Indonesia Hosts the G20 Summit: Opportunities for Foreign Investors
Indonesia is hosting the G20 Summit from November 15-16, 2022. The economic forum presents an opportunity for the country to showcase its potential for foreign investment and demonstrate its growing leadership capabilities in the region and the world.
Indonesia is hosting the G20 Summit for the first time, from November 15-16, 2022, marking a significant milestone for the archipelagic nation as it looks to demonstrate it can provide leadership capabilities in the region and the world. Over the last decade, the country has hosted numerous high-level conferences and international events, such as the APEC Leaders’ Summit in 2013, the Asian-African Conference in 2015, the Organization of Islamic Cooperation Summit in 2016, the IMF and World Bank Meetings in 2018, and the Asian Games in 2018.
As the only country in Southeast Asia to host the G20 Summit, Indonesia is pitching its attractiveness as an investment destination for foreign capital besides its legitimacy as a voice representing emerging economies outside of the G20. The G20 forum will provide Indonesian businesses with a platform to ‘directly pitch’ to an audience of leaders and investors from the most developed nations in the world.
Indonesia is open for business
Clinching the G20 Presidency gives Indonesia momentum to boost foreign investor trust in the country, particularly for sectors such as electric vehicle (EV) battery production, infrastructure development, renewable energy, and investments for the country’s new capital city, Nusantara.
Electric vehicle production hub
Indonesia aims to showcase its potential as an alternative electric battery production hub to China by developing an integrated EV supply chain.
Home to the world’s largest nickel reserves (approximately 21 million tons), Indonesia is aiming to leverage this advantage to spur investments in downstream nickel processing and electric battery production. Commodities will continue to be an important player in Indonesia’s development strategy, especially since the country has gradually banned the exports of raw commodities to attract downstream investments. The country banned the export of raw nickel in 2019.
Indonesia is also on track to overtake China to produce battery-grade nickel by 2025, accounting for 38 percent of the global nickel-processing capacity. Further, the country is set to build its first EV battery plant and aims to begin production by 2023. The facility is expected to have a capacity of 10 Gigawatt hours (GWh) (one gigawatt equals 1 billion watts of electric power), with the batteries manufactured there slated to be used in Hyundai electric vehicles.
Infrastructure has been at the forefront of the Joko Widodo government since 2014. The President stated in late 2021 that in the last six years, his government has built 1,640km of highways and 4,600km of non-highway roads. In addition, there are now 15 new airports with expansion work and renovations happening on a further 38. Further, the government has built 22 dams and is in the process of developing 124 new ports. There will be 65 new dams nationwide by 2024.
Between 2022 and 2024, Indonesia requires some US$445 billion for infrastructure investments.
Indonesia’s digital economy
Indonesia is also eager to use the forum to push for equitable access for technology and capital, particularly for burgeoning tech startups; Indonesia’s digital economy is expected to reach over US$125 billion by 2025.
The country is Southeast Asia’s largest and fastest-growing internet economy – more than 170 million Indonesians had access to the internet in 2020, with 10 percent engaging in online shopping. E-commerce is the driving force behind the transformation of Indonesia’s retail landscape, and the country’s gross merchandise value (GMV) was the third highest in the world at US$40 billion, beating India at US$38 billion.
Indonesia thus presents ample and scalable digital opportunities for foreign investors, particularly in e-commerce, fintech, and the Internet of Things (IoT). In trying to fully capitalize on this growth potential, Indonesia’s government issued new digital and e-commerce tax laws in 2020, a sign of the improving regulatory landscape. This will be facilitated by the country’s vibrant technology sector, supported by one of the highest concentration of startups in the world. There are currently over 2,100 startups in Indonesia, which is preceded only by the US, India, UK, and Canada.
Showcasing Indonesia’s business reforms
The G20 forum also presents opportunities for Indonesia to demonstrate its business reforms, such as its implementation of the Omnibus Law. The Job Creation Law, also known as the Omnibus Law, is touted as Indonesia’s biggest attempt at bureaucratic reforms since independence.
The Law amends more than 75 current laws that aims to simplify the process to obtain business licenses and starting a business, formalizing special economic zones, and amending the country’s strict labor laws. Further, Indonesia has liberalized emerging sectors of interest for foreign investors such as construction, healthcare, and telecommunications, among others.
New business licensing regime
Indonesia has now introduced a new business licensing regime whereby business licenses are issued based on the assessment of ‘business risk level‘, determined by the scale of hazards a business can potentially create.
The businesses activities undertaken by the applicant company will be classified into one of the following risk-level types:
- Low-risk businesses;
- Medium-low risk businesses;
- Medium-high risk businesses; and
- High-risk businesses.
Positive investment list
Under the Omnibus Law, Indonesia has liberalized over 245 business lines, including important sectors, such as transportation, energy, and telecommunications. The general principle under the positive investment list is that a business sector is open to 100 percent foreign investment unless it is subjected to a specific type of limitation.
As such, the government has classified business fields into four categories.
- Priority sectors;
- Business fields that stipulate specific requirements or limitations;
- Businesses fields open to large enterprises, including foreign investors, but are subject to a compulsory partnership with cooperatives and micro, small, and medium-sized enterprises (MSMEs); and
- Business fields that are fully open to foreign investment.
New labor laws
The Omnibus Law has amended Indonesia’s labor laws ranging from introducing a new formula for calculating the minimum wage, eliminating the sectoral minimum wage, introducing, for the first time, provisions for hourly wages, and income support for workers who have been made redundant. Further, the law makes significant changes to fixed-term employment contracts, outsourcing, hours of work, the termination of employment procedure, and the easing of hiring foreign workers.
The government has overhauled the existing tax structure to optimize tax revenue collection. This includes an amendment in which an Indonesian resident will use their national identity card as their tax identification number.
Importantly, the overhaul includes changes in the topline personal income tax rate. Individuals earning more than 5 billion rupiah (US$351, 000) per year in net income will now be subject to a 35 percent income tax, and individuals with an annual net income of up to 60 million rupiah per year (US$4,220) will be subject to a five percent tax rate, up from the previous threshold of 50 million rupiah (US$3,517).
- Opportunities in Indonesia’s Special Economic Zones: Choosing the Ideal Location for Your ASEAN Business
- Diversify Your Business to Indonesia – The Ins and Outs of Set Up
- The RCEP Advantage: Part 3 – Exploring Trade Opportunities in Indonesia
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