8 June, 2016
The enactment of the new Negative List, an official document outlining the sectors in which foreign investment is prohibited or restricted, in President Regulation Number 44 Year 2016 on Lists of Business that are Closed for Investment and Business that are Conditionally Open for Investment ("PR 44/2016") on 18 May 2016, was one of the Indonesian Government’s commitments to boost both foreign and domestic investment activities in Indonesia.
In PR 44/2016, few sectors have been removed from the list completely, meaning companies in those sectors could legally operate as 100% foreign owned companies. In addition, certain sectors such as warehouse distribution, travel agencies, and telecom services have had their maximum allowed level of foreign investment increased to 67%.
The following are some of the most notable industries that have seen substantial adjustments to ownership caps under this round of reform:
Under the old regulation, a recommendation from the Minister of Agriculture was required for several business activities. Under PR 44/2016, the recommendation from the Minister is removed for the following activities:
- Growing of food crops, including breeding/seeding with an area of more than 25 ha;
- Processing of plantation crops with a 20% utilization of a business’s own crops; and
- Research and development on genetically modified organisms.
Marine and Fisheries
PR 44/2016 removes fishery and processing of fishery products from the list, and they are fully opens them for foreign investment, however sea sand quarrying is no longer open for foreign investment and utilization of corals needs recommendations from the Minister of Environmental and Forestry.
Energy and Mineral Resources
For energy and mineral resources, PR 44/2016 changes large Scale Power Plants (> 10 MW), maximum foreign investment from 95% to 100% for PPP. It is interesting that it looks like the Government plans to boost the use of PPP schemes for project developments.
PR 44/2016 simplifies the requirement for investment by aligning them with the relevant regulations as issued by the Minister of Public Works and the Investment Coordinating Board (Badan Koordinasi Penanaman Modal, "BKPM"). Based on PR 44/2016 the following restrictions apply for:
- Construction services (contractors) with high technology, high risks, and/or work value of more than IDR 50 billion, maximum foreign investment is 67% or 70% for investor from ASEAN countries;
- Construction consultancy services with high technology, high risks, and/or work value of more than IDR 10 billion, maximum foreign investment is 67% or 70% for investor from ASEAN countries; and
- Water drinking supply, maximum foreign investment is 95%.
PR 44/2016 removes direct selling and futures brokers from the list, making these activities 100% open for foreign investment, and increased minimum foreign shareholder ownership from 33% to 67% for distributors and warehousing.
Changes in the transportation include:
- Land Terminal Construction for Public and Goods Facilities, from being closed to open for up to 49% foreign investment; and
- Vehicle Testing, from being closed to open for up to 49% foreign investment.
Critics said that changes in the New Negative List are too liberal while others believe that some sectors need be liberalized still more or have remained at previous levels of maximum foreign ownership. Nonetheless of the different views amongst critics, supporters and investors, the Government will certainly have a lot of homework to do to ensure the smooth implementation of the New Negative List.
In connection with the enactment of the new Negative List, foreign investors may be able to take comfort in the fact that PMA companies which already have obtained approval from BKPM are not affected by the changes in the new Negative List, unless the changes are favourable, and it seems likely this would still be the case in the event of a sale of the whole of a current foreign investor’s interest to another investor or a merger and acquisition, except consolidation.
It remains to be seen whether these new Negative List will have smooth implementation and boost both foreign and domestic investment activities in Indonesia.