Indonesia to allow foreign ownership in some sectors

Indonesia is set to open a wide range of its business sectors - including communications and transportation - to foreign ownership, with an eye on the rolling out of the ASEAN Economic Community (AEC) later this year.

Foreign entities can have ownership in 74 subsectors in Indonesia as part of the ASEAN Framework Agreement on Services covering 128 subsectors across 12 business sectors, including business, finance, transportation, health and social services.

Based on the framework agreement, ASEAN members are required to allow foreign ownership up to 70 per cent next year, an increase from 51 per cent at present.

Under existing rules, foreign ownership in business entities operating in Indonesia is limited to between 49 per cent and 60 per cent, depending on the sector.

Computer-related services and passenger transportation services, for example, can be operated by companies that are respectively 49 per cent and 60 per cent owned by foreign entities.

The Trade Ministry's head of business, distribution and finance services, Iskandar Panjaitan, said the government was working on its compliance with the framework agreement, as the deadline was approaching.

"We are trying to realise our commitment in these 74 subsectors. Each sector is now working on this issue. For now, our regulations still stipulate [foreign ownership] under 70 per cent," he recently told The Jakarta Post.

Iskandar further said that Indonesia might need to revise a presidential decree on negative investment issued last year.

With the foundation of the AEC, the 10-member bloc aims to become a single market and production base.

It has effectively removed tariffs through the ASEAN Trade in Goods Agreement and is trying to reduce barriers in trade of services through the ASEAN Framework Agreement on Services.

The trade in services is carried out through four modes - cross border supply, consumption abroad, commercial presence and presence of natural persons.

The cross-border supply and consumption abroad modes have been successful so far. ASEAN members are now working on the opening of business sectors to foreign ownership to guarantee the success of commercial presence.

Under the presence of natural persons mode, professionals such as accountants, doctors and architects will move within ASEAN freely.

The government is also gearing up to anticipate the entry of more skilled labour from fellow ASEAN countries through the acceleration of labour competency enhancement and professional certification, according to Manpower Minister Hanif Dhakiri.

Hanif's ministry also plans to require foreign professionals wishing to work in Indonesia to take Indonesian language proficiency tests, which would apply to all foreigners, not only those hailing from within ASEAN.

"This is a reciprocal policy. We are designing the technicalities," he said recently.

Manpower Ministry director for foreign workers Heri Sudarmanto said that foreign professionals from within ASEAN could work in Indonesia only on condition of sponsorship from companies.

"Foreign workers cannot work independently here. They must be supported by the firms or institutions that employ them," Heri said.

The expected greater flow of foreign workers from Indonesia's neighbours has sparked concerns domestically.

At present, Indonesia still depends on certain foreign services, such as logistics and healthcare. More than 600,000 Indonesians, for example, last year sought medical services overseas, primarily in Singapore and Malaysia, according to the Health Ministry.

This situation is attributed to the perceived better quality of service that foreign doctors and hospitals can offer.