Under fire: Motorists queue at a PT Pertamina gas station in Jakarta. Weeks after a change of government in Indonesia, reports from the EU have criticised the lack of transparency in the country. — Bloomberg
BANGKOK: Foreign chambers representing European and American businesses have voiced concerns over Indonesia’s business and investment climate in newly published reports, pointing to lingering regulatory obstacles and red tape as risks to the country’s appeal for foreign direct investment.
Weeks after a change of government in Jakarta, the reports from the European Union (EU) and US business communities criticise an ongoing lack of transparency and predictability, resulting in uncertainty that not only drives up firms’ operational costs but also disrupts supply chains.
In its position paper released on Monday, the European Business Chamber of Commerce in Indonesia (EuroCham) highlighted how policy flip-flops had disrupted participation of Indonesia-based businesses in global value chains, with unpredictability in import licensing and quotas posing challenges, particularly when it comes to securing raw materials.
“Businesses demand regulatory certainty and consistency,” Carsten Sorensen, head of trade and economic affairs at the EU Delegation to Indonesia and Brunei Darussalam, said during the report’s launch on Monday.
“Predictability is a strongpoint for investors.”
The American Chamber of Commerce in Indonesia (AmCham) flagged similar frustrations in its report published on Nov 26, explaining that regulatory hurdles posed significant risks for foreign investors, particularly those aiming for long-term operations.
“There are indeed numerous long-running challenges in our bilateral trading relationship,” John Goyer, executive director for South-East Asia at the US Chamber of Commerce, said on Nov 26, citing local content requirements, import licensing restrictions and “abrupt, non-transparent policy changes” as key issues.
These, he added, often “combine with overlapping or conflicting regulations,” impacting US investment and shaping negative perceptions of Indonesia’s market.
Expecting decades of regulatory stability, US companies in Indonesia had grown wary in response to frequent leadership changes and shifting ministerial visions that resulted in abrupt policy adjustments.
This, according to the report, led many to adopt a wait-and-see stance on President Prabowo Subianto’s push for energy self-sufficiency, recalling past losses from revoked concessions and government pressure that had made the energy sector a hard sell to risk-averse corporate leaders.
Washington’s escalating tensions with Beijing and China’s growing export capacity, together with political pressure from Washington, have prompted US companies to reconsider their global supply chains.
According to the AmCham report, Indonesia stands to benefit from this recalibration, provided it can present itself as a reliable alternative to China.
However, Indonesia lags behind some South-East Asian neighbours in taking advantage of the geopolitical context.
“US firms are adopting a more cautious approach due to global uncertainties,” AmCham’s report notes, as firms weighed “not only market potential but also the ease of doing business, bureaucracy and regulatory stability.”
EU ambassador to Indonesia Dennis Chaibi said the EU’s position could prove crucial amid the growing US-China tensions, as access to the world’s largest single market, “may prove even more useful than before”, given that Indonesia was seeking to diversify its economic partnerships.
While China remains Indonesia’s largest trading partner and the United States one of its biggest trade surplus contributors, Chaibi argued that only the EU offered the “combination of a very large market and transformative benefit” pivotal for Indonesia’s goal of achieving 8% economic growth and further integration into global supply chains.
Through diversification in trade and investment flows, the EU offered South-East Asia’s largest economy the chance to “reinforce its position on the global map of trade”, he added, which could be unlocked through the finalisation of the trade agreement.
“Only the EU can bring the kind of logistical and supply chain improvements that drive productivity gains, making it an indispensable partner for Indonesia’s manufacturing and export-oriented industries,” Chaibi added.
After multiple rounds of talks and missed deadlines since 2016, a breakthrough has yet to be reached on the planned Indonesia-EU Comprehensive Economic Partnership Agreement (IEU-CEPA).
The EU is Indonesia’s fifth-largest trading partner, and the trade deal would could boost EU exports to Indonesia by 76.17% and Indonesia’s exports to the EU by 57.76%, according to EuroCham.
Indonesia currently has no comparable talks with the United States.
Prabowo’s administration has deliberately refrained from picking sides in global trade tensions, but experts argue that stance risks Indonesia missing out on opportunities stemming from the West’s decoupling from China, while also noting that Jakarta needs to speed up industrial and regulatory reforms.
“This is a consequence of having a bloated cabinet; it slows down internal coordination,” Andry Satrio Nugroho, head of the Centre for Industry, Trade and Investment at the Institute for Development of Economics and Finance, told The Jakarta Post on Wednesday.
While other countries were moving closer to the United States to attract spillover investments from China and even Vietnam, Indonesia was bogged down by internal consolidation and cabinet programmes, he added, among other tasks, such as improving manufacturing and the business environment.
“The biggest fear is that Indonesia might again miss out on benefits during trade disputes, as happened in 2018,” Andry warned, referencing Vietnam’s substantial gains during the US-China trade war.
However, Vietnam is vulnerable to becoming a target of US president-elect Donald Trump’s tariff policy, as data shows its trade surplus with the US ballooning.
Vietnam benefited from US trade barriers imposed on Beijing that spurred manufacturers to shift production out of China and “practically build its manufacturing industry” as a result of that massive spillover in 2018, Andry said.
Following Indonesia, government changes in the United States and EU heighten uncertainty in global trade and investment, as shifting political landscapes could reshape policies and impact investor confidence.
Krisna Gupta, a senior fellow at the Centre for Indonesian Policy Studies, said the EU’s rightward political shift might complicate further talks to wrap up IEU-CEPA negotiations.
In the future, the challenges to the deal with would be bigger, as Indonesia would need support for its accession to the Organisation for Economic Cooperation and Development.
“This is where Prabowo’s seriousness will be put to the test,” Krisna said. — The Jakarta Post/ANN
