President Joko “Jokowi” Widodo has ordered the Investment Coordinating Board (BKPM) to handle all forms of licensing previously handled by a variety of government institutions in a move that is expected to facilitate business in Indonesia.
The change will grant greater authority to BKPM head Bahlil Lahadalia, who was also assigned to simplify the licensing process so that Indonesia could improve its Ease of Doing Business (EODB) ranking. On top of these efforts, Jokowi has targeted 40 ministerial regulations thought to hamper investment to be revoked by December.
“The President has decided that the authority to license will rest fully with the BKPM, particularly [licenses] that pertain to the ease of doing business,” Cabinet secretary Pramono Anung said at the Presidential Office after a Cabinet meeting on Thursday.
“But the President also gave a target that, with the full authority of the BKPM, by 2021 Indonesia’s ranking would reach 50th and head to 40th,” added Pramono, referring to the World Bank’s EODB index. Indonesia’s EODB rank stagnated at 73rd in October while neighbors Malaysia and Thailand fared better at 12th and 21st, respectively.
The government has been striving to attract more investment to the country to spur economic growth, which slowed to its lowest rate in more than two years in the third quarter. Investment growth, which accounted for about a third of the country’s gross domestic product (GDP), fell to 4.21 percent in the third quarter from 6.96 in the same period last year, Statistics Indonesia (BPS) data shows.
Jokowi will issue a presidential instruction (Inpres) as a legal basis for the BKPM’s expanded mandate, Bahlil said. The investment board will soon add staff from various ministries to process licenses from business sectors.
“Officials from the line ministries will report from the BKPM office so that [the licenses] will only be processed there,” added Bahlil.
He added that the overlap in authority across ministries and government institutions was one of the causes of the subpar performance of the government’s Online Single Submission (OSS) system, a web-based licensing portal launched in June of last year to cut red tape and streamline licensing procedures across all levels of the government.
“With the OSS, [investors] can get the business registration number within three hours, but the number cannot be used to realize their business activities, because they have to obtain licenses from ministries, government institutions or regional administrations,” said Bahlil.
“That happens because the licensing [process] is not centralized at the BKPM.”
To tackle the issue, Bahlil said he had secured commitment from leaders of regional investment agencies (DPM PTSP) from across the country in a recent coordination meeting to integrate the regional OSS systems with the central government.
Leaders of regional investment agencies around the country have said that licenses often stall when DPMPTSPs send paperwork to regional government offices or central government ministries.
DPMPTSP West Sumatra head Maswar Dedi said his institution “completely agreed” with the plan, saying it would create a quicker and simpler process.
“So far the condition has been that the BKPM receives requests [for licenses] but the process lies with ministries and this takes a long time with an uncertain processing time. We can only wait for ministries’ responses to proceed with licenses,” Maswar told the Post.
“If the BKPM is given the authority to process all licenses, we agree, as long as we are protected, there’s a clear legal umbrella. Otherwise there will be no protection for the BKPM.”
Businesspeople welcomed the plan cautiously as it would require regulatory breakthroughs from both central and regional governments to be realized.
Indonesian Employers Association (Apindo) chairman Hariyadi Sukamdani said the move was long awaited by investors to address the “classic” issue of overlapping authority between different government institutions.
“The problem is the commitment of the regional administration. If they don’t commit [to Jokowi’s directive] it will be difficult,” Hariyadi told The Jakarta Post. “The problem is always in the execution.”
Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for international relations Shinta Kamdani also said that the business community was “supportive” of the President’s policy, although with three important notes.
First, the law that requires ministries to give business licenses needs to be revised. “This problem can be addressed using the Omnibus Law that overwrites laws that rule over existing licenses […] although there will still be a transition period of at least one to six months to guarantee business certainty for investors,” Shinta explained.
Second, as Hariyadi highlighted, half of the work on synchronizing licenses lies at the regional government level. Jokowi, in his first term, attempted to cut 3,000 regional government regulations considered unsynchronized by central government rules, but the Constitutional Court has ruled that a central government regulation cannot overwrite regional government licensing capacity, she added.
“If the BKPM is fully functional as a license center in Indonesia, regional governments need to voluntarily yield their licensing authorities to the BKPM,” Shinta said.
Third, in order to centralize all licenses with the BKPM, all ministries, government agencies and regional governments need to be well connected to the OSS system for uniformity and synchronization at all levels, she added.