Indonesia Omnibus Bill - Buckle Up!
On November 2, 2020 Indonesian President Joko Widodo signed into law the Omnibus Jobs Creation Bill, fulfilling a campaign promise and completing a process that had seen widespread opposition and public protests on the streets of Jakarta.
Indonesia’s Omnibus Law promises to significantly reduce the regulatory burden that businesses face; the country’s reputation for red tape and bureaucracy are well deserved.
The government of Indonesia has maintained a ‘Negative Investment List’, identifying several dozen industry sectors off limits to foreign investment. These have included large portions of the telecommunications sector, education and health care. The Omnibus Bill will eliminate the Negative Investment List, will create tax incentives for foreign investors, will simplify business registration processes and, importantly, streamline the country’s labor law.
As the business registration process being simplified, it is expected also that The Omnibus Law is to help reducing the corruption practices as it lessens the number of regulatory officials who business people need to deal with directly in order to process their business registration permits or licenses. Corruption and business transparency has been Indonesia’s one of the biggest business obstacles, if not the biggest.
The Omnibus Law promises to amend, simplify and, in many cases eliminate outright, thousands of federal and regional regulations. President Jokowi’s vision for Indonesia is an investment driven economy that supports domestic companies and helps nurture Micro and Small Enterprises. The end game is two-fold: address Indonesia’s falling competitiveness and improve the utilization of the country’s workforce. With a population that skews much younger than its neighbors, Indonesia is facing a growing employment challenge as agriculture and natural resources contribute less to the country’s GDP.
President Jokowi’s efforts to pass the Omnibus Bill run parallel to his plans around the theme of ‘Indonesia 4.0.’ Despite being home to Southeast Asia’s largest economy, advanced manufacturing within Indonesia lags far behind neighboring markets like Thailand and Vietnam. Inadequate human capital development lies at the root of this problem, Indonesia’s universities are not preparing workers for highly skilled occupations. With the intention to catapult Indonesia into the ranks of the world’s leading economies, President Jokowi and his ministers have begun pecking away at the multitude of problems that are holding the country back.
The road ahead is still uncertain. After passage and enactment of the Omnibus Law, Jokowi’s ministers will go to work to develop implementing regulations that will fill in the details. Already there have been some signs of reticence: the promised lifting of a ban on foreign investment in the alcohol beverage sector has been pulled back after complaints from conservative Muslim clergy. Time will tell if there will be more of the same as other entrenched interests face the pain of a more open economy.
The U.S. Commercial Service at the U.S. Embassy in Jakarta, Indonesia continues to follow these developments.
Contact us at office.jakarta@trade.gov to better understand how your industry will be impacted by the Omnibus Bill and how we can connect you with viable opportunities in Southeast Asia’s largest market.