT, the chemical industry, retail trade, franchise services.
Privatization Programmes
The State is carrying out a privatisation program in the sectors of telecommunications, energy (gas), banks and transports. The central government of Indonesia has repeatedly announced its intention to universalise access to clean water. To achieve this goal, an estimated 27 million new connections are needed, with a significant investment gap of IPR 274.8 trillion ($20.8 billion). This is why a privatisation process has been underway since 2017.
Tenders, Projects and Public Procurement
Tenders Info, Tenders in Indonesia
Asian Development Bank, Procurement Plans in Asia

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Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
Arms manufacturing, 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.

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Latest Update: November 2022