Indonesian government caps new FDI in telecoms sector

5 Jul 2007

The government of Indonesia has adopted legislation to cap new foreign investment in the country’s telecoms market, the trade minister said on Wednesday. The move, which is designed to protect national interests, comes amid rising concerns from some Indonesian politicians over the growing influence of foreign businesses in what is currently Southeast Asia’s leading economy. New foreign investment in the fixed line market has been capped to 49% from 95%, while investment in the mobile sector is now limited to 65%, down from 95%. The trade minister said ‘The government put the national interest and the future of the nation first. Basic principles such as transparency and legal certainty are also important things that will affect the investment climate in Indonesia.’ The government will review the rules in three years.

Critics of the decision note that Indonesia needs high levels of investment in order to propel its economic growth, finance infrastructure projects and reduce unemployment. Some local analysts say the cap will have a benefit on incumbent operators, especially in the mobile sector, leading to a wave of market consolidation. Tjandra Lienandjaja, analyst at BNP Paribas Peregrine in Jakarta, said: ‘We already have too many players right now, this should reduce the stiff competition in the market.’ However, the new rules will be unwelcome to foreign investors which already complain about high levels of red tape, tough labour laws and an unreliable legal system which makes Indonesia a poor choice compared with some of its neighbours.

A number of international companies are already present in the Indonesian telecoms industry, says TeleGeography’s Globalcomms database, including Singapore’s ST Telemedia, which has a 41.94% stake in local telco Indosat. Other players include SingTel Mobile (35% of Telkomsel), Telekom Malaysia (59.67% of Excelcom via Indocel Holding), Malaysia’s Maxis Communications (51% of Lippo Telecom) and Hutchison Telecommunications International (60% of Hutchison CP Telecommunications).