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July 15, 2014 at 06:40 AM
Indonesia was part of an elite group among G20 nations during the financial crisis. It, along with China and India, continued to grow even as the economics of other countries were contracting at alarming rates.
That continues to be true, despite the fact that Indonesia has problems, some of them daunting. Some would-be investors pay far more attention to the problems than to the opportunities that the country offers, and many bailed after the country instituted new laws concerning investment and trade. But, with a little caution, there are plenty of ways to seek out the benefits presented by an economy dominated by young consumers.
The population of Indonesia is something that its officials have been using as a selling point to lure outside money to the country. Under-30s fill half the country, which accounts for the popularity of gaming, social media and telecommunications—but there are plenty of other opportunities as well, a fact not lost on companies ranging from automakers to furniture retailer Ikea, Abu Dhabi-based LuLu Hypermarket and banks in Dubai. All have sought, or are seeking, entree into investments or expansion of an existing presence in Indonesia’s marketplace.
Then are the companies that have come to Indonesia for its minerals, but that’s a bit problematic since the country has put in place new laws that impose a ban on the export of raw minerals. Indonesia’s government is gambling that the move will result in an increase in jobs by encouraging companies to invest in smelters, thus providing the companies with the ore they seek while at the same time providing employment to Indonesians who need work.
At least one company with a contract has sought to prevent enforcement of the new legislation against it. Newmont Mining Corp., which declared force majeure at its copper mine in Batu Hijau, has filed for international arbitration against the government of Indonesia on the terms of the export restrictions, which include an escalating export tax. Freeport McMoRan Copper & Gold Inc. has not yet taken that route, but is still talking with Jakarta in hopes of finding a way around the new requirements by claiming that existing contracts should proceed as written, exempting them from the tax.
The investing climate is not perfect, of course. New laws announced in May hinder the abilities of investors to own businesses, or the amount of a business they may own, if they are not residents in this country of 700 languages. There are new hoops to jump through, which despite the stated purpose on the recently instituted foreign investment regulations to ease the path for businesses, make it tougher and impose enough restrictions that some potential investors may be turned off altogether, while others will proceed slowly.
Although pharmaceuticals and advertising are now accessible to foreign investment, there are now restrictions in areas that were previously more open to outside ownership. Some of those restrictions involve a requirement to partner with local investors, as the country tries to bolster its own people in business. Horticulture and retail, storage and power plants are all affected, with warehousing and cold storage posing challenges for outsiders who are now limited to 33% ownership. There’s also a bar against new foreign investment in such diverse retail areas as electronics, food, footwear, textiles and toys.
