This sample Term Foreign Direct Investment in Indonesia

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Foreign Direct Investment in Indonesia
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Foreign Direct Investment in Indonesia

Indonesia has been a very attractive market for the foreign investors since its time of independence. A number of foreign companies, most of them large multinationals, have invested in the Indonesian market in certain areas. These companies have contributed a lot in the development of the country's resources, building infrastructure, establishing manufacturing facilities for export and/or provide products and services for the domestic market. The Indonesian market is a very hot perspective for investment and there are numerous opportunities available for setting up a company.
The government of Indonesia itself is quiet interested in inviting new foreign companies and attracting more and more investments in the country. This policy had been adopted by the Indonesian government from the very beginning and therefore it has taken several measures in this regard. To encourage the foreign direct investment in the country, the Indonesian government introduced the Foreign Investment Law No. 1/1967 in the year 1967. However, this legislation excluded oil and gas, banking, insurance and leasing sectors. This law provided a number of incentives to the investors such as tax exemptions and some guarantees. Though in the beginning, the Indonesian government adopted an open door policy but in later years they changed their strategy. In the year 1970, some of the sectors were closed for foreign direct investments. In the coming years these policies were made further strict because of the protest from the public on the over presence of Japanese investors. After these restrictions the foreign investors were required by law to invest their capital with a local partner in the form of joint venture. The restrictive regulations also had the aim to speed up the process of transfer of shares to the Indonesian partners of investors. However, in the later years the end of oil boom and other crisis forced the Indonesian government to deregulate the economy and to adopt more liberal policies to attract foreign investment in the country. (Foreign Direct Investment in Indonesia)
Recently, the Investment Coordinating Board of Indonesia has proposed to the government to adopt more effective measures to encourage foreign investments in the country. Their proposal included the suggestion to open all business sectors to foreign investors, except for a few ones which are considered sensitive to the country's security. The Board passed a bill which, if implemented, is expected to further make more efficient to the process of foreign direct investments by shortening the restrictive investments list and leaving only a few sectors, such as religion, culture, environment and small and medium enterprises, prohibited for foreign investments. This proposed bill is going to bring a more liberalized attitude in the policies of the Indonesian government. In the past, the government of Indonesia has maintained a very lengthy prohibitive investment list, which had totally or partially closed several business sectors to foreign investment. The most recent list issued by the government was the list released by the administration of the former President Abdurrahman Wahid. This list had even banned the foreign investments in the print media, television and radio sectors. However, it has also awarded the foreign investors with more opportunities in the telecommunications sector, air transportation and port management, power generation, transmission and distribution, shipping, drinking water supply, and atomic power generation. However, even in these sectors the foreign companies or investors were required to enter with the cooperation of the local partners. The argument given by the administration in favor of this policy was that the investment liberalization aimed at by the future law intended to strengthen competition in the country and boost the efficiency of the country's industrial sector. This was supposed to benefit the general public at large as the increase in competition in these "open" sectors will force the companies to operate efficiently and cut prices to win market share. (FDI in Indonesia, 1997)
With the implementation of the recently proposed bill, the government will keep an equal control over the foreign and domestic investors. The government intends to establish certain departments and supportive bodies in order to speed up the investment licensing procedures. The government will also provide some incentives to foreign investors, including tax incentives. However, this should be kept in mind that only sound regulations and incentives are not enough measures to attract foreign investors as they also took into consideration other factors, including legal certainties. With the introduction of the new investment law, the foreign investors will be able to confidently make the investment decisions as it will give them more legal certainty. One more problem is the increase in the level of political disturbances in the country and other security related problems which make a foreign investor more and more hesitant to come to Indonesia.

From the introduction of the Foreign Investment law in the year 1967 until today, the level of Foreign Investment approved has reached the mark of US$ 234.147,8 million. The number of projects being approved by this time has reached to the point of 9.784 Projects. These projects are mainly established in the sectors of Oil & Gas, Mining, Banking and Financial Services. The major investing partners of the Indonesian economy are Japan, UK, Singapore, Hong Kong, China, Taiwan, USA, Netherlands, South Korea, Germany and Australia. The companies from these countries have invested in about 24 major sectors including Trade, Industry, Property, Plantation, Services, Infrastructure, Construction, Fishery, and Franchises. The main hub for foreign direct investors is the island of Java. Though, the islands of Sumatra, Kalimantan, and Sulawesi are also of significant importance but their importance is secondary.