Foreigners can own up to 67 per cent of Indonesian firms

Foreigners can own up to 67 per cent of Indonesian firms

Foreigners will be allowed to own a majority stake of up to 67 per cent of businesses in Indonesia's healthcare and transport sectors, as part of sweeping reforms to liberalise its economy. Rules over other sectors that involve sovereignty issues will also be relaxed, but with caps of 49 per cent in foreign ownership.

Indonesia is freeing up more businesses for foreign investors in a bid to rejuvenate its economy and raise the competitiveness of local enterprises. Caps on foreign ownership under a "negative investment list" (DNI) will be eased, many for the first time in recent years.

This means a ban on foreigners taking up a stake in businesses that support the healthcare sector, for instance, will finally be lifted once the new rules kick in in "one or two weeks' time", said Coordinating Minister for Economic Affairs Darmin Nasution.

The revised DNI will also allow more foreign investors in its transport services sector, he told a briefing at the Presidential Palace yesterday. They will be able to invest in or own firms providing, among other things, air and sea port management services, cargo handling and air traffic control.

In some businesses in healthcare and transport, foreign investors will be able to own a majority stake of up to 67 per cent, but foreign ownership of air and sea ports will be capped at 49 per cent due to issues of sovereignty.

Foreigners may also own up to 49 per cent of taxi and bus service operations - a sector that is currently closed to foreign investments.

Sectors ranging from fishery to retail - 49 in all - will be affected by the reforms, with the government allowing non-citizens to take up 100 per cent holdings in firms dealing in cold storage, pharmaceutical raw material manufacturing and even those in the restaurant business.

Foreign direct investment into Indonesia reached US$29.28 billion (S$40 billion) last year, just under US$1 billion higher than the previous year. But it recorded growth of only 4.76 per cent - the fifth consecutive annual decline for South-east Asia's largest economy.

President Joko Widodo told Bloomberg News yesterday that he expects to make more changes to the DNI as he seeks to turn around the flagging economy. "This is the first round, there will be a second and a third... we will see the results of each step," he said.

Industry experts and analysts The Straits Times spoke to largely welcomed the move to liberalise Indonesia's market, with the healthcare sector particularly holding much promise.

"The quality of healthcare services in Indonesia is still relatively lacking compared to those in ASEAN countries such as Singapore," said Mr Subowo Musa, chief executive of Jakarta-based consulting firm Kiran Resources Indonesia. "By freeing up this sector, it would encourage competition."

Singapore is Indonesia's largest foreign investor and second-largest trading partner. It is also a popular destination for many wealthy Indonesians seeking advance healthcare treatments.

Ms Cheryl Tan, deputy director of ASEAN at the Singapore Institute of International Affairs, said the move is a sign of Mr Joko's resolve to prove his critics wrong.

"Following the political infighting within his party that has distracted him during his first year as President, there could be an urgency to prove that he still has the power to institute real change in Indonesia, and to deliver on his promises of strong economic growth for his country," she said.

"If successful, his 'big bang' plan could help him achieve this."

S’pore ‘well-placed to benefit but more details needed’

Singapore will be in a strong position to benefit from Indonesia's opening up to foreign investments but businesses here will need more details, said economists and business leaders.

Singapore Business Federation chairman Teo Siong Seng said yesterday: "Singapore companies have the strength and experience in some of the sectors included in the list (for opening up) - such as healthcare, airport services and distribution and warehousing.

"But we await more details from Jakarta, especially in how these policies will be implemented."

Mr Teo noted that there have been many new announcements in the past 18 months or so but with very little follow-through.

"I'd be more than happy to work with our Indonesian counterpart, Kadin (the Indonesian Chamber of Commerce and Industry), to follow up on how we can help Singapore companies invest in Indonesia."

Standard Chartered Bank economist Jeff Ng pointed out that if Indonesia's growth accelerates as a result of this stimulus package, it will likely be most felt in Singapore through trade and investment.

Indonesia is one of Singapore's most important trade partners. Almost 7 per cent of trade here is with Indonesia while the Republic ships almost 6 per cent of its non-oil domestic exports there, said Mr Ng.

He also noted that in a recent survey, small and medium-sized enterprises here rank Indonesia as the second-most popular economy in Asia in which to expand their businesses.

Barclays chief economist Leong Wai Ho said that Singapore companies' expertise with infrastructure development - such as road, rail, urban planning and clean water technologies - is likely to be sought after by the Indonesians.

On the other hand, Indonesia's burgeoning urban population is a great draw for Singapore businesses looking to sell their products and services there, such as retailers and healthcare providers, he said.

CIMB Private Bank economist Song Seng Wun agreed that the opening up of Indonesia's healthcare sector will generate much interest among Singapore companies, given that Indonesia is one of the key sources for medical tourism here.

"They can explore opportunities for tie-ups with Indonesia, provided the necessary regulations are carried out," said Mr Song.

These new announcements could still face opposition from the Indonesians, who are becoming increasingly nationalistic, he added.

Nonetheless, Parkway Pantai, Singapore's largest private healthcare provider, is upbeat about the prospects of being able to invest in Indonesia.

"As a global healthcare player, we welcome any changes that further open up the market, and are open to opportunities that will add to our healthcare portfolio," said Dr Lee Hong Huei, Parkway Pantai's head of South-east Asia.

Mr Leong said that ultimately, if Indonesia develops as a source of revenue for Singapore firms, it will offer a convenient hedge to Singapore's interests in China, Vietnam and India.

"Our external wing will be more balanced and diversified."

This article was first published on Feb 12, 2016.
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