Foreign Direct Investment in Indonesia
FDI in Figures
Foreign direct investment (FDI) in Indonesia, which had collapsed due to the Asian economic crisis in 1997-1998, was evidently increasing since 2007, the country had become attractive to investors again thanks to the progress of the business regulation framework. The flows of FDI have, nevertheless, suffered from the global recession in 2009 and even if they have started to increase again in 2010, they still remain insufficient considering the size and the potential of the country's economy. The reinforcement of political and economic stability has suppressed certain investment risks and has improved the market tone. But some restraints still persist, such as the high cost of credit, the poor investment climate, the excessive weight and unpredictability of regulations, the poor condition of the infrastructures, the control of terrorist risk and the high level of corruption.
Country Comparison For the Protection of Investors
|Indonesia||East Asia & Pacific||United States||Germany|
|Index of Transaction Transparency*||10.0||5.2||7.0||5.0|
|Index of Manager’s Responsibility**||5.0||4.5||9.0||5.0|
|Index of Shareholders’ Power***||3.0||6.3||9.0||5.0|
|Index of Investor Protection****||6.0||5.3||8.3||5.0|
Source: Doing Business
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
|Foreign Direct Investment||2007||2008||2009|
|FDI Inward Flow (million USD)||6,928||9,318||4,877|
|FDI Stock (million USD)||79,927||67,964||72,841|
|Performance Index*, Ranking on 141 Economies||120||109||119|
|Potential Index**, Ranking on 141 Economies||93||85||-|
|Number of Greenfield Investments***||82||132||117|
|FDI Inwards (in % of GFCF****)||6.4||6.6||8.4|
|FDI Stock (in % of GDP)||18.5||13.3||13.5|
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
Why You Should Choose to Invest in Indonesia
- Strong Points
- Indonesia has almost 230 million inhabitants, which represents an enormous market. Additionally, the country has abundant natural resources (timber, fish, oil, natural gas, metals) and enourmous biodiversity.
- Weak Points
- The main hindrance to investment lies in the high cost of illegal deductions, which can be as much as 60%. For the procedures of starting a company - the number of formalities to carry out, time limits for starting up, registration rules and the threshold of the initial capital - a World Bank study has shown that Indonesia is less efficient than other Asian countries. Legal unpredictability is often denounced and several levels of justice are said to be ineffective and corrupted. The tax and customs authorities are still viewed, in the business circles, as generally being corrupted and arbitrary.
- Government Measures to Motivate or Restrict FDI
- Incentives to investment are accessible to all investors, national and foreign. More specifically, these are reductions of duties on imports and equipment goods and additional incentives for export investors and investments made in certain regions.
At the beginning of 2006, the government announced a program for the improvement of the investment climate, which aims to submit to Parliament a bill on investment, the drawing up of a new negative list applicable on investments, the drastic reduction of the time required for the creation of a company, the acceleration of the re-examination process of local regulations likely to harm the enterprising spirit, as well as the rationalization of customs procedures and the improvement of customs regulations. A privatization program mainly concerning key sectors such as transport and finance and which was initiated in 1998, is regularly updated.
- Bilateral Investment Conventions Signed By Indonesia
- Indonesia has signed bilateral agreements for the protection of investments with 57 countries, listed here.
Procedures Relative to Foreign Investment
- Freedom of Establishment
- Not guaranteed
- Acquisition of Holdings
- A majority holding interest in the capital of an Indonesian company is legal, except in certain sectors of activity.
- Obligation to Declare
- The agency for the promotion of foreign investment in the country allows you to obtain information about the necessary authorizations for setting up business in Indonesia.
- Competent Organization For the Declaration
Agency for the control of food and drugs (BPOM)
Bureau for the coordination of investments (BKPM)
- Requests For Specific Authorizations
- A list of sectors which are closed or partially open under certain conditions to foreign investment is available in the Indonesia's Investment Law.
- Investment Aid Agency
Board of Investment of Indonesia
- Tenders, Projects and Public Procurement
Tenders Info, Tenders in Indonesia
Asian Development Bank, Procurement Plans in Asia
DgMarket, Tenders Worldwide
- Other Useful Resources
Indonesian Chamber of Commerce and Industry
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