Home Investor Corner Indonesia Planning to Cut Red Tape to Win More Investors

Indonesia Planning to Cut Red Tape to Win More Investors

President and Vice President Joko Widodo and Jusuf Kalla when leading a limited meeting at the Presidential Palace Wednesday (09/11) - Photo: Secretary Cabinet.

JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo asked his ministers to immediately cut the red tape to attract more investment enter the country. For that, he asked his minister to cut investment licensing processes that are procedural and convoluted.

The President wants the Southeast Asia’ largest economy to be able to compete with other countries whose investment licensing processes are much faster and simpler. He also adding that slowing global economic growth raises concerns about the potential for recession and urged his cabinet to creating breakthrough to solve the problems.

“I asked all ministries related to the economy to take stock of inhibiting regulations,” said Widodo in a limited meeting at the Presidential Office on Wednesday (09/11),

Indonesia, he went on, must immediately respond to these concerns and prepare anticipatory steps to reduce or avoid the effects of slowing global economic growth.

“It is hoped that the anticipatory steps have been prepared in a concrete manner and we hope that slowing economic growth, then we can avoid the impact of this growing recession,” the President stated.

According to him, the fastest step the government can take to anticipate is to increase incoming investment. Inventory of regulations that are considered to be hindering is the first step to fixing the licensing and investment system in Indonesia.

The former Jakarta governor is aware that the government has sought to improve the ease of doing business in Indonesia. The investment licensing process has also been simplified through Online Single Submission (OSS).

However, he considered this was not enough. The reason is, other countries continue to compete to simplify the investment licensing process. He will even schedule meetings related to the improvement of the investment ecosystem every two days for the next month to get concrete decisions.

On the same occasion, the Head of Investment Coordinating Board Thomas Lembong stressed that the improvement of the investment ecosystem in Indonesia must be carried out starting from the aspect of regulation, tax incentives, land, employment, and security.

He rated, that the lack of foreign investment in Indonesia is due to too many regulations regarding investment licensing. There are many unnecessary ministries or institutions regulations such as ministerial regulations, he said, often only used as a tool to carry out extortion by certain individuals.

“The president said, I should be angry with the ministers. The foreign direct investment did not enter because of the rules, excessive conditions, which were burdensome, so President, I will be annoyed, I may be angry,” he said after the meeting.

Lembong gave an example of Law Number 13 of 2003 concerning Labor that is no longer in accordance with current needs. The reason, there has never been a change in 16 years of the rule. In fact, there have been many changes to the work systems in various companies in that time span.

Another obstacle is the dominance of state-owned enterprises (SOEs) in the private sector. Lembong said SOEs left only a few sectors that could be worked on by foreign investors.

“Many private sector activities are increasingly being drawn by SOEs who are willing to do everything themselves, thereby reducing the role of the private business,” he adds.

Moreover, the business climate between SOEs and the private sector in Indonesia is less conducive. According to him, SOEs and the private sector are often confronted directly in certain business sectors. Whereas investors want a friendly business climate between the two sectors.

“This is what we learn, more and more complaints from private entrepreneurs, the private business world, many private sector activities are drawn by SOEs who want to do everything themselves, thereby reducing the role of the private business. This is what we need to evaluate to return to a more equilibrium healthy, “he said.

Previously, Widodo was upset because investment interest in Indonesia was still quiet, especially from China and Japan. Citing World Bank data in 2019, he said of the 33 Chinese companies that were relocating their factories, none had looked at Indonesia.

A total of 23 Chinese companies relocated their factories to Vietnam. While the remaining 10 companies relocated their factories to Malaysia, Thailand and Cambodia.

Similar conditions also occurred when 73 Japanese companies relocated factories. According to Widodo, as many as 43 Japanese companies prefer factory relocation to Vietnam, 11 other companies relocate factories to Thailand. Meanwhile, 10 companies chose to relocate their factories to Indonesia.

The President said that it must be a separate note and asked his staff to resolve the issue. Later in the week, we will talk about the problem of how to immediately simplify the regulations that hamper and slow it down, he told reporters days ago.

Regarding dozens of companies investing in these neighboring countries, the President explored and obtained results that were one of the reasons for their speed. In Vietnam for example, it only takes 2 months for a company to be able to enter and invest there.

Furthermore, besides asking for an inventory of hindering regulations, Widodo also asked his staff to make an inventory of foreign companies that have committed to invest in Indonesia but are still experiencing problems so that they cannot be realized. He gives time for the next week to be able to collect these data.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com