16th Policy Package ​to Continue​ Structural ​Reforms in Indonesia

Gov't Still ​Far from Labour and Policy Consistency

JAKARTA (TheInsiderStories) The Government of Indonesia is preparing its next economy policy package, with a focus on a task force for investment aimed at every regional government, Ministries as well as government institutions.

The Coordinating Minister on Economic Affairs Darmin Nasution said over the weekend that every regional government, ministry, government institution will set up an investment task force that will monitor, escort and facilitate permits in their jurisdiction.

He illustrates by explaining that when an investor has to deal with a permit related to the ministry, department, as well as government institutions, the responsible regional government must expedite procedures for the investor. They should thus have all data check listed on the regional scope.

In 2015, the government launched its ‘one-stop integrated service’ where 22 ministries and institutions delegated authority to issue business permits to the Coordinating Investment Board and assigned their officers to the office. However, this bold initiative did not include any integrated IT system linking central and regional one roof services.

“We have to be realistic about this: we need to simplify regulations much more, we have not yet set up a single-window portal that will accept all submissions from regional governments. We are however moving in that direction,” he told The Insider Stories.

Having accomplished structural reforms on investment permits, the government has still failed to touch two main investment issues: labour and policy consistency.

Many investors are still eyeing a more friendly working permit procedure. Current regulations stipulate that a foreigner can only have a valid working permit for six months, which is much too short for such an investment project contract.

“It should be valid for two or three years. 6 months is not logical because this means they have to renew working permits every two or three months, consuming so much time and wasting money. Working permits should be valid in accordance with contract period,” Moazzam Malik, UK Embassy official for Indonesian and ASEAN commented recently.

This working permit issue also causes difficulties for China MPV car maker PT SGMW Motor Indonesia. They requested an incentive related to working permit procedure, in a 2015 case where their factory construction in Delta Mas Cikarang Industrial Estate was slowed down.

“We want a loosening in working permit procedure: we only got a valid 6-month working permit on average,” President Director of Wulling Motor Xu Feiyun last week.

He also pointed out, how there is no certainty, even though both countries have signed bilateral agreements that allow China to bring in workers during the construction period.

“The Worker Act (Number 13/ 2013) stipulates too much compensation for workers, has outsource uncertainty and does not guarantee safety on worker rallies,” he said.

Other than labor issues, consistency is also a concern of investors. When the government is committed to carry out structural reforms on investment, it should be consistent, the way the government promised tax incentives through tax holidays, for example.

In recent decades, big investors, including Samsung and Foxconn eyed Indonesia as their next potential factory base. Samsung choose Vietnam instead of Indonesia, because they offered a more attractive tax allowance (corporate income tax) for 4 years and 50 percent tax reduction, over the next 9 years. The Government of Vietnam concluded it was worth it as Samsung will generate a greater economic impact from factory building.

When Samsung invested $15 billion into its Bac Ninh plants, they became the country’s largest single exporter, shipping about $33 billion of electronics last year. The year before the South Korean company came in, Vietnam’s total exports of mobile phones and other telecommunications products was just $593 million.

Samsung Electronics Co. and its affiliates also snared 45,000 young workers and hundreds of foreign component suppliers — a miniature version of the family-run chaebol conglomerates that dominate business back in Korea. The investment has been a windfall for businesses in Bac Ninh — almost 2,000 new hotels and restaurants opened between 2011 and 2015, according to the provincial statistics office — helping raise the province’s per capita GDP to three times the national average.

Another example is Foxconn–Taiwanese multinational electronics contract manufacturing company–which cancelled its $5 billion investment plan to build factory as well as a ‘smart city’ in Indonesia. They asked for a land grant but the government could not or would not agree to the free donation. Foxconn then decided to move its operations to India, where they received 15,000 hectares of land.

If the new investment policy is somehow able to resolve these issues, it will surely attract more and more investors. But is our bureaucracy-ridden government up to it?

Writing by Yosi Winosa