The government’s efforts in deregulating and offering tax incentives are insufficient to attract foreign investors due to regulatory uncertainty, rampant corruption and a lack of skilled workers, according to a recently released report on investing in Indonesia.
Published on Thursday by the American Chamber of Commerce in Indonesia (AmCham Indonesia) and the United States Chamber of Commerce, the US-Indonesia investment report titled “Making an Impact” says that "most improvements have only been in the entry phase" of investment and that the government's efforts do not address "operational issues".
“Once the permits are issued and the businesses are set up, the usual operational and even more fundamental problems remain lack of skilled workers, contract and regulatory uncertainty and corruption preventing further investment,” it says in its summary.
The report also makes four recommendations in line with President Joko "Jokowi" Widodo's reform goals for his second and final term in office, namely make public consultations an integral part of the legislative process, establish a body on "regulatory impact analysis", improve consistency in regulatory implementation and interinstitutional communication and prioritize long-term goals.
“With President Joko Widodo’s second term beginning, the American business community is eager to hear his administration’s plans for economic and regulatory reforms that will continue to open Indonesia up to foreign investors,” US Chamber of Commerce senior vice president Charles Freeman said in Jakarta on Thursday.
“American companies are here and ready to invest to help Indonesia reach its ambitious development goals,” he added, saying that American businesspeople were looking forward to working with their Indonesian counterparts to enhance bilateral trade.
The government has been struggling to attract more investment to offset the impacts of a cooling global economy.
Growth in investment, which accounts for around a third of Indonesia’s gross domestic product (GDP), slumped to 4.21 percent in the third quarter this year from 6.96 percent in the third quarter of 2018, according to Statistics Indonesia (BPS) data.
Meanwhile, data from the Investment Coordinating Board (BKPM) shows that US$757.15 million in US investment was realized in January-September 2019. The figure is far lower than the over $1 billion American investors realized in the same period last year.
Coordinating Economic Minister Airlangga Hartarto said at the same event that the country expected to face several domestic challenges next year, particularly stagnant growth and a wider current account deficit.
“Stagnant growth is caused by a downward trend in potential economic growth, which is caused by persistent low productivity," said Airlangga, who was industry minister during Jokowi's first term. "This has happened because Indonesia has not been able to execute structural transformation […] the underdeveloped manufacturing industry has affected Indonesia's international trade performance.”
The government, Airlangga continued, would develop focused reform strategies to achieve the nation’s goal to attract high-quality investment. These included strengthening the implementation the online single submission (OSS) system, revising the regulation for the negative investment list (DNI), offering tax holidays and special tax incentives, as well as to finish deliberating the omnibus bill that aims to simplify business regulations.
This article first appeared in The Jakarta Post on November 21, 2019
More stories
Investment Summit Engages with Jokowi 2.0 Government
New Jokowi Cabinet Is 'Wonderful': Sri Mulyani
