Indonesia restricts foreign investment

Indonesia on Wednesday announced a 49 per cent foreign ownership cap on companies in sectors such as multimedia, ports, airports, and education. Limits in mobile phone, construction and health services were placed at between 50 per cent and 100 per cent.

The ruling comes amid concerns over the growing influence of foreign business in the country after a number of state asset sales since the 1997-78 Asian crisis.

Foreign and domestic businesspeople said the measures would serve as a massive disincentive to foreign investors.

Mari Pangestu, Indonesia’s trade minister, said virtually everything outside the telecommunications and health sectors was covered by existing legislation that had not been implemented. “We wanted to put everything under the light, make the whole process transparent and then start addressing it,” she said.

Indonesia is seeking tens of billions of dollars in foreign investment over the next few years to spur growth. A new investment law was passed in April but lack of legal certainty and restrictive labour laws are keeping foreigners wary.

The new rules were unveiled as part of a list of sectors that is valid for three years, although Mrs Pangestu said reviews could take place before then “if there’s enough justification”.

All investment is banned in 25 sectors, ranging from museums and monuments to alcoholic drinks and “environmentally damaging” chemicals. Forty-three further sectors have unspecified restrictions placed on them and foreign investment is limited in 120 sectors.

Companies already operating in Indonesia or in the process of obtaining licences to operate are not affected unless they want to change their ownership.

Businesspeople are unconvinced about the government’s strategy. “I have no idea why these limits were placed and cannot understand them,” said Peter Fanning, chairman of the International Chamber of Commerce – an umbrella of foreign chambers of commerce.

Among caps are the reduction in foreign ownership of mobile phone companies from 95 per cent to 65 per cent, insurance companies at 80 per cent, hospitals at 65 per cent and most construction activities at 55 per cent.

“[The list] doesn’t fill me with joy if I was thinking about investing here,” said Michael Chambers of CLSA. “In certain sectors it seems that rent-seeking is now the order of the day.”

Leonard van Hien of the European Chamber of Commerce said it appeared that in many ministries the nationalistic bureaucrats had won out over the technocrats seeking to improve the investment climate.

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