Indonesia’s Expanding Industries
The Indonesian government has just launched investment priority list under Presidential Regulation No. 10 Year 2021. Prior to the implementation of Job Creation Law or Omnibus Law, there had been 20 closed sectors listed in the negative investment list or DNI (Daftar Negatif Investasi) regulated under Presidential Regulation No. 44 Year 2016, which created barriers for investors.
By inviting more investors to participate in the country’s growth, the government has taken all necessary measures to speed up administrative processes by assuring licensing certainty, ease of access, transparency, and timeliness.
The Indonesia Investment Coordinating Board (BKPM) and the government have composed a list of prioritized industries. Investors investing in the priority industries will be eligible to receive incentives. Those incentives, namely tax holidays, allowances, import duty exemptions, and or non-fiscal incentives in the form of ease of attaining business licenses,
work permits, supporting infrastructure, and guaranteed energy supply or raw materials.
These fiscal and non-fiscal incentives aim to grow investment realization, economic growth, and job creation.
The investment priority list consists of three classifications: First, the list of priority business sectors. There are specific criteria for a business enterprise to be classified as a priority sector. For example, it must be a strategic national project/capital-intensive orientation toward research and development or other innovative activities. It also needs to be export-oriented, engaging in pioneer industries (metals, oil refining renewables, marine transportation, etc.) and utilizing advanced technologies.
Second, the list of sectors allocated for cooperatives, as well as micro, small, and medium-sized enterprises (MSMEs). BKPM, the Minister of Cooperatives and Small and Medium Micro Enterprises, and the Coordinating Minister for Economic Affairs strive to make the law fair for large and small enterprises. In this classification, large companies must collaborate with local MSMEs based in the region. This collaboration is a requirement in granting permits and incentives from BKPM.
BKPM guarantees these informal MSMEs will be formalized by simply obtaining a Business Identification Number, which will allow them to receive banking access. Local governments are obliged to facilitate MSMEs and their business activities in collaboration, capital, and marketing.
Third, a list of sectors that stipulate specific requirements or limitations. Certain industries have open requirements, namely those with foreign capital ownership and 100% domestic capital requirements.
Open sectors for investors
A total of 14 sectors are open for investors in the investment priority list, while the other six remain closed. The regulation expands over 245 business lines, including important sectors, such as transportation, energy, distribution, construction services, media, and telecommunications.
Sectors aimed toward cooperatives and MSMEs consist of 153 industries within Indonesia’s Standard Industrial Classification (Klasifikasi Baku Lapangan Usaha di Indonesia).
The government will decide which industries are allocated for Cooperatives and MSMEs based on three things: The first refers to industries using simple technology. The second refers to business activities with a particular process, which employs many workers, and owns an exclusive cultural heritage passed down from generation to generation. The third criteria refers to businesses with less than Rp10 billion as the working capital (excluding land and building).
There are 46 industries that demand specific requirements or limitations; and 30 industries that demand a maximum limit for foreign capital requirements (e.g., sea transportation,
maximum foreign capital 49%). There are also 11 industries that demand 100% domestic capital requirements (e.g., traditional cosmetics industry) and two industries that require special license requirements.
The opening of these sectors in the investment priority list will make Indonesia the most preferred place for businesses engaged in labor-intensive manufacturing, export-oriented manufacturing, pharmaceutical and medical devices industry, renewable energy, infrastructure, and mining industry with added value. These industries will receive strong
support and beneficial incentives from the government.