Indonesia, the 16th largest economy in the world, has its GDP growing consistently above 5 per cent every year since 2000. Yet India, the seventh largest economy and projected by CEOWORLD Magazine to be ranked number 3 by 2033, has largely ignored investment opportunities in this vast archipelago.
India’s investment in Indonesia was a measly USD 82 million in 2018, as per the data from Indonesia’s Investment Coordinating Board (BKPM). For the five years between 2014 to 2018, investments from India averaged about USD 100 million and that figure has been bumped up because of USD 286 million committed in 2017. The mega investment in 2017 was by Adani Ports in a new container port in Banten Province in the city of Cilegon, that is 100 kilometres from Jakarta in the northwest part of Java Island. In 2016, Indian investment in Indonesia was just USD 55 million.
8, the largest foreign investor in Indonesia was Singapore which committed USD 9.2 billion followed by Japan (USD 4.9 billion), China (USD 2.4 billion), Hong Kong (USD 2.0 billion) and Malaysia (USD 1.8 billion). India is ranked 25th among foreigner investors.
In the recent second edition of the India-Indonesia Infrastructure Forum (IIIF) in Jakarta, Indian Ambassador to Indonesia, Mr Pradeep Kumar Rawat said the two countries were recognised as emerging large economies globally and had similar challenges and opportunities, with both having an infrastructure gap.
Rawat when speaking to The Jakarta Post added that Indian investors were interested in roadwork, urban railways, oil and gas, airports and the health industry.”These are the areas where Indian businesses could become beneficiaries in arrangements with the Indonesian companies,” he said.
Referring to the newly built MRT (mass rapid transit) in Jakarta, he also commented that Indian companies could share their expertise as they have built the cheapest metro projects in the world.
Also, on the same occasion, Indonesia Coordinating Maritime Affairs Minister, Mr Luhut Pandjaitan said the government was looking forward to learning more from India about various technologies used in waste management and health care.
Most of India’s investments in Indonesia are in wood products, trade businesses, food manufacturing and textiles. Whereas, Indonesian investment officials would like to see future investments made in infrastructure and high-value-added industries and preferably made outside of Java.
Investing in Indonesia for Indian companies however, is not without challenges.
First of all, the process of obtaining a work visa or permit for Indians is not straight forward, an issue that is being taken up with the authorities by the Confederation of Indian Industry (CII).
Furthermore, Indonesia is not exactly the most business-friendly country in the world. It is in position 73 out of 190 countries on the latest World Bank Doing Business Index published in 2019. Businesses wishing to establish a presence in Indonesia face regulatory and cultural dynamics which they will be unfamiliar with as an outsider.
Other obstacles faced by businesses include the rising cost of credit, excessive and unpredictable regulation, poor quality of infrastructure, a poor legal framework, corruption and terrorism risk.
Indonesia has a very diverse population, a relatively high level of unemployment and extreme poverty in some regions. This exacerbates inter-ethnic tensions and thus weaken the stability of the country.
Starting a business in Indonesia can be complex, costly and time-consuming for foreigners. For example, companies that are wholly owned by foreigners require 2 shareholders and a minimum paid-up capital of IDR 10 billion (approximately USD 750,000). It also takes about 3-6 months and as many as nine different steps to establish a company in Indonesia.
There are also some sectors that are closed or restricted to foreign investors.
Industries that are closed to foreigners include forest concessions, bus/taxi transport and small-scale water transport services, print and broadcast media, film and cinema, distribution and exhibition and small-scale retail trade.
Industries that have ownership limits for foreigners include airport/seaport construction and operation, electricity production, transmission and distribution, shipping, drinking water, railway services and certain medical services.
With a population of 260 million growing wealthier and arising middle class demanding better products and services, for any business setting up in Indonesia, the internal market alone looks attractive. For businesses with the right strategy, that are willing to be patient and persevere, rich rewards may await. – Business Standard