New negative list encourages both foreign investment and Indonesian MSMEs

The Indonesian Government has issued Presidential Regulation No. 44 of 2016 on the List of Business Fields Closed or Conditionally Open to Investment (New Negative List).

Every few years the Government updates the ‘negative list’ for investment, essentially a list of lines of business that are (a) closed to investment, (b) open to investment, or (c) open to investment with certain conditions.

This year, the changes under the New Negative List focus on protecting micro, small and medium enterprises (MSMEs) and cooperatives, and on simplifying the lines of business that are conditionally open to investment. Overall, 45 business lines, previously closed to foreign investment or requiring a special permit, have been liberalised, and permitted foreign ownership has increased in 44 other business lines. Below we highlight some of the changes by industry sector.

• Infrastructure: In an effort to boost investment and encourage MSME involvement in the infrastructure sector, toll road operation is now open to 100 per cent foreign investment (previously 95 per cent). The threshold for construction services to be reserved for MSMEs has increased from Rp 1 billion to Rp 50 billion, and maximum foreign ownership in construction consultancy services has increased to 67 per cent from 55 per cent, specifically for projects with a value greater than Rp 10 billion.
• Energy and resources: There have been few changes in the energy and resources sector. One notable change is an increase in maximum foreign ownership to 67 per cent for geothermal power plants of up to 10MW capacity, while maximum foreign ownership in all other types of power plants is unchanged.
• Banking and finance: There have been no notable changes in the banking sector, which falls under the separate regime of Indonesia’s Financial Services Authority (OJK).
• Consumer products and trading: Permitted foreign ownership in the distribution business has increased significantly under the New Negative List. Production-integrated distribution is now open to 100 per cent foreign ownership. while distribution not integrated with production is now open to 67 per cent foreign ownership. Both lines previously restricted foreign ownership to 33 per cent.
• Healthcare and pharmaceuticals: Hospital management consultancies, clinical laboratories and medical check-up laboratories are now all open to 100 per cent foreign investment, compared with 67 per cent previously. Similarly, the production of pharmaceutical raw materials, which was previously subject to maximum foreign ownership of 85 per cent, is now open to 100 per cent foreign ownership.
• IT: Online retail trading is now open to 100 per cent foreign ownership, provided the foreign investment (PMA) company partners with an MSME or cooperative. The new category of electronic transaction operators with investment below Rp 100 million is open to 49 per cent foreign ownership.
• Telecommunications: Maximum foreign ownership of telecommunications networks and services has increased slightly, from 65 per cent to 67 per cent. Telecommunications kiosks, which were previously reserved for MSMEs and cooperatives, are now open to 100 per cent foreign ownership.

Conclusion

Long-anticipated by investors, the New Negative List implements the 10th Economic Package announced by President Jokowi earlier this year, and is generally consistent with that announcement. It sends a generally positive signal from the Government that Indonesia is becoming more open to investment, both domestic and foreign.