Many different sectors are closed to foreign investors in Indonesia, while many others face restrictions. However, Indonesia’s Negative Investment list was revised and several types of businesses either had limits on them relaxed or removed entirely.

These changes show the Indonesian government’s desire to move towards a more open economy, while at the same time keeping some of the industries that the government deems sensitive for local investors.

There has been a trend of liberalization in the last several years as Indonesia prepares for the ASEAN Economic Community (AEC) in 2015 and also responds to a weakening appetite for investors in Southeast Asia. Indonesia relies heavily on overseas investment to fund a current account deficit, which the central bank has put at about 2% of gross domestic product in the first quarter.

“To further enhance the capital investment activity in Indonesia … it is deemed necessary to change the provision of business sectors closed and business sectors opened for capital investment,” said President Susilo Bambang Yudhoyono in a presidential decree.

The changes made to the Negative Investment List increased the maximum foreign ownership in pharmaceutical companies to from 75% to 85% and in advertising agencies from 49% to 51% among several other types of companies such as those in the retail, telecommunications and venture capital sectors.

The International Pharmaceutical Manufacturers Group, which represents companies such as Pfizer and Novartis, said the revisions would do little to attract more investment from abroad as it is still necessary to have an Indonesian partner.

“The main issue is intellectual property. By having a local shareholder, they have access to confidential information.” said Parulian Simanjuntak, the executive of the trade group.

While regulations have mostly been eased by the amendment, restrictions have been tightened even further in the utility, oil & gas, mineral extraction and trading industries.

The laws only apply to investments that are issued approval on or after April 24, 2014. Existing businesses in Indonesia will have the benefit of grandfathering treatment.

About Omar Chen

Omar has worked as a senior M&A specialist for over 20 years at several Malaysian and Singaporean banks. He currently writes for InvestAsian on subjects regarding trade and economics.
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