New regulations make investments to Indonesia faster and clearer

Influenced by the report of mass media, some degree of fear about the new regulations concerning establishing a business in Indonesia has been developed. Some of them are justified and should be treated with caution. Just as the new work permit – or the mandatory use of rupiah regulation. However, some restorations do not or not enough receive the attention they deserve. This article focuses on those regulations which actually support the foreign direct investments to Indonesia.

The World Bank mentioned in their report IEQ March 2015 that Indonesia currently ranks 114th out of 189 countries in the ease of doing business. This is definitely not a ranking of which one can be proud of and may, indeed, encourage businesses to invest in a different country. Nevertheless it has to be said that Indonesia always was more or less on this position. Since 2009 Indonesia could even slightly improve their ease of doing business and moved from place 117 to 114.

Shorter time to register PT PMA company in Indonesia

This poor result in the ranking is often explained by the waiting times which are required to obtain the licenses to start a new business. By way of example, to establish a business in manufacturing takes 794 days by law. Even though this is a true fact, it does not reflect the actual waiting time to start running a company.

For the first 3 years it is possible to run a company with a principle licence which allows sufficient time to apply for a permanent licence, even for those 794 days. Exactly this process has been reformed at the end of 2014. It is therefore now possible to incorporate the company within just 1.5 month compared to the ten weeks previously.

This is possible thanks to the online processes implemented by BKPM that centralizes the company registration procedure.

Additionally an online monitoring service has been introduced to simplify the registration and as a possibility for the investor to monitor the progress. All the steps to be taken to start a business with a principle license can be obtained in the graph below.

Positive developments in the business environment in Indonesia

These new implementations are a hopeful sign that the government is willing to put more effort in the reform of investment licencing. Furthermore it is hoped that president Joko Widodo continuously improve the licencing process in order to attract more foreign investors. Last week he announced a series of reformations, such as streamlining trade and industry regulations and simplifying the law for foreigners opening bank accounts in a foreign currency. As to the question of whether this reform package maintains what it promises, namely a sustainable development of infrastructure and an investor friendly environment, will be revealed as soon as the new reform package is published.

But even if the new package is not as expected, there are still plenty of opportunities investors sometimes seem to forget. Only because they have to face more unfavourable company registration conditions, does not mean that the consume market is getting smaller. On the contrary, administrative and bureaucratic difficulties lead to fewer competitors on the market which is in turn a major opportunity to gain a foothold in Indonesia.

Another aspect that should make foreign investors more confident is that many of the regulatory changes, such as the minimum capital, are not actually new regulations but the enforcement of regulations that have already been in place for years. This means less loopholes but also a more transparent business environment for everyone.

Image source: monetise.co.uk