Indonesia welcomes US investment

Indonesia Embraces US Investment Opportunities

  • InCorp Editorial Team
  • 2 June 2023
  • 6 minute reading time

Promoting Indonesia for US investment

President Joko Widodo has consistently promoted Indonesia as the next big Asian destination for foreign investment, as the country’s investment potential is still mildly untapped. There is room for growth in industrial raw materials, green energy, and the digital economy. Therefore, hopes of investment in the country are considerably high.

The government has expressed its willingness to showcase the country’s potential during high-profile events for investment to impress investors. The most recent one was the ASEAN-US Special Summit with several US business leaders, where Indonesia sought interest from American investors.

At the summit, Joko Widodo spoke highly about Indonesia’s abundant natural resources and the healthy digital economy industry that’s growing at an exponential rate. The productive age of the 270 million population of which most Indonesians are has resulted in several innovative breakthroughs.

During the forum, the president showed some statistics to support the promotions. He also mentioned the vast land space available for US investment and the availability of natural resources, raw materials, and green energy.

Indonesia is the world’s largest nickel producer. Alongside that, Indonesia has abundant resources for the main component of stainless steel and lithium-ion batteries. Indonesia’s stainless steel industry has seen growth. It now sits in second place in the global production levels.

Nickel also plays a vital role in developing our future electric vehicles. Joko Widodo’s conversation about Indonesia did not stop only at products since he spoke about Indonesia’s significant potential in the digital economy, which can prove to be enticing for US investors.

The US-ASEAN Special Summit

The US-ASEAN Special Summit, held in Washington DC on the 12th and 13th of May 2022, saw ASEAN Leaders and President Joe Biden meeting to discuss ways and means to intensify cooperation in various fields.

Some of them included the COVID-19 response and global health security, climate change, sustainable development, maritime cooperation, human resource development, education, and people-to-people relations, as well as economic connectivity and engagement.

Additionally, it was reported that they also exchanged views on regional and international issues of mutual concern and interest. This Special Summit also reaffirmed the shared commitment to upholding ASEAN Centrality and unity through an ASEAN-led mechanism. The event was also used to foster mutual trust and confidence between countries.

As the coordinator of the ASEAN-US partnership for the 2021-2024 period, Indonesia hopes that this Special Summit will result in cooperation that can contribute to peace, stability, and prosperity in the region. This is the second Special Summit since 2016 and the first to directly involve ASEAN leaders since 2017.

This Special Summit will demonstrate the United States’ commitment to ASEAN. The responsibility mainly focuses on recognizing its central role in providing sustainable solutions to the region’s most pressing challenges, marking 45 years of US-ASEAN relations. The ASEAN website can access a joint vision statement of the Special Summit.

Indo-Pacific Economic Framework

After US President Joe Biden visited Tokyo, a new economic framework was established very soon. This effort is conducted for US cooperation with its partners around Asia by strengthening supply chains and setting up digital economy rules.

While the majority have responded positively to this, some frustrations remain. Here are some things you need to know about the Indo-Pacific Economic Framework (IPEF):

The Purpose of IPEF

This IPEF will focus on the growth of many industries around Asia. It is believed that the US will re-engage economically with the Indo-Pacific by providing support. The hole established when the US left the Trans-Pacific Partnership will also slowly be mended with this IPEF.

Why Is The US not Rejoining The CPTPP?

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement that the US sees as an old tool for countries to come together. The current administration approach of Joe Biden follows a ‘foreign policy for the middle class, which should allow Americans to benefit from US trade and diplomacy.

How Is IPEF Different from CPTPP and RCEP?

The IPEF focuses on more tailor-made methods to benefit trade partnerships between countries. RCEP is different from the two biggest trade blocs in Asia, CPTPP and RCEP, because it will not lower tariffs. Instead, it will collaborate with the cooperating countries on strategic pillars like supply chains and the digital economy.

Which Asian Countries will Join?

The new framework has been welcomed by Japan which President Biden is happy about. South Korea, Singapore, and The Philippines have been interested in joining the IPEF. Thailand has given a statement informing that they will join the IPEF. Indonesia is still on the fence.

What is The Impact of IPEF on the Asian Economy as a Whole?

This highly depends on the number of members the final IPEF framework has. Some countries think the US is reshoring and pushing China out of supply chains. China is explicitly not a fan of the plan and does not adhere to the Cold War mentality that this plan shows.

Indonesia Plan in Economic Recovery

Having seen quite a downfall in the Indonesian economy due to the pandemic, the country has released some fiscal policies that have played a part in economic recovery. Now on par with developed nations like the US, Singapore, and China, the government’s accelerated spending has boosted consumer spending and demand.

The Ministry of Finance has shown that expenditures have reached pre-pandemic levels in household components and investment. With other industries on their way to a complete recovery, there is more significant hope that new strains will not disrupt this economic growth.

Indonesia’s growth in 2022 is expected to increase from 3.3% to 5.6% in their GDP significantly. Indonesia’s economic recovery will rely on several sectors, mainly raw materials, energy, and the digital economy. The abundance of raw materials within the country has positively impacted the welfare of Indonesian citizens.

This has resulted in a significant amount of money being put into ensuring these resources are well managed. The energy sector has focused on high innovation since the Covid-19 pandemic.

The incentives of clean energy projects have shown to be beneficial since some measures are now taken to support the sector. Some of which aim at sustaining clean energy. In the digital economy sector, talents have collaborated with institutions to benefit from data safety and allow for more growth.

Allowing future investments from other countries to push economic growth is also a plan the government must make. This includes adjusting regulations to attract investors.

As setting up businesses in the country gets easier, companies should look into market entry consulting firms like Cekindo, which specializes in getting foreigners to open up their businesses in Indonesia. Services such as company registration and business license application need expert navigation to meet the requirements with poise.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.