The Investment Climate Statement Chapter of the CCG is provided by the State Department.
The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses.
Topics include Openness to Investment, Legal and Regulatory systems, Dispute Resolution, Intellectual Property Rights, Transparency, Performance Requirements, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
These statements highlight persistent barriers to further U.S. investment. Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.
Indonesia’s population of 270 million, Gross Domestic Product (GDP) over USD 1 trillion, growing middle class, abundant natural resources, and stable economy all serve as very attractive features to U.S. investors; however, a range of stakeholders note that investing in Indonesia remains challenging. Since 2014, the Indonesian government under President Joko (“Jokowi”) Widodo, now in his second and final five-year term, has prioritized boosting infrastructure investment and human capital development to support Indonesia’s economic growth goals. The COVID-19 pandemic has accelerated the Indonesian government’s efforts to pursue major economic reforms through the issuance of the 2020 Omnibus Law on Job Creation (Omnibus Law). The law and its implementing regulations aim to improve Indonesia’s economic competitiveness and accelerate economic recovery by lowering corporate taxes, reforming rigid labor laws, simplifying business licenses, and reducing bureaucratic and regulatory barriers to investment. The regulations also provide a basis to liberalize hundreds of sectors, including healthcare services, insurance, power generation, and oil and gas. Sectoral or technical regulations may still present obstacles. Regardless of the outcome of these positive reforms and their implementation, factors such as a decentralized decision-making process, legal and regulatory uncertainty, economic nationalism, trade protectionism, and powerful domestic vested interests in both the private and public sectors can contribute to a complex investment climate. Other factors relevant to investors include: government requirements, both formal and informal, to partner with Indonesian companies, and to manufacture or purchase goods and services locally; restrictions on some imports and exports; and pressure to make substantial, long-term investment commitments. Despite recent limits placed on its authority, the Indonesian Corruption Eradication Commission (KPK) continues to investigate and prosecute corruption cases. However, investors still cite corruption as an obstacle to pursuing opportunities in Indonesia.
Other barriers to foreign investment that have been reported include difficulties in government coordination, the slow rate of land acquisition for infrastructure projects, weak enforcement of contracts, bureaucratic inefficiency, and delays in receiving refunds for advance corporate tax overpayments from tax authorities. Businesses also face difficulty from changes to rules at government discretion with little or no notice and opportunity for comment, and lack of stakeholder consultation in the development of laws and regulations at various levels. Investors have noted that many new regulations are difficult to understand and often not properly communicated, including internally. The Indonesian government is seeking to streamline the business license and import permit process, which has been plagued by complex inter-ministerial coordination in the past, through the establishment of a “one stop shop” for risk-based licenses and permits via an online single submission (OSS) system at the Indonesia Investment Coordinating Board (BKPM).
In February 2021, Indonesia introduced a priority list consisting of sectors that are open for foreign investment and eligible for investment incentives to replace the 2016 Negative Investment List. All sectors are at least partially open to foreign investment, with the exception of seven closed sectors and sectors that are reserved for the central government. Companies have reported that energy and mining still face significant foreign investment barriers.
Indonesia established the Indonesian Investment Authority (INA), also known as the sovereign wealth fund, upon the enactment of the Omnibus Law, aiming to attract foreign equity and long-term investment to finance infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies.
Indonesia began to abrogate its more than 60 existing Bilateral Investment Treaties (BITs) in 2014, allowing some of the agreements to expire in order to be renegotiated, including through ongoing negotiations of bilateral trade agreements. In March 2021, Indonesia and Singapore ratified a new BIT, the first since 2014. The United States does not have a BIT with Indonesia.
Despite the challenges that industry has reported, Indonesia continues to attract significant foreign investment. Singapore, the Netherlands, the United States, Japan, and Malaysia were among the top sources of foreign investment in the country in 2019 (latest available full-year data). Private consumption is the backbone of Indonesia’s economy, the largest in ASEAN, making it a promising destination for a wide range of companies, ranging from consumer products and financial services, to digital start-ups and franchisors. Indonesia has ambitious plans to continue to improve its infrastructure with a focus on expanding access to energy, strengthening its maritime transport corridors, which includes building roads, ports, railways and airports, as well as improving agricultural production, telecommunications, and broadband networks throughout the country. Indonesia continues to attract U.S. franchises and consumer product manufacturers. UN agencies and the World Bank have recommended that Indonesia do more to grow financial and investor support for women-owned businesses, noting obstacles that women-owned business sometimes face in early-stage financing.
To access the ICS, visit the U.S. Department of State’s Investment Climate Statement website.