Investment competitiveness: Difficulty in breaking SOEs' domination
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Bisnis Indonesia - Daya saing investasi: Sulitnya menembus dominasi BUMN
6 October 2023
By: Tegar Arief
Jakarta - Some investment issues were never resolved. Even though several indicators improved, there are still many challenges that hinder the flow of investment. The main problem is the dominance of state-owned companies in each business sector.
Organisation for Economic Cooperation and Development (OECD) in Economic Policy Reforms 2023 stated that there was a series of factors that hinder investors from investing in Indonesia.
Unfortunately, some of the issues came from the government itself. It means there is a system in the government that hinders investment.
The challenge is the characteristic of the policyholders that is too soft on state-owned companies. Many state-owned enterprises (SOEs) are dominating the various business sectors in the country, which, according to OECD, hinders investment.
Moreover, the institution mentioned that the dominance of SOEs over the economy in Indonesia was the worst compared to other similar jurisdictions in the world.
“So, companies in Indonesia are less productive, innovative, and integrated with the global supply chain,” the OECD report wrote as quoted by Bisnis on Thursday (5/10).
Not only state-owned companies, but the major issue that must also be addressed by the policyholders is logistics costs. OECD sees that logistics costs in Indonesia is still less than competitive, even though it is gradually going down.
High logistics costs and inefficient border practices will hinder export, decrease productivity, and weaken national economic resilience.
Regarding the issue, OECD recommended three efforts that must be considered by the government to smooth out investment.
Firstly, to remove remaining private and foreign investment restrictions. Next, to improve the trading environment, especially regarding policies and physical infrastructure, and to provide more resources to facilitate trade.
Then, to reduce the special rights of state-owned companies, accelerate privatisation, and reform the governance of national corporations.
The government realises the dominance of state-owned companies in the domestic investment ecosystem.
Moreover, in almost all business sectors, SOEs tend to play a crucial role and even carry out a single function, which reduces the opportunity of other business players.
The Investment Minister/Investment Coordinating Board (BKPM) Head, during his speech at the 4th International Convention on Indonesian Upstream Oil and Gas 2023 (IOG 2023) in Bali Nusa Dua Convention Centre (BNDCC) some time ago, revealed the fact.
In this context, for example, Bahlil mentioned that investment in upstream oil and gas was dominated by a state-owned company in the sector.
Ideally, the portion needs to be more fair between state-owned companies and private companies, despite if they are national or foreign private companies.
“The opportunity [of investing in upstream oil and gas] needs to be prioritised for national business players. If it cannot [be prioritised], then it can be offered to foreign investors or be collaborated,” Bahlil said.
On the other hand, the government will also continuously organise investment next year in accordance with Presidential Regulation No. 52/2023 on Government Work Plan Year 2024.
Legal certainty
The strategies implemented include increasing legal certainty and licensing service quality by finalising draft regulations related to capital investment and finalisation of a licensing system and an ease of doing business system that is integrated with the risk-based online single submission (OSS) system.
The strategies also include optimising an investment facility that is of high quality, productive, and export-oriented in a comprehensive manner, which mainly aims to accelerate the completion of priority and strategic projects.
Until now, the government does not have a clear policy direction to reduce the portion of SOEs in the national investment ecosystem.
The fact is that Indonesia has a strong capital to attract more foreign investors as several important indicators have improved.
The World Competitiveness Ranking International 2023 report that was released by the Institute for Management Development in the middle of this year logged that the ease of doing business index of Indonesia increased from position 44 in 2022 to 34 in 2023.
It is good news amid the concern of investors about the conduciveness of the political climate affecting business certainty.
Moreover, all indicators used to measure ease of doing business have improved. The indicators include bureaucracy efficiency, business efficiency, infrastructure, and economic performance.
One of the factors that increased the national competitiveness index besides the bureaucracy reformation agenda and the improvement of the Job Creation Omnibus Law is the normalisation of the economy that was achieved quite quickly following the gas and brake policy implemented by policyholders.
Centre of Reform on Economics (Core) Executive Director Mohammad Faisal said that the increase in the competitiveness index and the incentive disbursement did not guarantee inflow of capital investment.
According to him, there are many factors considered, such as overlapping regulations, legal certainty, and policy consistency in regions.
“The positive sentiment will be considered by investors, but it does not guarantee an increase in capital investment,” he stated.
