Think ‘positive’ – Indonesia liberalises foreign investment in key industry sectors

In February 2021, the Government of Indonesia enacted a new Presidential Regulation that brought into effect, as of 4 March 2021, a new foreign investment ‘Positive List’ – a liberalisation of a significant proportion of Indonesian business sectors that had previously faced varying degrees of foreign ownership restrictions. The default position set out by the new Presidential Regulation is that all sectors are open to investment unless specifically included in the ‘Positive List’. More than 300 business sectors were subject to foreign ownership restrictions under the previous ‘Negative List’ issued in 2016, compared to fewer than 50 in the new ‘Positive List’. Only six restricted sectors remain closed to all forms of investment.

The new ‘Positive List’ implements part of the Omnibus Law, a cornerstone of President Joko Widodo’s strategy for prioritising foreign investment and job creation through economic growth in a country known for extensive bureaucracy, foreign ownership restrictions, onerous labour laws and a complex tax system. We previously covered three things investors need to know about Indonesia’s new Omnibus Law in this blog post.

Foreign investors will be particularly interested in the following (non-exhaustive) list of sectors that are now unconditionally open to foreign ownership under the new ‘Positive List’:

Foreign investors should note that even for sectors that remain subject to foreign ownership restrictions under the new ‘Positive List’, certain exceptions will apply. As has previously been the case, ‘grandfathering’ protections will still be available. This means that for any existing investments in lines of businesses that are now subject to more onerous foreign investment restrictions under the new ‘Positive List’, investors will typically be able to maintain the historically approved level of foreign investment under the previous ‘Negative List’ regime. The previous exception for foreign investments into companies that are listed on domestic capital markets (i.e. indirect / portfolio investments) will also continue, and certain other exceptions (e.g. for investments into ‘special economic zones’) will also apply.    

Potential investors should also note that in addition to the lifting of foreign ownership restrictions, certain prioritised sectors will receive investment incentives ranging from tax holidays, allowances and customs incentives to non-fiscal incentives including easier licensing rules, guaranteed availability of raw materials and availability of energy and supporting infrastructure. Such prioritised sectors include (among others) certain pharmaceutical sub-sectors, automotive manufacturing and gas production.

The new ‘Positive List’ opens up significant opportunities for foreign investors, whether they are looking to invest in Indonesia – Southeast Asia’s largest economy – for the first time or to increase their exposure to the country. However, foreign investors should bear the following points in mind:

1. the new ‘Positive List’ does not regulate foreign ownership restrictions in the banking and financial services sectors (which remain governed by separate sector regulations issued by the Financial Services Authority (the OJK) and Bank Indonesia). The current foreign ownership limitations for these sectors will remain in place;
2. direct and indirect sector-specific foreign ownership and licensing restrictions issued by relevant ministries may also continue to apply to certain other sectors (e.g. mining), irrespective of the position under the ‘Positive List’, and need to be considered on a case-by-case basis; and
3. for existing investors in sectors that have historically been subject to a foreign ownership cap, any termination or unwinding of local partnership arrangements in order to benefit from the lifting of foreign ownership restrictions will need to be carefully and sensitively managed, particularly if there is a risk that the arrangements that have been maintained to date may have been inconsistent with the previous regime.