Indonesia to ease foreign ownership rules in e-commerce, retail & power but with curbs

In a bid to enhance investments, Indonesia is planning to relax ownership rules in the retail sector even though foreign players will still not be allowed to hold majority stakes.

According to the head of Indonesia investment board (BKPM) Franky Sibarani, the government will also allow foreign investors to fully own e-commerce businesses provided their investment value is beyond Rp 10 billion ($726,745). Investments below Rp 10 billion in startups or SMEs (small-medium enterprises) is prohibited.

“The purpose of this policy is to protect our SMEs,” Sibarani said.

The caps placed on minimum investments could limit inflows of foreign venture capital firms, who typically invest seed stage funding in the sub-million dollar stage in startups.

Even in retail, the government is keen to open up only the large retail operations, especially outlets with land size above 2,000 sq metres. Foreign ownership in retail, that operate in the below 2,000 square meters (sqm) area, remain closed.

The proposed rules will be included in the upcoming foreign negative investment list (DNI), scheduled to be issued in March this year.

Tackling another sector requiring huge capital, Indonesia will allow full foreign ownership in geothermal power plants of more than 10 megawatt (MW), and 67 per cent for smaller power plants.

Sibarani said, the government plans to partly open foreign direct investment in electricity transmission business, an area which was previously closed.

Foreign ownership in companies developing high-voltage (HV) and ultra-high voltage (UHV) grid will be partly opened up to 49 per cent from zero per cent foreign investment, while low to medium voltage grid remains closed for foreign investment.

Investment commitment in January

Investment commitment in Indonesia reached Rp206 trillion ($15.04 billion), up 119 per cent in January compared to the same month last year.

“This shows that investors’ confidence remains high and investment climate is still conducive despite slowdown in the world economy,” BKPM Chairman Franky Sibarani said at a press conference. Given the positive trend, he expects this year’s realized investment target of Rp545.4 trillion will be achievable.

Majority of the direct investment commitments came from foreign investors (FDI), amounting to Rp168 trillion, while the remaining Rp38 trillion were domestic investments, representing an increase of 261 per cent and 101 per cent respectively.

The largest investment commitment came from Singapore amounting to $7.5 billion, followed by China $2.8 billion, South Korea $280 million, Japan $132 million and Malaysia $105 million.