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Govt needs to ‘roll out the carpet’ to lure more investors: ADB
The government could do more to attract foreign companies seeking to relocate their investments amid the escalation of trade tensions between the United States and China, the Asian Development Bank (ADB) has said
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span>The government could do more to attract foreign companies seeking to relocate their investments amid the escalation of trade tensions between the United States and China, the Asian Development Bank (ADB) has said.
ADB Indonesia country director Winfried F. Wicklein said that in an effort to make Indonesia more attractive to investors, the government needed to “roll out the carpet” and simplify the procedures for businesses to set up, expand and exit the market.
He added that investments in infrastructure should also be continued to provide infrastructure that businesses would need to quickly distribute their goods to the market, while at the same time ensuring that the private sector could get assurance of utility services such as electricity to the factories.
With the government having rolled out 16 economic policy packages between 2015 and 2019, Wicklein said consistency of implementation was key to seeing positive results.
“You don’t become the superstar that attracts all investments overnight. This is a process,” said Wicklein in a press conference on Wednesday.
“Indonesia has to compete with other countries all the time and other countries are reforming as well. So, to stay in the top league you [the government] have to continuously work on it, continuously reform.”
Moderating investments and export performance were among the primary drivers of the latest downward revision of Indonesia’s gross domestic product (GDP) expansion by the ADB.
In its update of the Asia Development Outlook (ADO), the Manila, Philippines-based development bank projected Indonesia’s economic growth at 5.1 percent this year and 5.2 percent next year, both of which were 0.1 percent lower from the previous outlook.
Investment, the second-largest driver of economic growth in Indonesia, grew 5.01 percent in the second quarter, slower than 5.85 percent growth booked over the same period last year.
ADB Indonesia country economist Emma Allen said it was important for Indonesia to gain momentum in investment growth to support a better growth outcome, adding that the outlook was positive in the remaining months of this year.
“We see investment is expected to pick up in the remaining months of the year and this will support growth, particularly as progress continues with the construction of national strategic projects,” said Allen, adding that private investments would continue to improve as new government initiatives would be rolled out.
Improved investment next year would lead to a wider current account deficit from 2.7 percent projected this year to 2.9 percent in 2020, ADB estimated, as greater investment typically comes with higher imports of capital and raw material goods.
President Joko “Jokowi” Widodo, who is set to be sworn in for his second term next month, has laid the groundwork for his structural reform agenda for his next period such as an overhaul of the country’s tax system as well as massive deregulation through an omnibus law. Both measures were taken as the government aimed to remove barriers to investment.
As there was a lot of room for improvement in the investment environment in the country, Wicklein said, initiatives to improve the investment climate were “to be highly welcomed”.
Coordinating Economic Minister Darmin Nasution recently said the upcoming omnibus law would mark a paradigm shift in the overall licensing process to that of a risk-based approach.
“In principle, our business licensing going forward will be stipulated in the omnibus law, such that certain sectors with low risk in their activities only need to follow certain standards, while [business sectors] that carry greater risk [in their activities] will need licensing,” Darmin said recently after a Cabinet meeting in the Presidential Office.
One of the permits the government was mulling over doing away with is the building permit (IMB), which is set to be replaced by stricter building code standards. Such a move would allow developers to construct buildings without the need to first obtain IMB, therefore expediting the construction process.
The omnibus law would bring changes to around 74 laws, Darmin said, without further giving details on which laws would be affected. He added that the government was hoping to finish the concept of the omnibus law by October, implying that the legislation would be discussed with the House of Representatives early in Jokowi’s second term.
