The American Chamber of Commerce in Indonesia (AmCham) has called on the government to conduct reforms on issues inhibiting United States investment in Indonesia.
During the US-Indonesia Investment Summit 2022 in Jakarta, AmCham expressed its concern in an annual report on the “same governance and regulatory issues that have long held the country back,” including local content requirements (TKDN) and red tape.
AmCham’s Investment Report for this year conveys the views of 22 US-linked companies operating in 10 sectors on the “speedbumps and roadblocks” they say make life harder for foreign investors in Indonesia.
Data from the Investment Ministry show that realized foreign direct investment (FDI) originating from the US from January through September 2022 increased 62.2 percent year-on-year (yoy) to US$2.12 billion, ranking the US below Singapore, China (mainland), Hong Kong, Japan and Malaysia.
“This report, this year, is probably the most upbeat and optimistic report that we've ever written,” AmCham Indonesia managing director Lin Neumann told The Jakarta Post on Tuesday.
The report mentions that huge amounts of US investment to Indonesia pass through Singapore and Hong Kong, and Neumann explained that firms inject capital into holding companies in these territories due to their trust in their legal systems, while that capital is then injected into other countries.
One of the main concerns of US businesses is the TKDN policy, which is criticized for ballooning production costs and inhibiting business growth rather than supporting the development of local industries.
The TKDN, under Presidential Instruction No. 2/2022, requires the central and regional governments to allocate at least 40 percent of their procurement budgets to domestically sourced goods and services, with a priority for micro, small and medium enterprises (MSMEs) and cooperatives.
Government Regulation No. 28/2021, which stipulates details on import and export licensing through the commodity balance system, is also mentioned as supporting the TKDN policy.
“We are not shy about saying that we think that, [in] trying to attract investment, TKDN is a mistake; it’s more likely to drive people away than to bring them in,” Neumann continued.
The AmCham chief noted that Vietnam and Thailand had no such policy.
The Indonesian government, he said, used the TKDN for “a kind of forced investment”, but the success rate had been suboptimal for building industries.
“It works in some cases; you might get a few factories built, but it doesn't [work],” Neumann continued. “It's not transformative. It doesn't transform the way the economy works.”
US businesses stated in the report that, although the government had enacted significant efforts through the Job Creation Law and the Online Single Submission (OSS) to accelerate business licensing, the implementation was hampered by a lack of coordination between institutions.
The report maintains that government cooperation is lacking due to the “inefficient culture of holding power” that leads to a mismatch between systems and points to problems of integration between the Industry Ministry and the Environment and Forestry Ministry with the Investment Ministry’s OSS.
“There's still a lack of coordination in the ministries, too many ministries operate in separate silos from one another,” Neumann added.
Speaking about a potential global recession, Neumann pointed out that there were “areas of investment” that US firms were eager to enter, despite the slowdown.
The Job Creation Law, he said, enabled US companies to inject their capital into new sectors of the economy, with projects varying from cell tower acquisition to consumer goods and coal gasification in Sumatra, the latter by US-based Air Products.
He said a “bad recession” would impact Indonesia but pointed to the government estimates for robust growth on the back of strong fundamentals.
“They're betting on Indonesia's consumer market. I know a lot of other consumer companies are betting on the market,” Neumann said. “If Indonesia continues to just grow the consumer market, it’s very healthy for big companies.”
Speaking after the summit, Deputy Coordinating Maritime Affairs and Investment Minister Rachmat Kaimuddin disagreed with the notion that the TKDN policy inhibited FDI.
He said such a policy was still needed to support domestic industries but improvements were possible to ensure FDI kept flowing in.
“The TKDN should have more alignment,” Rachmat told the Post on Tuesday.
The Indonesian Chamber of Commerce and Industry’s (Kadin) deputy chairperson for industry, Bobby Gafur Umar, said on Monday that the TKDN budget mandates “are good” for lower- and middle-income people.
He also said import substitution would accelerate during these times of uncertainty over global supply chains.
“There should be no more imports; they must use local goods,” Bobby told the Post.
Kadin deputy chairperson for investment Shinta Widjaja Kamdani said on Monday that, although she was optimistic about investment growth next year, she believed investors were much more likely to speculate in the stock market rather than direct investment if currency fluctuation persisted.
As such, she said, the stability of macroeconomic fundamentals remained key to drawing investment in a world where less FDI would be available for developing countries.
“We hope the government will stay vigilant and keep looking out for stability,” Shinta told the Post.