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Indonesia eases foreign direct investment (FDI) controls

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Daud Alamanda
Alamanda Daud

Associate, Ginting & Reksodiputro in association with Allen & Overy

Jakarta

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Sukirno Prasetyo
Prasetyo Sukirno

Associate, Ginting & Reksodiputro in association with Allen & Overy

Jakarta

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08 July 2021

While many governments around the world are tightening controls on FDI, Indonesia is one of only a few countries moving in the opposite direction.

Image of a skyscraper with blue tinted windows

The Indonesian government has now published the long awaited new investment list under Presidential Regulation No 10, 2021 (recently amended by Presidential Regulation No 49 of 2021), one of the mandates that came out of last year’s so called Omnibus Law, officially known as the Job Creation Law.

That Indonesia should be bucking global trends on FDI controls needs, however, to be seen in context.

Previously, it was at the top of the list of countries prohibiting or curbing overseas investment – a long-standing concern and frustration for potential investors. Our analysis shows that Indonesia had more industries where investment was restricted or subject to complex licensing requirements than any other country in Southeast Asia.

Sectors opening up to foreign investment

The new regulation amends the negative list previously set down in 2016. Amongst sectors where an outright prohibition on FDI or shareholding caps have been removed are:

  • telecoms
  • construction (whereshareholding caps of between 0 and 75% applied before)
  • drilling services
  • distribution

Those sectors where FDI controls still apply include media, shipping and traditional industries and crafts.

Meanwhile, as before, financial services are carved out of the negative list but subject to their own set of regulations.

Investors should exercise some caution

Investors will undoubtedly welcome these liberalisations and the new regime is likely to increase Indonesia’s perceived attractiveness as an investment destination.

However, they need to proceed with some caution.

Although the idea is that the Presidential Regulation should be the main mechanism for controlling FDI, separate restrictions can be imposed in key sectors at a ministerial level.

So while investment in a telecoms business may be allowed under the new law, the Ministry of Telecommunications may still exercise the right to impose controls and restrictions.

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