Reforms yet to have impact: Observers

(From left) PT Dyandra Promosindo president director Ery Erlangga, Indonesian Trade Minister Thomas Lembong, Creative Economy Agency head Triawan Munaf, Idea president Daniel Tumiwa, Indonesian President Joko Widodo, Communication and Information Min
(From left) PT Dyandra Promosindo president director Ery Erlangga, Indonesian Trade Minister Thomas Lembong, Creative Economy Agency head Triawan Munaf, Idea president Daniel Tumiwa, Indonesian President Joko Widodo, Communication and Information Minister Rudiantara, and Banten Governor Rano Karno at the Indonesia E-commerce Summit and Expo last month. PHOTO: INDONESIA E-COMMERCE SUMMIT AND EXPO

Indonesia's growth slow despite investment-friendlier policies

The business environment in Indonesia has become significantly more friendly to investment since President Joko Widodo came to office, but its impact on the economy remains to be seen, observers say.

Mr Joko came to power in October 2014 pledging to kick-start the economy. He has made it a priority to lure foreign investment to South-east Asia's biggest economy, launching at least 12 policy packages since last September, including an announcement last month to cut corporate income tax rate by a fifth.

Mr Daniel Tumiwa, president of the Indonesia E-commerce Association (Idea), said Mr Joko had greatly increased the pace of reform.

Mr Tumiwa - Idea president for four years and chief executive of global classifieds site OLX - said that prior to Mr Joko's administration, "nothing was moving, and no one was interested in speaking to us".

"But overnight, the new Cabinet invited us to meet and join in the conversation about what could be done to help Indonesia move faster in e-commerce," he said.

TIGHT REGULATIONS

Regulations were a concern previously, which is why we worked with local partners. We are keeping a close eye on regulatory policies but the government has not made them concrete yet.

MR ALVIN YAP, a Singaporean who has done business in Indonesia for five years and now owns an online business which sells certified used phones.

Valued at US$18 billion (S$24.7 billion) last year, Indonesia's e-commerce sector has been the darling of both foreign and domestic investors, and is expected to hit US$130 billion in 2020. It was included as a proposed sector open for full foreign investment on the revised negative investment list.Other proposed sectors on the list include tourism, film and raw pharmaceutical materials.

As a result of the proposed policies, Mr Ricky Kusmayadi, director of Indonesia's Investment Coordinating Board (BKPM) office in Singapore, cited a 30 to 50 per cent jump in visitors to BKPM Singapore inquiring about investment.

BKPM Singapore facilitates investment in Indonesia and helps investors apply for the principal licence online, the first step in the investment process. The online service was launched last year .

Another initiative, launched in January, is the three-hour licence service, which allows companies with a minimum investment of 100 billion rupiah (S$10.3 million) and/or employing 1,000 local workers to obtain nine crucial licences in three hours. Fourteen Singaporean companies have used the service.

Despite these efforts, Indonesia on Wednesday recorded a disappointing 4.92 per cent growth in the first quarter compared with the same period last year, down from 5.04 per cent in the fourth quarter of last year. In the first quarter, realised foreign direct investment (FDI) rose 17.1 per cent to 96.1 trillion rupiahyear on year. FDI was 365.9 trillion rupiah last year, up 19.2 per cent.

But some economists say it is also important to look at the balance of payments data, which records actual transactions crossing a country's borders. Going by the data, DBS economist Gundy Cahyadi noted that only US$18 billion of FDI was realised last year, down from US$25.2 billion in 2014.

Ms Trinh Nguyen, senior economist at global asset manager Nataxis, said: "There's not been much which is concrete except the negative investment list. But the sectors liberalised, like raw materials for pharmaceuticals, will not have a significant impact. Indonesia will need to liberalise significantly and roll back the protectionist measures which it took in the 2006-2007 period."

Mr Alvin Yap, a Singaporean who has done business in Indonesia for five years and now owns an online business which sells certified used phones, said that while he could see much better business sentiment on the ground, he had not seen changes in improved business efficiency.

"Regulations were a concern previously, which is why we worked with local partners. We are keeping a close eye on regulatory policies but the government has not made them concrete yet."

A version of this article appeared in the print edition of The Straits Times on May 11, 2016, with the headline 'Reforms yet to have impact: Observers'. Print Edition | Subscribe