Indonesian Investment: Shift in FDI

investment

Indonesia’s new Negative Investment List (“DNI”), the regime governing foreign direct investment (“FDI”) in the country, has introduced a number of regulatory changes seen as an attempt to boost capital inflows in some areas of the economy while closing others to foreign companies.

Oxford Business Group (“OBG”), the global publisher and consultancy, says Indonesia’s new regulatory regime for FDI is aimed at “driving up domestic participation in targeted economic sectors, particularly the energy and resources industries, and increasing Indonesia’s competitiveness.” At the same time, “FDI ceilings have been raised in some fields, enabling key initiatives to be wholly owned by foreign companies for the first time.”

Looking at those areas where FDI ceilings have been raised, OBG highlights public-private partnership projects for seaport developments, which can be 100% foreign-owned for the first time. It notes that power station projects of more than 10 megawatts and electricity transmission and distribution companies can now be wholly bought by foreign players. It adds, “Land transport facilities such as bus terminals, which were previously limited to the domestic arena, are now open to 49% foreign buy-in.”

OBG says the “drive to tighten up and, in some cases, rule out foreign participation is focused primarily on Indonesia’s hydrocarbons industry.” Other sectors of the economy where foreign participation has been reigned in include futures brokerages, waste management and plantations of less than 25 hectares.

OBG notes that analysts remain upbeat about Indonesia’s foreign investment prospects. It cites a research note from Deutsche Bank in April that says, “Strong consumption demand, gradual easing of external imbalances and inflationary pressure, and a generally benign external environment have combined to engineer a substantial improvement in Indonesia’s outlook.”

Indonesia looks on track to equal or exceed last year’s levels of foreign investment, according to Indonesia’s Capital Investment Coordinating Board (“BKPM”).

To read the full Oxford Business Group article, click here.

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