President Joko Widodo inaugurates first section of Bakauheni-Palembang toll road on Sunday (21/01). photo credit : Cabinet Secretary

JAKARTA (TheInsiderStories) – The Coordinating Minister for the Economic Affairs Darmin Nasution on Monday (12/3) held a limited cabinet meeting to discuss issues related to the efforts to boost direct investment in the country. The particular topic of discussion was fiscal incentives to be provided to particular industries.

Providing fiscal incentives is one of a government efforts to lure more investment in the country. Investment is needed in order to accelerate the economic growth which has been stagnant over the past two years or so at just over 5 per cent annum, below the government expectation.

It is quite ironic that a number of international rating agencies, such as Standard & Poor’s, Moody’s and Fitch Ratings, have awarded Indonesia with investment grades. However, the flow of investment into the country has been relatively low, in comparison to the country’s neighbouring countries.

(Photo: The Insider Stories)

According to BKPM data, realized investment in 2017 reached Rp692.8 trillion (US$51.3 billion), up 2.01 per cent from Rp678.8 trillion in 2016. Of these, foreign direct investment (FDI) reached Rp430.5 trillion, increased 13.1 per cent from previous year.

President Joko Widodo has on several occasions have expressed his disappointment over the slow progress of the country’s investment. And that has also been admitted by the Chairman of National Investment Coordinating Board Thomas Lembong in early February.

The nominal foreign direct investment in 2017 was far below FDI growth in India, which grew by 30 per cent and the Philippines grew by 38 per cent in the same year and 51 per cent in Malaysia, the BKPM head admitted.

So, why the investment inflow has been slow in the country? There could be a variety of answers to that question. However, based on a number of surveys undertaken by various institutions and multilateral agencies, there are common answers to the question.

According to BKPM, investors have pinpointed at least five major obstacles that are still hampering investments in Indonesia. The first is the lengthy, costly and inconsistency of regulations; unfavourable tax incentives which discourage investors to invest; the third is inadequate human resources; the fourth is weak infrastructure to invest investments; and the fifth is land-related issues.

The World Bank said investment in Indonesia has yet to reach optimum growth due to various obstacles, in particular, unfavourable regulations. The Bank cited regulations related to public-private partnership (PPP) which are inconsistent.

President of the World Bank Jim Yong Kim identifies around 100-related regulations that are inconsistent and provided fewer benefits to the private investors. The regulations often benefit only the state-owned companies, not the private sector.

In addition, the government should revise its fiscal incentives that have been provided to investors, on the grounds that the fiscal incentives are no longer applicable.

President Joko Widodo highlighted the main problem that discourages investors to pour their money in Indonesia, namely lengthy and complicated investment procedures and permits.

Indonesia, Widodo said, has too many regulations and permits. For this reason, he has called on a number of ministries to scrap unnecessary regulations that have hampered investments. The Energy and Mineral Resources Ministry has responded the call by scrapping nearly 200 regulations and stipulations.

In addition, the other problem which is often complained by investors and business players is that the deregulation measures undertaken by the central government are not embraced and applied at the regional government level. For instance, the central government has cut the number of days to get a permit to register a new company, however, it has yet to be applied at the local government level.

The Indonesian government has realized these obstacles. The big task of the government now is addressing and resolving these obstacles.  Providing tax incentives which is being revised by the government is only one answer to the myriad of investment obstacles.

President Widodo when inaugurating the Java Integrated Industrial and Ports Estate (JIIPE) in Gesik, East Java last Friday (9/3) reminded all layers of government institutions and agencies to address obstacles to investment, in particular, the lengthy, costly and complicated investment procedures and permits from the central to local governments.

Indonesia needs investments to bolster its economic growth. Investments provide jobs and stimulate economic growth. However, investors would not come to Indonesia if it takes months or in some cases takes years to get the permits.

The top leaders of the government have clearly shown their commitment. However, often the lower level of administrations still adopted the ‘old ways’ of doing business. This has to change.