Investing in Indonesia – pitfalls and opportunities

It is true that the pitfalls to successful investment in Indonesia are potentially plentiful, and yes indeed, whether or not Indonesia will be a profitable investment option in 2021, will depend at least partly on the roll-out of a Covid-19 vaccine in Indonesia, and a host of other things[1].

We have also heard it said that a major barrier to efficient investment in Indonesia is the country’s inefficient ‘bureaucracy’, in recent decades exacerbated by the growing power of regional government and the lack of consistency between regulation issued on the regional level, and regulation from central government.

Of course, one real issue which practitioners like me have had to deal with in Indonesia, time and again, is the lack of clarity in the regulations themselves, many of which are poorly or haphazardly drafted! 

Sometimes, it is not even clear which regulations might apply to a particular circumstance, and even then, it is not always easy to access applicable regulation in a readable form.

On the practical side, consider also the sheer size of the country, and its poor infrastructure, and you see that that too can and does lead to problems when doing business there, and is considered by many international investors to be a barrier to investing in Indonesia.

But let’s consider the upside also, and some of the key areas of investment focus which investors should consider.

And before you turn away, bear in  mind that my very first professional role in Indonesia dates back to 1983, and in the intervening 38 years, I have personally seen Indonesia develop from a largely dysfunctional organism, to an increasingly modern, forward-looking, and effective business partner to even the most discerning investor.  

In a future post, we will look at the much-discussed ‘Omnibus Law’ which has reportedly raised some investors’ hopes[2], though we are yet to see how this major piece of legislation will work in practise.

So, which industry or business sectors are currently potentially attractive to overseas investors, and investment in general?

Infrastructure development has been a key growth area for many decades.

That is ‘old hat’ nowadays, but infrastructure development remains important, and players who work in the construction, telecoms, sea- and airports, and power generation and transmission sectors, will find a range of opportunities in Indonesia.

The continued growth of manufacturing industry is also an area of interest, given Indonesia’s strong commitment to diversify its existing manufacturing sector, and to develop the country’s capabilities in high-value, not just low-value, products[3].  

Location can be an issue in Indonesia, given that many of Indonesia’s current manufacturing centres are located on the island of Java. But the government is now actively encouraging the expansion of the manufacturing bases to the other major islands in Indonesia.

Perhaps the most exciting opportunities in Indonesia these days are those in two areas which have hitherto seen little positive movement: first of all, healthcare and pharmaceuticals, and secondly, the ‘digital economy’.

With regard to the digital economy, the key areas of growth are in e-commerce[4].

It is anticipated that Indonesia’s digital economy will be worth approximately US$130 Billion by the year 2025[5].

Apparently, there are already over 170 million individuals in Indonesia actively carrying out a range of different types of on-line transaction, and the current pandemic can only be a further boost to that kind of activity.

Other growth areas in the digital economy include, on-line education, virtual reality and augmented reality technology and marketing, and telemedicine.

As for healthcare, consider that when the Indonesian government introduced its universal healthcare programme in 2014, with every Indonesian citizen as well as every expatriate based there being required to participate in the programme, how many hundreds of million people that now covers!

The programme has obvious knock-on effects on the growth of related industries, such as the pharmaceuticals industry[6].

There are also opportunities for the construction and/or management of new hospitals, in a number of regional hubs in the country. 

Another area of growth is the FMCG sector, and of especial note is the Indonesian government’s plans to establish Indonesia as the world’s leading provider in international Halal foods market, a market worth many trillions of dollars.

Lastly, let’s focus for a moment on the ‘traditional’ areas of growth for foreign investment in Indonesia: areas such as crude oil, natural gas and petrochemicals; paper, and palm oil; the agro-industry; rubber processing; fisheries; mining; and tourism.

Take note of the government’s active promotion of foreign investment in these sectors, including the fiscal and non-fiscal rights granted to foreign investors in these industry sectors[7].

So, how can Inarak Consultants help you in the context of foreign investment in Indonesia?

First, and most importantly, the Consultancy can assist you in your due diligence enquiries in Indonesia, and can guide you through the mandatory regulatory requirements there. The Consultancy can help identify a local partner in Indonesia, advise on the best corporate vehicle for the business you have in mind, and then assist you to set this up, apply for applicable local licences and permits, and ensure that your business is ready to go.

Inarak does this through its affiliates and partners in Jakarta, all of whom have first-rate hands-on experience of acting for foreign investors in Indonesia.

For further detail, contact the author at allbless@inarakconsultants.com.

This post is for information purposes only. It is not meant to constitute legal advice. To enquire about specific legal advice, please complete the contact form or comment section.

JANUARY 7, 2021


[1] https://www.indonesia-investments.com/news/news-columns/economic-outlook-indonesia-an-interview-with-richard-van-der-schaar/item9336

[2] https://www.thejakartapost.com/news/2020/10/05/govt-expects-omnibus-bill-to-improve-foreign-investment-economic-growth-in-2021.html

[3] The manufacture of chemicals, and electronics, are two areas of growth in the manufacturing sector.

[4] Government Regulation No. 50 of 2020 introduces the regulatory guidelines for businesses carrying out trade via electronic systems.

[5] If that target is reached, Indonesia would have the largest digital economy sector in the ASEAN region.

[6] Note the country’s current dependence on the importation of raw materials, and the government’s efforts to promote and facilitate the ‘local’ manufacture of essential raw materials for the pharmaceuticals industry.  

[7] Of the non-fiscal rights, note that there are a number of special immigration, licensing, and land-related rights which foreign investors can benefit from.

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