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Indonesia Update: Regulatory developments in distribution and certain logistics related sectors in Indonesia

The difficulties faced by multinationals (including those in the consumer goods sector) in distributing their products in Indonesia are well known. The challenges of reaching a huge broken up archipelago, combined with outdated infrastructure and a complex regulatory environment, often result in time consuming and inefficient processes and logistics cost in Indonesia remains one of the highest in Asia. The recent advances made by the e-commerce sector in Indonesia have also increased the demand for more effective distribution and logistics services, as currently the benefits of transacting over the internet can be eroded by the difficulties in delivering goods purchased to customers. 

Hence, in this context, the recent liberalization of the certain distribution and warehousing business lines (increasing permitted foreign ownership of businesses in the sector to a maximum of 67%), as well as certain logistics supporting and coordinating business activities in Indonesia (e.g., freight forwarding, also to a maximum of 67% foreign ownership), in the recently issued Indonesian foreign investment list (“2016 Negative List”)1 is much welcomed. This is a step in the right direction by a government which is trying to arrest declining economic growth rates by leveraging off the spending power of the growing Indonesian middle class. 

However, despite the recent targeted liberalization in the 2016 Negative List, the regulatory landscape for the logistics sector as a whole remains complex. Broadly speaking, logistics activities involving actual “transportation” (e.g., courier activities), or ownership or operation of transportation-related infrastructure, remain subject to lower foreign ownership limits (typically, 49%). As such, the need for a case-by-case analysis of the specific activities of any proposed business in this area is still required to determine the exact extent of permitted foreign participation. 

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