Foreigners can own up to 67% of Indonesian firms

Indonesia is freeing up more businesses for foreign investors in a bid to rejuvenate its economy and raise the competitiveness of local enterprises.
Indonesia is freeing up more businesses for foreign investors in a bid to rejuvenate its economy and raise the competitiveness of local enterprises.PHOTO: AFP

Rules eased for healthcare, transport sectors; 49% cap for industries with sovereignty issues

Foreigners will be allowed to own a majority stake of up to 67 per cent of businesses in Indonesia's healthcare and transport sectors, as part of sweeping reforms to liberalise its economy. Rules over other sectors that involve sovereignty issues will also be relaxed, but with caps of 49 per cent in foreign ownership.

Indonesia is freeing up more businesses for foreign investors in a bid to rejuvenate its economy and raise the competitiveness of local enterprises. Caps on foreign ownership under a "negative investment list" (DNI) will be eased, many for the first time in recent years.

This means a ban on foreigners taking up a stake in businesses that support the healthcare sector, for instance, will finally be lifted once the new rules kick in in "one or two weeks' time", said Coordinating Minister for Economic Affairs Darmin Nasution.

The revised DNI will also allow more foreign investors in its transport services sector, he told a briefing at the Presidential Palace yesterday. They will be able to invest in or own firms providing, among other things, air and sea port management services, cargo handling and air traffic control.

Sectors ranging from fishery to retail - 49 in all - will be affected by the reforms, with the government allowing non-citizens to take up 100 per cent holdings in firms dealing in cold storage, pharmaceutical raw material manufacturing and even those in the restaurant business.

  • Changes at a glance

  • A total of 49 industry sectors in Indonesia will be affected by the government's latest revision to its negative investment list, which limits the share of foreign ownership in businesses based in South-east Asia's largest economy. Here are snapshots of those changes:

    HEALTHCARE SUPPORT SERVICES

    These may include businesses that run medical laboratories or offer radiology services.

    The revision lifts the ban on foreign ownership and allows them to own up to 67 per cent of the business.

    AIR TRANSPORTATION SERVICES

    Foreigners will be able to invest in or own firms providing, among other things, air and sea port management services, cargo handling and air traffic control.

    They may hold a majority stake of up to 67 per cent, but foreign ownership of air and sea ports will still be capped at 49 per cent due to issues of sovereignty.

    LAND TRANSPORTATION

    These may include taxi or bus service operators and are currently closed to foreigners. But under the revision, they may own up to 49 per cent of the business.

    There is also a slight increase of foreign shareholding in construction firms that build toll roads or highways. They can now be wholly owned by foreigners, as opposed to 95 per cent currently.

    LOGISTICS SERVICES

    Foreigners will be able to increase their stake in warehouses and cold storage facilities, from 33 per cent currently to 67 per cent and 100 per cent respectively.

    OTHER BUSINESSES

    The ban on foreign ownership will also be lifted in a string of consumer-centric businesses such as cinema operators, film production companies, and firms that run swimming pools, tennis courts and golf courses.

 
 

In some businesses in healthcare and transport, foreign investors will be able to own a majority stake of up to 67 per cent, but foreign ownership of air and sea ports will be capped at 49 per cent due to issues of sovereignty.

Foreigners may also own up to 49 per cent of taxi and bus service operations - a sector that is currently closed to foreign investments.

Sectors ranging from fishery to retail - 49 in all - will be affected by the reforms, with the government allowing non-citizens to take up 100 per cent holdings in firms dealing in cold storage, pharmaceutical raw material manufacturing and even those in the restaurant business.

Foreign direct investment into Indonesia reached US$29.28 billion (S$40 billion) last year, just under US$1 billion higher than the previous year. But it recorded growth of only 4.76 per cent - the fifth consecutive annual decline for South-east Asia's largest economy.

President Joko Widodo told Bloomberg News yesterday that he expects to make more changes to the DNI as he seeks to turn around the flagging economy. "This is the first round, there will be a second and a third... we will see the results of each step," he said.

Industry experts and analysts The Straits Times spoke to largely welcomed the move to liberalise Indonesia's market, with the healthcare sector particularly holding much promise.

"The quality of healthcare services in Indonesia is still relatively lacking compared to those in Asean countries such as Singapore," said Mr Subowo Musa, chief executive of Jakarta-based consulting firm Kiran Resources Indonesia. "By freeing up this sector, it would encourage competition."

Singapore is Indonesia's largest foreign investor and second-largest trading partner. It is also a popular destination for many wealthy Indonesians seeking advance healthcare treatments.

Ms Cheryl Tan, deputy director of Asean at the Singapore Institute of International Affairs, said the move is a sign of Mr Joko's resolve to prove his critics wrong.

"Following the political infighting within his party that has distracted him during his first year as President, there could be an urgency to prove that he still has the power to institute real change in Indonesia, and to deliver on his promises of strong economic growth for his country," she said.

"If successful, his 'big bang' plan could help him achieve this."

A version of this article appeared in the print edition of The Straits Times on February 12, 2016, with the headline 'Foreigners can own up to 67% of Indonesian firms'. Print Edition | Subscribe