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During his speech at the Indonesian Vision rally on July 14th 2019, the recently re-elected President of Indonesia, Joko Widodo, highlighted his five priority programs for 2019 – 2024. The commitments underline the government’s continued efforts to develop infrastructure, improve the quality of human capital, enable a more conducive environment for investment, proactively oversee bureaucracy reforms, and enforce the appropriate and effective use of state budget.

As part of the priority program for improving the investment climate, the government is currently finalizing the revision of the Negative Investment List (hereinafter shall be referred to as “DNI”). The revision of DNI policy is stipulated under Presidential Regulation Number 44 of Year 2016 regarding Lists of Business fields that are closed to and business fields that are open with conditions to investment (hereinafter shall be referred to as “Perpres 44/2016”). Perpres 44/2016 also identifies the requirements for each business sector which investors should be aware of prior to selecting their investment target.

The last discussion regarding revision of DNI was conducted at the end of 2018 and the regulation reportedly inched closer to getting the President’s approval in November 2018 before further delayed until recently. The 2018 discussion resulted in the XVI Economic Policy Package comprises of among others, removal of 54 business fields from DNI list. The government then decided to re-include five sectors in micro, small, medium enterprises (hereinafter shall be referred to as “MSMEs”) to the list in order to accommodate concerns of MSME Association and provide business protection to owners in these five sectors. The re-inclusion of five business sectors to the list brings the total number of 49 business fields being excluded from the list for the XVI Economic Policy Package.

Aside from the 49 business sectors that have been removed, the government prepared several industries in the proposed 2018 revision to potentially seize the opportunity in receiving relaxed maximum foreign ownership requirements. The three mentioned industries are manufacturing, rubber, and tobacco related products. The consideration to impose relaxation of foreign ownership requirements in manufacturing sector is to anticipate high imports of capital goods such as machinery and other industrial equipment for meeting the industry demands. Meanwhile, the government mainly tries to fill the demand gap in rubber sector in order to facilitate expansion plan of tire industry whose growth hampered by the price of rubber crumb, resulting in limited tire production. Foreign capital investment in tobacco sector is particularly intended to drive more medium-sized tobacco companies in order to further enhance the cigarette production without forming a partnership with larger companies, which would be a major change to the current practice.

The government also encourages an increase role and participation for foreign capital investment in transportation services sector. However, no further details have been released on other industries for this finalization of revised DNI list. Airports, seaports, and multimodal transports are the three major sub-sectors in transportation services proposed to attain an increase in foreign capital investment which all currently subject to a 49% foreign ownership limit. However, further discussion is warranted for all sub-sectors in order to ensure the constitution is not violated. Airports and seaports are considered vital and strategic national assets and therefore bear national security risks since many government activities are conducted in these objects, including customs and immigration. An increase of foreign ownership limit in airports and seaports also leave the government with potentially less independence and authority to mobilize emergency supports in case of disaster. On the other hand, investors are already drawn to investing in multimodal transports in its current state since the minimum investment capital is still considered feasible. In this case, the majority of existing businesses that involved directly with MSMEs such as in land transportation may be affected by the possibility of greater foreign ownership.

The recent announcement to resume the finalization process requires the government to address existing and potential regulatory duplications resulted from specific dictions used in investment law and other laws prior to finalizing the delayed revision of DNI draft. For instance, the revised regulation draft contained the same basic rules for foreign investment in MSMEs mentioned in Law Number 20 of Year 2008 (hereinafter shall be referred to as “UU 20/2008”) regarding MSMEs which states that business sectors with capital investment below IDR 10 billion are closed to foreign investment.

Ensuring regulatory consistency should provide clear boundaries of responsibility for the relevant regulators, hence avoid unnecessary costs that can be attributed to compliance including finding information from different regulators to undertaking multilayered processes.