President Joko Widodo (Jokowi) instructed his ministers to intensify efforts in cutting and streamlining regulations obstructing new foreign direct investment in Indonesia. The move is badly needed to safeguard the country from the adverse impact of global economic slowdown and possible global recession. The relevant ministers have been asked to do stocktaking of regulations hindering the investment. An Omnibus law is being considered as the legal basis to liquidate unnecessary licensing contained in the respective sectoral laws.
Context: In a political speech on 14 July 2019 to mark his reelection as Indonesia’s president, Jokowi has promised more investment opportunities to create jobs and growth in the country. The promise was declared to improve business and investment climate, where intricate licensing procedure, red tape and vested interests remain a latent factor discouraging domestic and foreign capital investment.
During a cabinet meeting on 4 September, the president referred to a World Bank report showed that out of thirty companies relocated their operation from China amid the trade war, twenty-three chosen Vietnam and rests picked Malaysia, Thailand and Cambodia. “Nobody came to Indonesia. Underline this. We have a problem,” he said, describing further that it takes two months to process a new investment in Vietnam, as opposed to years in Indonesia.
Jokowi was very disappointed to see the fact that multinational companies decided to invest in other countries rather than Indonesia. The main reason is because those countries are able to process investment licensing in much quicker way. Meanwhile, Indonesia is still applying hundreds of licensing requirements. The big-bang of deregulations which had been launched since 2015, through sixteen economic policy packages, is still not effective to lure foreign direct investment inflows to Indonesia. The major reason is because these packages only simplify procedures of licensing, instead of cutting the enormous number of licenses.
As the follow up of president instruction, economic team in the cabinet will focus on comprehensively review the various business and investment-related licensing. The goal is to substantially reduce unnecessary licenses. In principle, the core and important licenses will be retained, while those are considered as not too important will be waived. In contrast with a series of deregulations that has been launched so far, which only simplifying the licensing procedures, the new approach will reduce the number of licenses. In this regard, every relevant ministries and government agencies will do stocktaking on unnecessary licenses that create complexity to the business and investment. The government also considers an Omnibus law as a breakthrough to liquidate licensing that unnecessarily exist and overlap each other in various sectoral laws. Conceptually, omnibus law authorises the government to withdraw various provisions stipulated and applied under sectoral laws.
Takeaway: Cutting the exhaustive list of intricate business and investment licenses is an appropriate breakthrough to improve the climate for luring more investment coming to Indonesia. Indeed, it would be a challenging work to do considering that the hundreds of licenses have been existing and growing for tens of years. The intricate and overlapping licenses happen both at central government level and local level, which add the complexity of the work. A specific timeline for the accomplishment might be needed to avoid another opportunity loss suffered by Indonesia in inviting more investment.