17 Feb 2016
INDONESIAN GOVERNMENT ANNOUNCES REVISION OF NEGATIVE INVESTMENT LIST

The Indonesian government announced that it will issue a revision of the current Negative Investment List (“DNI”), which will enumerate business lines that are closed and conditionally open to foreign investment (e.g. by imposing a cap on foreign ownership in Indonesian companies or requiring foreign investors to collaborate with domestic micro, small and medium size companies (“SMEs”) and cooperatives). Although the new DNI has yet to be published, it is clear that on balance, this new legislation will result in the Indonesian economy being further opened up to foreign investment. The new DNI also creates further opportunities for domestic SMEs and cooperatives, sometimes by imposing new restrictions to foreign investment.

35 business lines that are conditionally open under the current DNI, will be taken off from the DNI, which means that these business lines should become completely open to foreign investment. These business lines include crumb rubber, cold storage, tourism (restaurants, bars, cafes, recreation, arts, entertainment, sport stadiums), film, including film processing laboratories (see also below), e-commerce market places value above Rp 100 billion, telecommunications equipment testing, toll roads, harmless waste management, and pharmaceutical raw materials.

For a number of business lines that are already conditionally open to foreign investment under the current DNI, the cap on foreign ownership will increase under the new DNI, as set out below.

20 business lines that are closed to foreign investment under the current DNI will be conditionally open to foreign investment under the new DNI. These business lines include high-voltage electricity installation (49%), healthcare support services (67%), public land transportation (49%) and film, including film distribution (100%).

The Indonesian government introduces additional measures to stimulate investment. First, for 83 business lines it will no longer be needed for foreign investors to obtain recommendations from certain government authorities. These business lines include hotels (no star, one star, and two star), motels, recreational business, arts and leisure: billiard, bowling and golf courses. Second, 39 business activities that fall under several business lines under the current DNI will be under one business line under the new DNI.

The new DNI will also result in some business lines being restricted to foreign investment. One business line that is conditionally open to foreign investment under the current DNI, i.e. utilization of natural coral for aquariums, souvenirs and accessories, will be closed under the new DNI. According to the Indonesian government, this restriction is imposed to protect the environment.

Furthermore, in addition to the 139 business lines that are already reserved to SMEs and cooperatives under the current DNI, another 19 business lines that are conditionally open under the current DNI will be reserved to these types of entities under the new DNI. These business lines include pre-design and consulting services, architectural design services and architectural services. Foreign investors cannot own SMEs and cooperatives, so this measure will effectively result in these 19 business lines being closed to foreign investment.
In addition, the work value for 39 business lines that are already reserved to micro, SMEs and cooperatives under the current DNI, will increase from Rp 1 billion to up to Rp 50 billion under the new DNI. These business lines relate to construction services, such as construction work for commercial buildings, health facilities and other construction work. This means that under the new DNI, foreign investors can only be engaged in construction services with a value of more than Rp 50 billion.

Finally, the number of business lines that are open to foreign investment under the condition that there is a collaboration with SMEs and cooperatives will increase from 48 under the current DNI to 110 under the new DNI. Additional business lines that will be subject to this condition include seeding of plantations of 25 hectares and more and retail trade through mail and internet.

For the avoidance of doubt, the grandfathering clause will remain in force upon publication of the new DNI. Therefore, foreign investment companies that have a license from the Indonesian Investment Coordination Board to be engaged in business lines that will be restricted to foreign investment under the new DNI will not be affected by the above measures.

The Indonesian government has not indicated when it will publish the new DNI. However, publication is likely to take place in a few weeks from the date of the announcement. The new DNI may deviate from the above overview, but we expect it to be largely the same.