How The New Investment List Liberates Indonesia’s Consumer Goods Industry for Foreign Investors

The fast-moving consumer goods (FMCG) sector is one of Indonesia’s largest industries, contributing considerably to the country’s economic growth. Some of the primary growth factors in the industry have been the growing consumer spending power due to increased personal income, as well as increasing urbanization.

This was one of the few industries in the country that remained mostly unaffected by the COVID-19 epidemic. In the third quarter of 2020, Indonesia saw an overall positive year-on-year change in the FMCG market value of 8.8%.

Indonesia’s Consumer Goods Sectors: Understanding the Market Landscape

Indonesia’s FMCG Market Landscape

As one of Southeast Asia’s fastest-growing FMCG markets, Indonesia has progressed in tandem with rising consumer expectations and changing lifestyles. Indonesian families have spent about 20% of their entire household spending on FMCG items since 2018.

Every FMCG category in the country showed an increase in average consumer spending on every visit to the store in the third quarter of 2020, with the food segment receiving the biggest share. Traditional trade, with a 67% market share in the third quarter of 2020, was the largest sales channel for FMCG items in the country. Note that both global and local firms dominate the FMCG industry in Indonesia.

Multinational corporations such as Unilever Indonesia have fostered the sector by expanding the range of items available to the customers, from personal care to food. Indofood, a local market participant, has demonstrated that indigenous businesses can compete effectively in the FMCG industry as well.

Indomie, one of its products, was named the first among the top FMCG brands in Indonesia in 2019, with a home penetration rate of over 99%. Furthermore, since 2014, the net sales of PT Indofood Sukses Makmur Tbk, or Indofood, have been steadily increasing, indicating continued expansion in the FMCG sector.

Indonesia’s Consumer Goods Sectors Survives the Pandemic

In Indonesia, the FMCG sector is one of the least impacted sectors by the pandemic, owing to a shift in customer behavior who prefer to purchase and stock personal care and hygiene products from stores.

Several items, including personal care products, herbal and health products, food, and so on, have grown popular as a result of the pandemic.

The COVID-19 pandemic created a mass awareness about personal health and preventative measures that may be taken like using hand sanitizers has caused a spike in demand for FMCG products. As a result, customers were inclined to buy products in larger quantities and stock them for personal use.

Consumers are Shifting Towards Online Purchasing

Indonesian consumers have been affected by the COVID-19 pandemic over the past year, which has influenced their views and preferences in many aspects of life. They quickly embraced a new lifestyle that includes wearing a face mask, living at home, and working from home. Their typical grocery shopping habits have inevitably changed as well. The majority of Indonesian consumers have changed their buying patterns as a result of the COVID-19 pandemic.

Because of the COVID-19 pandemic, 74% of Indonesians have modified their buying habits. When compared to the global average of 59%, this percentage is relatively high. One of the most noticeable changes is that, as a result of the government’s crowd control measures, people now routinely use online shopping/delivery services for their groceries. 63% of customers believe they would use online shopping/delivery services more often, and more of them (43%) prefer to use delivery services over “click and collect” online services.

How The New Investment Regime Liberates Indonesia’s Consumer Goods Sector for Foreign Investment

Since March 4, 2021, the new investment list under Presidential Regulation No. 10 of 2021 has superseded the former negative list under Presidential Regulation No. 44 of 2016. It is about the Investment Sectors (the New Positive Investment List), which establishes new foreign investment limits for several Indonesian industries.

This new approach to conducting business operations was created to encourage investment in Indonesia while also streamlining the process of obtaining business licenses to make it more efficient.

Indonesia’s Consumer Goods Sectors That Opens for Foreign Ownership

Distribution

The new investment list allows the distributors that are not affiliated with manufacturing in the Indonesian distribution sector to own up to 100% of their investment. Previously, the distributors were limited to 67% of the ownership.However, distributors affiliated with manufacturing are allowed 100% foreign ownership in Indonesia in both the investment lists, old and new.

Retail

Foreign investment limitations previously applied to the retail industry, with specific limits imposed on certain types of self-service stores (toko swalayan). However, the New Investment List has allowed 100% foreign ownership of (i) most self-service outlets with a floor size of more than 400 sqm and (ii) most non-F&B items in the retail sector.

Supermarkets with a floor size of less than 1,200 sqm and department shops with a floor space of 400 sqm to 2,000 sqm were restricted at 67% foreign ownership under the 2016 Negative List. The New Investment List no longer has these limitations. Floor area limits still apply to different types of self-service businesses under GR 29/2021.

Logistic Services

Most logistics services, including commercial postal services, courier agency services, warehousing, and freight forwarding, are now eligible for 100% foreign ownership under the New Investment List. It is a huge jump from the ownership cap of 49% in the 2016 Negative List. Learn how foreign investors can establish a logistic company in Indonesia.

Commission Agents

The fee-based commission agency sector, which has traditionally been closed to foreign ownership, appears to be exempt from the New Investment List’s foreign ownership limitations.

Marketplace and E-Commerce

The new investment list allows 100% foreign ownership for online marketplace businesses like web portals and digital platforms for commercial purposes with an investment value of below IDR 100 billion, a huge leap from its previous 49% limitation on foreign ownership. Similarly, eCommerce – retail businesses are eligible for a 100% foreign investment in the new list.

Get in Touch with Us

Company incorporation in Indonesia consists of multiple procedures that are time-taking and overly official. Having company registration professionals, like Cekindo, by your side can save you a great deal of time as well as provide you with a hassle-free experience. Cekindo provides a wide spectrum of ancillary services related to the company and product registration, like legal consultancy, business license, and import license acquisition.

Let’s start by filling out the form below and talking to one of our professional counselors.