Introduction: Indonesia, a Potential Destination for Investment

In 2022, Indonesia recorded an estimated USD43 billion of foreign investment which, combined with domestic investment, totalled USD80 billion, an increase of 34% over 2021. In the first half of 2023, Indonesia recorded around USD45.2 billion in investment, which meant it was already halfway to its 2023 investment target. Singapore remains Indonesia’s largest foreign investor, followed by China, Hong Kong, and Japan.

One of the most significant factors contributing to this success is Indonesia’s large population of approximately 270.2 million people. This, coupled with the increase in Indonesia’s GDP per capita year on year, makes Indonesia one of the most attractive global investment destinations. Standard Chartered Bank projected that Indonesia’s economy would grow to USD10.1 trillion by 2030, making it the world’s fourth-largest economy in terms of purchasing power parity. Other essential factors contributing to this growth include an abundance of natural resources (ranging from coal, silver, gold, nickel, copper, bauxite, thermal coal, tin, petroleum and natural gas) and Indonesia’s strategic location for access to the ASEAN and Asia markets.

The Indonesian government has ambitious plans to make Indonesia one of the world’s developed countries by 2025 (with expected per capita annual income of USD14,250–15,500 and a total GDP of USD4–4.6 trillion) and expand Indonesia’s access to renewable energy; build mining and mineral downstream industries (focused on electric vehicles and related components); improve agricultural production; and enhance infrastructure, including building roads, ports, railways and airports, as well as telecommunications and broadband networks. To achieve these goals, the Indonesian government has been making various efforts to attract more investors while consistently improving the business environment in Indonesia. An example of this is the improvement in the licensing process with the use of an online platform for business licence applications (“OSS”). The system was launched in 2018 and has successfully integrated online licence applications making it possible to process and obtain business permits remotely. The OSS system is designed to overcome complex layering procedures, which make the application process long and costly. 

In addition to simplifying licensing procedures, the government has also made it a priority to improve regulatory procedures, as briefly discussed below.

2023–2024 Updates and Expected Developments

The financial sector and the introduction of the Carbon Exchange

In January 2023, the “Omnibus Law” for the financial sector, that is, Law No 4 of 2023 (“Omnibus Finance”) became effective, with the aim of reforming various laws and regulations in the financial sector. One notable update under the Omnibus Finance is the recognition of carbon units as a form of securities. The broadened coverage of securities to include carbon units is in line with the designation of the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK) as the regulatory and supervisory authority for carbon trading, with the Indonesia Stock Exchange (“IDX”) serving as Indonesia’s Carbon Exchange Operator.

To further implement carbon trading in Indonesia, the OJK, as the authorised body supervising the establishment and implementation of Indonesia’s Carbon Exchange (the “Carbon Exchange”), issued Regulation No 14 of 2023 on Carbon Trading Through Carbon Exchange and OJK Circular Letter No 12/SEOJK.04/2023 (the “OJKR on Carbon Exchange”).

Following the issuance of the above regulations, the OJK officially appointed the IDX as Indonesia’s Carbon Exchange Operator. Within days of obtaining the Carbon Exchange Operator licence, IDX Carbon issued several technical regulations to further control the implementation of carbon trading, including carbon unit registration and carbon trading mechanisms, fees, and supervisory functions. These new regulations are expected to help boost the implementation of carbon pricing in Indonesia.

Through the above-mentioned regulations, the OJK allows the Carbon Exchange to facilitate both domestic and international trading of carbon units, subject to certain criteria, including:

• the mandatory registration of carbon units – to be eligible for trading on the Carbon Exchange, carbon units must be registered with (i) the National Registration System for Climate Change Control (Sistem Registrasi Nasional Pengendalian Perubahan Iklim or SRN-PPI); and (ii) the Carbon Exchange.
• trading mechanism – although the OJKR on Carbon Exchange merely sets general guidelines, the IDX Carbon issued several implementing regulations covering technicalities of carbon trading activities, including carbon unit registration and carbon trading mechanisms, fees, and supervisory functions.

The government has shown its persistence in developing the Carbon Exchange and expects this to boost carbon trading activities in Indonesia. Considering the support it has received from various sectors – the OJK and IDX, as well as the Ministry of Environment and Forestry – the introduction of the Carbon Exchange is expected to create new opportunities for Indonesia’s market to grow and develop, while at the same time moving Indonesia forward to achieve its goal of reduction of carbon emissions.

Merger filing

In March 2023, the Indonesian Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or KPPU) issued Regulation No 3 of 2023 (“Reg 3/2023”), introducing the new method for the calculation of assets value in relation to the merger report. By contrast with the previous regime, which calculated parties’ combined assets on a worldwide basis, Reg 3/2023 introduces a new method for calculating the assets within Indonesia’s jurisdiction only. In addition to the above, Reg 3/2023 now also clarifies that a mandatory merger filing is only triggered if all the transaction parties have assets or sales in Indonesia. This new requirement is in contrast with the previous regime, where filing was mandatory even when only one transacting party had sales of assets in Indonesia.

Healthcare sector

Following the enactment of the Finance Omnibus, the government issued a new omnibus law in the health sector through Law No 17 of 2023 (“Omnibus Healthcare”). One of the significant changes brought in by Omnibus Healthcare is the introduction of tele-medicine services direct to patients. Previously, tele-medicine services to patients were only available during the COVID-19 pandemic. The expanded recognition under Omnibus Healthcare is designed to facilitate the emergence of the tele-medicine business in recent years.

Electronic commerce

In September 2023, the Ministry of Trade issued Regulation No 31 of 2023 making various provisions for e-commerce. Highlights under Reg 31/2023 include the recognition of social commerce businesses (eg, TikTokShop) as E-Commerce Electronic System Providers (Penyelenggara Perdagangan melalui Sistem Elektronik or PPMSE) along with other business models such as marketplaces and online retail outlets created, managed and/or owned by the respective online retailers that trade on the online platform.

In the same month, the Minister of Finance issued Regulation No 96 of 2023 (as amended by the Minister of Finance’s Regulation No 111 of 2023), requiring local PPMSEs and representative offices of foreign PPMSEs that act as online retail merchants and marketplaces, importing more than 1,000 shipments of goods within one calendar year, to partner with the Directorate General of Customs and Excise of Indonesia. The partnership requires the exchange of e-catalogue and e-invoice data of the imported goods, as well as other forms of partnership.

Personal data protection

The Indonesian government revealed a draft of implementing regulations of the Personal Data Protection Law or PDP Law (the “Implementing Regulation”). One notable provision under the draft is on the offshore transfer of personal data, where it shows the following benchmarks for personal data transfer offshore:

• the designated country must have regulations in place to protect personal data;
• the designated country must have a supervisory commission for personal data protection; and
• the designated country must have made international commitments or must be subject to an international treaty or convention on personal data protection.

The Implementing Regulation is anticipated to be issued in 2024.

Digital rupiah

The Central Bank of Indonesia (“BI”) plans to issue rupiah in a digital format. These “digital rupiah” are part of Indonesia’s efforts towards national digital transformation. The BI has issued a consultative paper inviting the participation of stakeholders for input and response with respect to the initiative. Most recently, the deputy governor of the BI explained that digital rupiah will be undergoing a “proof of concept” phase next year, creating the first prototype of the national digital currency. The issuance of the digital rupiah aims to facilitate the rapid use of technology, while effectively and efficiently maintaining stable nationwide money flow.

Indonesia’s Nusantara Capital City (“IKN”)

In 2019, President Joko Widodo introduced an ambitious plan to relocate Indonesia’s capital city from Jakarta to so-called “Nusantara” in East Kalimantan. The main purpose of this relocation plan is to distribute development and economic activity to the eastern part of Indonesia and lighten Jakarta’s burden as a centre for government and business. The Indonesian government aims to relocate up to 1.9 million people by 2045, with some civil servants moving as early as 2024.

The development plan is divided into four major phases:

• First Phase (2022–2024) – focusing on building main infrastructure components such as the State Palace, House of Representatives, housing projects relating to the first phase of moving public servants, and basic infrastructure for the city’s initial 500,000 residents;
• Second Phase (2025–2035) – building innovation and economic centres, completing the transfer of the government centre to IKN and developing priority economic sectors;
• Third Phase (2035–2045) – Indonesia to become the No 1 destination for FDI and one of the top five main tourism destinations in South-East Asia; and
• Fourth Phase (2045–beyond) – for IKN to establish its reputation as a “global city for all”.   

IKN is estimated to cost around USD35 billion to complete, with 80% of the funding targeted to come from investors. To attract investors to IKN and accelerate its development, the Indonesian government is preparing incentives and additional benefits for contributing investors, including those set out under Government Regulation No 12 of 2023 (“GR 12/2023”):

• Licensing procedure – licensing verification in IKN will be processed directly by the IKN Authority. This demonstrates the government’s goal to create more straightforward and less complicated licensing procedures in IKN. 
• Foreign ownership restrictions – GR 12/2023 provides certain exemptions for FDI in IKN. 
• Easing of regulations on foreign workers – GR 12/2023 allows foreign workers to remain for longer periods in IKN. In addition, unlike in other Indonesian regions, those employing foreigners in IKN will be exempted from the obligation to pay Compensation Funds for the Use of Foreign Workers (Dana Kompensasi Penggunaan Tenaga Kerja Asing or DKPTKA).   

In November 2023, the Deputy Head of Financing and Investment at the IKN revealed that the office had received 305 letters of interest in IKN, including from Singapore, Japan, Malaysia, Korea, the United States, European countries, and the Middle East. Four US tech companies, Cisco, Autodesk, Microsoft and the Environmental System Research Institute (ESRI), have signed memorandums of understanding with the Nusantara Capital City Authority (“OKIN”). OKIN will also collaborate with Stanford University, with Stanford Doerr School of Sustainability providing research and innovation centres at IKN and in the future, exploration of the construction of a Standford Campus at IKN.

Upcoming 2024 election

The year 2024 will be another interesting political year for Indonesia. The general election, which is scheduled for 14 February 2024, will encompass the elections of (i) president and vice president; (ii) members of the House of Representatives; (iii) the Regional Representative Council; and (iv) the Regional People’s Representative Councils of the provinces and cities.

This political event has often been associated in the past with stagnation of investment and the uncertainty of the Indonesian government’s policy direction, leading to suspension of major investment decisions by investors. However, considering its overall success in the past five direct presidential elections, the Indonesian government remains optimistic that the election will not have any significant impact on investment and that investment will continue to progress during 2024.