Economy and Business

Foreign Hospitals and Universities Could Operate in Indonesia

Investment Coordination Board (BKPM) head Thomas Lembong recently commented that the government was considering to allow foreign universities and hospitals to operate in the country.
Large amounts of money was spent on these services abroad and the government also provides scholarships for students to study abroad, he said, adding that allowing foreign universities to open campuses in Indonesia would reduce the number of students opting who study in other countries. “This is expected to be implemented after the election [in April],” Thomas said as quoted by kompas.com. Under the scheme, foreign universities could own up to 67 percent of the shares for their campuses, he said, adding that universities could control up to 100 percent of the shares in campuses in special economic zones. In this sector, Indonesia is behind Vietnam and Malaysia, which have permitted foreign university campuses to operate for a number of years, he said.

Improving The Rubber Market

The Indonesian government has announced three new policies that aim to jack up the price of natural rubber, which has hit a record low since 2018. Coordinating Economic Minister Darmin Nasution said the new policies would restrict natural rubber exports, expand the domestic use of rubber in construction, and replant rubber plantations. Rubber prices have fallen to a point that discourage new planting. At a recent meeting the 3 largest rubber exporters (Indonesia, Malaysia, and Thailand) agreed for the sixth time to implement the Agreed Export Tonnage Scheme (AETS), which requires them to cut natural rubber exports by 200,000 to 300,000 metric tons in the next three months. Aside from the AETS, the three countries also agreed to boost the local use of natural rubber through a demand promotion scheme. Under the scheme, the Indonesian government will expand the domestic use of rubber in infrastructure projects, such as in roads, railway dampers, road dividers and bridge bearings. In order to maintain stable supply and demand for natural rubber, the IRTC countries will also be implementing a supply management scheme and replant rubber plantations with new trees. According to Darmin, “We have never implemented a systemic replanting [scheme] since we established rubber plantations 100 years ago. We will be replanting up to 50,000 hectares in the future.”

Restrictions Curb Digital Economy Growth

Indonesia’s digital economy has soared over the past five years, but the government’s restrictions on investment and innovation could stifle growth, experts have warned. The country’s digital economy is projected to triple to US$100 billion by 2025, however Indonesia remains the fourth most restrictive country for digital trade out of 64 countries surveyed by the European Centre for International Political Economy (ECIPE).
In its 2018 report, the ECIPE highlighted two policies that curb the growth potential of Indonesia’s digital economy: the restriction on foreign ownership in e-commerce businesses – which contribute 45 percent of the digital economy – and the requirement for companies to build data centers in Indonesia.

According to the prevailing regulation, foreign investors are only allowed to own up to 99 percent of shares in e-commerce businesses with valuations that exceed Rp 100 billion (US$7.07 million).Foreign investors can also hold a maximum of 49 percent of shares in e-commerce companies with valuations between Rp 10 billion and Rp 100 billion. However, e-commerce businesses with valuations below Rp 10 billion are still off limits to foreign investment. Coordinating Economic Minister Darmin Nasution was close to relaxing the restriction in November last year when he launched the 16th Economic Policy Package, which includes a plan to allow foreign direct investment into 54 economic sectors including e-commerce businesses. However, the Indonesian Chamber of Commerce and Industry (Kadin), backed by several business associations, pressured the government to revise the plan and President Joko “Jokowi” Widodo finally canceled it in late November.

But not all Indonesian business people oppose foreign ownership. Entrepreneur Edward Ismawan Chamdani, founder of venture capital firm Ideosource, expressed disagreement with such restrictions in Indonesia. “We have a pool of investors, especially for start-ups, but we don’t have enough incentives, especially tax incentives,” he said. (Jakarta Post)
Editor’s Note: Government regulations covering cross-border transactions of digital goods and services, data protection and empowerment of local micro, small and medium enterprises (MSMEs) have been in the works since 2015 but finalizing them has been difficult given the fast changing elements in the economy as well as a natural resistance to criticism that such changes would be seen as “pro foreign”, negatively effecting the Administration’s re-election prospects.

Major Gas Discovery in South Sumatra

Indonesia is hoping a new gas discovery located in the Sakakemang Block, South Sumatra, proves to be major. Signs are pointing in that direction but more exploratory wells have to be drilled. Andrew Harwood, research director at global energy think tank Wood Mackenzie, estimated that there was 1.5 trillion to 2 trillion cubic feet (tcf) of natural gas at the site. If the estimate is correct, it would put the KBD2X in the top five discoveries globally over the last 12 months. The announcement, possibly premature, may be intended to renew global interest in exploring in Indonesia. However, policy uncertainty along with a slump in the global oil price has forced giant oil and gas companies to put the brakes on exploration, which require massive investment, and instead implement efficiency measures. Indonesia’s taking back of several production sharing contracts and the way it has implemented the gross split production scheme have also slowed exploration.

State Banks, Telco Join Forces to Challenge Go-Pay, Ovo in $25b E-Wallet Market

Last year the GOI announced it would set up its own ride-sharing company to compete against private firms well-established in the business. In less than a month state-owned lenders, insurers and phone operators will launch an integrated e-wallet service to give themselves a boost in a race to dominate a booming market predicted to be worth around $25 billion over the next four years. State-owned lenders Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia have introduced card-based e-wallet services at various times in the past decade but never reached enough market penetration or growth. Telekomunikasi Selular, or Telkomsel, a state-controlled mobile operator, is faring a bit better with its T-Cash service but is still blindsided by Go-Pay, the e-wallet service from Indonesia’s largest ride-hailing company Go-Jek Indonesia, and Ovo, an e-wallet app backed by local conglomerate Lippo Group. (Jakarta Globe) (Editor’s Note: The government’s ride hailing venture drew immediate criticism and never got launched.)

Policy Mishaps Empower Vietnam’s Pharmaceutical Market at Indonesia’s Expense

A recent opinion piece in the South China Morning Post by the Institute for Liberty’s Andrew Langer said that Indonesia’s compulsory licensing policy, weak intellectual property protections and joint venture requirement was hampering the development of a lower cost pharmaceutical market. Combined with possible halal requirements of vaccines, Indonesia’s public health was endangered. Vietnam will be the biggest pharmaceutical market in Southeast Asia in less than a decade. “Domestic and biotech joint ventures in Vietnam are on track to rescue the Indian market as well as become a major supplier and R&D hub for Japanese biomedical firms. Additionally, by coordinating with Vietnamese tech entrepreneurs, medicine verification apps for affordable Vietnamese drugs will dominate the scandal-plagued Chinese market.” According to Langer, Indonesia, should be in the pharmaceutical sweet spot now occupied by Vietnam.