Investment Regulation, What Attract The Investors ? 

“Analisa” Daily, July 16, 2007.

An article by Iman Sjahputra, SH, SpN, LL.M. 

Two of the implementation laws of the Law No. 25 Year 2007 regarding the Capital Investment (PM) which are Presidential Decree No. 76 and No. 77 Year 2007 have been promulgated. The main purpose of the promulgation is to attract the investment in this country.

As the implementation law the two of the Presidential Decree (Perpres) have been awaited so long by the investors. The Presidential Decree No. 76 is regulating about the criteria and requirements of the opened and closed business areas which is more popularly known as the Negative Investment List. Related to the above the Presidential Decree No. 77 is regulating about the business fields involved.

Both regulations are intended to attract and withdraw the investors either domestic or foreign. All of us might still remember that since Soeharto was overthrown, the macro economics of Indonesia was declined. The development in all areas was stuck, stopped and cannot move properly or as expected. Besides that the banking sector expected to "back up" the businessman feared to give credits. As the result the business world was collapsed.

In the middle of political euphoria and the reformation, alongside with the changing of the country’s leader, starting from the leadership of BJ Habibie, Abdurrahman Wahid (Gus Dur), Megawati Sukarnoputri, untill Susilo Bambang Yudhoyono, can be said that almost in this recent ten years Indonesia has been suffered. The Indonesian economics do not show any better movement.

It is true that from the statistic data released by the government shows the increase number in the investment sector annually. The Indonesian Investment Coordination Board (BKPM) in every six months always affirms the existence of investment increase. But we shall realize that the “approval of investment” from BKPM cannot guarantee that all the approved investment will be the same in field or reality. This means that the investors may request investment permits in front, but when it comes into the investment appliances stage, many of them will take "wait and see" action. Why this kind of action always happens? It is because the investors are still trying to estimate the benefits of having investment in Indonesia.

So by publishing the two implementation laws as above can withdraw the enthusiasm of the investors to Indonesia? Nobody can guarantee! That is the answer. We need understand that in having the investment in Indonesia, the investors generally will take various considerations. One of the considerations is about the profit factor. How far is the profits can be expected in having the investment as planned? For example in the ready medicines – drug raw material pharmacy industrial project which is concerning to the life of many people, then how far is a foreign investor may invest their capital in Indonesia as the consequences of opening a manufacturing company in Indonesia? The Presidential Decree No. 77/2007 stating that the foreign investors are entitled to hold the 75% shares of the capital shares. On the other hand the previous regulation of the Presidential Decree No. 96 Year 2000 allowed the foreign investors to hold 100% of the shares.

From foreign investors’ point of view, this shares composition changing is not made for their favor because they cannot occupy all the shares of the established company. Moreover in case of the allowed equal shares compositions of 50% between foreign and local investors. This situation is very complicating their legal position since each of them would have an equal legal position whenever the dispute is arisen among them because legally they have the same legal position.

It is quite often where in a General Meeting of Shareholders (GMS) of a foreign investment limited liability company cannot take a legal and binding decision because one of shareholders of the company is not attending the scheduled meeting and consequently the company cannot reach the valid quorum for such meeting.  Consequently it will harm the company. We might use the nationalism idea to justify the foreign shares limitation in a company, but is it really gives positive effect on the growth of real sector nationally? Actually the shares composition matter is depended more on how we arrange the same in the agreement to protect the local shareholders. For example it depends on how we manage the same in a franchise agreement where in a franchise agreement is governed about each of the Franchisee and Franchisor’s rights and duties.

The clauses regarding the transfer of technology, know-how and management training are always be disobeyed by the Franchisee. The result is that after years of franchise, the Franchise does not receive any knowledge from the Franchisor, but they tents to be the executioner/user of such franchise. Consequently the Franchisee as the national investor cannot develop its business for other businesses since the experience gathered from the said franchise cannot be fully obtained.

That is why in the future we need to think about a regulation that will be produced by the government to replace the Governmental Regulation No. 16 Year 1997 regarding the Ministry Regulation No. 12 Year 2006 regarding the Definition and Process of the Franchise Business Registration Permit Issuance in protecting the Franchise to be improved. In order to make this country not only as the user and never become as the creator.

* The writer is an Intellectual Property expert and the Managing Partner of Iman Sjahputra & Partners in Jakarta.