Indonesia Eases Foreign Investment Rules for Some Industries

Indonesia recently eased its foreign investment regulations for several industries, including pharmaceuticals, power plants and advertising, amid signs of weakening investor appetite in Southeast Asia's biggest economy.

Foreign investment growth in the first quarter slowed to its lowest level in nearly five years following a government ban in January on mineral ore exports.

The ban raised investor concerns over increasingly nationalistic policies.

But in a reform that should ease some of that concern, the cabinet secretary's office, after months of delays, issued a revised “negative investment list” of sectors in which foreign investors are either barred or restricted. The list, which has existed for decades, limits foreign involvement in areas deemed sensitive.

“To further enhance the capital investment activity in Indonesia … it is deemed necessary to change the provision of business sectors closed and business sectors opened for capital investment,” President Susilo Bambang Yudhoyono said in a presidential decree.

Indonesia is dependent on foreign investment to fund a current-account deficit, which the central bank has estimated at around 2 percent of gross domestic product in the first quarter.

Under the investment policy, the government increased the maximum foreign investment in pharmaceutical companies to 85 percent from 75 percent, and in advertising agencies to 51 percent from 49 percent.

The changes were effective from April 24, the cabinet secretary's office said.

The International Pharmaceutical Manufacturers Group, which represents foreign companies including Pfizer, Sanofi, and Novartis, said the revisions would do little to attract further investment as it would still require having an Indonesian partner.