IO – The government is targeting economic growth in the range of 5.3 – 6.5% per year in the National Medium-Term Development Plan (RPJMN) 2020 – 2024. To fulfill their plan, an investment of IDR 35,212.4 – IDR 35,455.6 trillion will be required throughout 2020-2024. Of the total, the government and State-Owned Enterprises (SOEs) will contribute 8.4 – 10.1% and 8.5 – 8.8%, respectively, while the remainder will be met by the public and the private sector. On the other hand, total investment realization in 2019 reached IDR 809.6 trillion, consisting of domestic investment (PMDN) realization of IDR 386.5 trillion (47.7%) and foreign investment (PMA) of IDR 423.1 trillion (52.3%). If the investment target of IDR 35,212.4 – IDR 35,455.6 trillion is to achieve economic growth of 5.3 – 6.5% per year, the realization of investment in 2019, which is only IDR 809.6 trillion, is still lacking.
This is caused partly because the climate of Ease Of Doing Business (EODB) in Indonesia is still not conducive. EODB Score In 2019 – 2020 improved from 67.96 in 2019 to 69.96 in 2020, but Indonesia’s ranking in Ease of Doing Business (EODB) is still the same, namely 73. Meanwhile, the rankings of several neighboring countries are better, like Singapore ranked 2nd with an EODB score of 86.2, Malaysia ranked 12th with a score of 81.5 and Thailand ranked 21st with a score of 80.1. Topics in the EODB that still need attention include starting a business, dealing with construction permits, registering property, trading across borders, and enforcing contracts, because the EODB ranking on these topics is still above 100.
The procedure of starting a business in Indonesia is considered relatively long and expensive; it is not surprising that in Indonesia starting a business ranking is 140. This is represented by the relatively difficult licensing process, which on average takes 200 days. Likewise in the case of enforcing contracts that are ranked 139 because of the long time and relatively expensive costs.
From 2016 to 2019, economic growth remained stagnant, at around 5%, along with a slowing investment trend that required a conducive investment climate that was notable by its absence.
Moreover, the amount of investment entering Indonesia is relatively slow, due to the fierce competition of Foreign Direct Investment (FDI) with other countries. World Development Indicators data (2019) shows that investment entering Indonesia is relatively small, while investment entering other countries is relatively increasing, such as in Malaysia, Thailand, Vietnam, and Cambodia.
Even the large amount of investment entering Indonesia has not been able to boost industrial performance. 2019 data from Statistics Indonesia (BPS) and the Investment Coordinating Board (BKPM) show that there are significant changes in the number of industries from 2016 to 2019, despite investment entering Indonesia as shown in the graph below.
Therefore, it is not surprising that investments entering Indonesia have not been able to create jobs. In fact, since 2017 the trend in the number of working people has declined, despite investment in Indonesia, as illustrated in the graph below.
Observing these conditions, the Government of Indonesia intends to improve the climate of ease of doing business with the Omnibus Law, although in fact the omnibus law has been debated since it was stated in President Joko Widodo’s inauguration speech in October 2019. Omnibus Law is cross-sectoral. Omnibus Law has more to do in the field of economics. The existence of the Omnibus Law is intended to simplify licensing of doing business in various sectors and to loosen investment requirements including those in the marine & fisheries sector; agriculture; forestry; energy & mineral resources; nuclear power; industry; trade, legal metrology, halal product guarantee & standardization & conformity assessment; public works & public housing; transportation; health, medicine & food; education & culture; tourism; religious; post, telecommunications & broadcasting; and defense & security. The problem is that the simplification of the regulations is implemented without efforts to improve the institutional aspects or the incentive system in the public sector.
For example, the Omnibus Law in the agricultural sector is intended to simplify 6 laws, including Law Number 39 of 2014 concerning Plantations, Law Number 29 of 2000 concerning Plant Variety Protection, Law Number 22 of 2019 concerning Agricultural Cultivation System Sustainability, Law Number 19 of 2013 concerning Farmer Protection and Empowerment, Law Number 13 of 2010 concerning Horticulture, and Law Number 18 of 2009 concerning Animal Husbandry and Animal Health as well as Law Number 41 of 2014. Simplification of regulations in the Omnibus Law related to agricultural land mentioned in article 44, paragraph one, where land that has been designated as sustainable food agricultural land is protected and prohibited from being converted. However, if the land is in the public interest and/or a National Strategic Project, the Sustainable Food Agricultural Land as referred to in paragraph (1) may be converted and exploited, following statutory provisions. Then Article 44 Paragraph 3 also states that the provision of substitute land for Sustainable Agricultural Land that has been converted for infrastructure due to disasters is carried out no later than 24 (twenty-four) months after the transfer of functions is carried out. Article 44 paragraph 2 implies that protected food agricultural land can be converted if the land is to be used for public interest and/or National Strategic Projects, but the public interest and national strategic projects are not yet explained in the article so that paragraph 2 is prone to be misused.
Related to the protection of farmers as stipulated in article 29, it is intended to provide facilities for the community, especially businesses in obtaining business licenses from the agricultural sector. Therefore, this Law amends or stipulates new provisions in several provisions regulated in Law Number 19 of 2013, concerning the protection and empowerment of farmers. One of the amended articles is article 15, which consists of only 2 paragraphs whereas Law Number 19 of 2013 article 15 has 3 paragraphs. According to the Omnibus Law article 15 paragraph 1 reads the Central Government made efforts to increase domestic agricultural production and paragraph 2 reads increase domestic agricultural production as referred to in paragraph 1 is carried out through the farmer protection strategy as referred to in article 7 paragraph 2. On the other hand, article 15 in Law Number 19 of 2013, paragraph 1 states that the government is obliged to prioritize agricultural production needs, while paragraph 2 states the obligation to prioritize domestic agricultural production as referred to in paragraph (1) is carried out through the regulation of agricultural commodity imports following the harvest season and/or the needs of domestic consumption, and paragraph 3 in the case of imports of related agricultural commodities, it must coordinate with the minister. Implicitly, article 15 paragraph 1 in the omnibus law only focuses on efforts to increase domestic agricultural production, not prioritizing domestic agricultural production. Then Article 15 paragraphs 2 and 3 of Law Number 19 of 2013 are replaced by Article 15 paragraph 2 of the Omnibus Law, but Article 15 paragraph 2 has a less detailed replacement of the strategy on how to protect farmers while in the previous Act the way to protect farmers is more detailed with the import regulation of agricultural commodities following the harvest season and/or domestic consumption needs, where the process of importing agricultural commodities must be approved by the minister. The loss of regulation on imports of agricultural commodities and coordination with relevant ministers raises the question of whether agricultural commodity imports are no longer regulated, and without considering the harvest season and the import process may be carried out without coordination with the relevant ministers. If this happens, agricultural commodity imports may increase in Indonesia, whereas one form of farmer protection is to import if farmers’ yields cannot meet domestic consumption and continue to strive to achieve food self-sufficiency domestically. The loosening of regulations for imports in the Omnibus Law raises concerns that farmers are not protected and the government is not working towards food sovereignty but only focuses on food security efforts. In other words, the most important thing is only how to meet domestic consumption both from domestic production and import as stated in the Omnibus Law article 30 paragraph 1 and paragraph 2. Different from article 30 paragraph 1 of Law Number 19 of 2013 which strongly emphasizes that everyone is prohibited from importing agricultural commodities when the availability of domestic agricultural commodities is sufficient to meet the consumption needs and/or government food reserves, while article 30 paragraph 2 of Law Number 19 of 2013 states that the adequacy of government food reserves as referred to in paragraph 1 is determined by the minister. This means that the minister’s authority to limit imports has been removed in the Omnibus Law.
Some provisions in Law No. 13 of 2010 concerning Horticulture were also amended, among others, articles 15, 33, 49, 52, 54, 56, 57, 68, 73, 90.92, 100, 101, 122, 123 and 126. Meanwhile, there are several articles in Law Number 13 the Year 2010 which are deleted, including Article 35, 48, 51, 63, and 131. Law Number 13 Year 2010 article 15 consists of 4 paragraphs, namely (1) Mandatory business actors prioritizing the use of domestic human resources; (2) Human resources from abroad can be utilized in the absence of domestic human resources that have certain expertise and abilities in the horticulture sector; (3) Human resources from abroad as referred to in paragraph (2) are utilized following statutory provisions after obtaining recommendations from business associations; (4) Further provisions regarding the qualifications of certain skills and abilities in the horticulture sector as referred to in paragraph (2) shall be regulated by Ministerial Regulation. Whereas in the Omnibus Law, article 15 is changed to only 2 paragraphs, namely (1) Business Actors in the Horticulture sector can utilize domestic and foreign human resources; (2) Utilization of human resources as referred to in paragraph 1 follows the provisions of the legislation. Article 15 paragraph 1 of Law Number 13 the Year 2010 reiterates that business operators must prioritize the use of domestic human resources, whereas human resources from abroad will only be used if there are no domestic human resources with certain expertise and abilities in the field of horticulture, so it can be said that the same article in the Omnibus Law does not prioritize the use of domestic human resources.
Furthermore, article 33 of Law Number 13 Year 2010 states that (1) Circulated horticultural facilities must meet quality standards and be registered; (2) If domestic horticultural facilities are inadequate or unavailable, horticultural facilities that can come from abroad can be used; (3) Horticulture facilities originating from abroad as referred to in paragraph 2 must be more efficient, environmentally friendly; and preferably containing components of domestic production, whereas Article 35 of Law Number 13 Year 2010 states that (1) Circulated horticultural facilities must meet quality standards and be registered; (2) In the case of horticultural facilities constituting or containing the results of genetic engineering, in addition to fulfilling the provisions of paragraph 1, their distribution must follow the provisions of the legislation in the field of biological safety; (3) If the quality standard as referred to in paragraph 1 has not been established, the Minister shall establish minimum technical requirements; (4) Provisions as referred to in paragraph (1) and paragraph (3) are excluded for local production horticultural facilities which are circulated in a limited manner in one group; (4) Further provisions regarding the procedures for quality testing and registration shall be regulated by a Ministerial Regulation. In contrast to article 33 of the omnibus law, article 33 summarizes article 33 and article 35 of Law Number 13 of 2010. The successor article in the Omnibus Law reads as follows (1) Horticultural business is carried out by prioritizing the use of domestic horticultural facilities ; (2) Horticulture facilities as referred to in paragraph 1 circulated must meet Business Licensing from the Central Government; (3) If horticultural facilities constitute or contain the results of genetic engineering, in addition to fulfilling the provisions as referred to in paragraph 2, their circulation must follow the provisions of the legislation in the field of biological safety; (4) Further provisions regarding Business Licensing related to horticultural facilities are regulated by Government Regulations. Therefore, with the amendment of article 33 and removal of article 35 of Law Number 13 the Year 2010, it means explicitly, Omnibus Law removes the authority of the minister because business actors can ignore quality standards and do not need to register with the relevant ministries. The authority of ministers was replaced by the authority of the central government and ministerial regulations were changed to government regulations. Omnibus Law in the same article also does not prioritize the use of domestic horticultural facilities and does not limit the use of foreign horticultural facilities as referred to in article 33 paragraph 2 and paragraph 3.
The Omnibus Law has abolished Article 48 of Law Number 13 Year 2010 concerning the classification of horticultural cultivation business units stipulated by ministerial regulation, meaning the Omnibus Law has removed the minister’s authority to categorize the horticulture cultivation business unit because in article 48 paragraph 1 of Law Number 13 the Year 2010 states that the classification of horticultural cultivation business units consists of micro, small, medium, large, and paragraph 2 states the classification of horticultural cultivation business units as referred to in paragraph 1 is regulated by Ministerial Regulation. The authority of the minister was also reduced by the Omnibus Law with the loss of article 49 paragraph 4 of Law Number 13, Year 2010 which reads further provisions concerning the data collection and licensing of horticultural cultivation business units regulated by Ministerial Regulation, and the abolition of article 51, article 52 paragraph (3), article 56 paragraph (5), article 57 paragraph (5) in the same law has reduced the authority of the minister. Likewise, regional authority is also reduced as stated in Article 49 Omnibus Law paragraph (1) Micro and small horticultural cultivation business unit must be recorded by the Government, while paragraph (2) reads Medium horticultural cultivation business unit and horticultural cultivation business unit companies must meet Business Licensing from the Central Government, whereas Article 49 of Law Number 13 the Year 2010 states very clearly the regional authority in regulating horticultural cultivation business as stated in paragraph (1), namely the micro and small horticultural cultivation business unit as referred to in Article 48 paragraph (1) letter a and letter b must be recorded by the regional government. The authority of the regional government was also reaffirmed in article 48 paragraph 2 of Law Number 13 of 2010, with the following: medium horticultural cultivation business unit as referred to in Article 48 paragraph 1 letter c and large horticultural cultivation business unit as referred to in Article 48 paragraph Letter d must be accompanied by a business license issued by the Government and regional government following their authority. The spirit of the Omnibus Law intended to reduce regional authority is also reflected in the amendment of article 52 and article 54 of the previous law. Article 52 paragraph (1), namely Horticultural Business as referred to in Article 50 must meet Business Licensing from the Central Government; (2) Further provisions regarding Business Licensing as referred to in paragraph (1) shall be regulated by Government Regulation, while article 54 of the Omnibus law paragraph (3) states that the Central Government fosters and facilitates the development of horticultural businesses to meet the quality standards and food safety of products; and paragraph (4) states that further provisions regarding the quality and food safety standards of horticultural products as referred to in paragraph (1) shall be regulated by Government Regulation.
The Omnibus Law has also abolished article 63 of Law Number 13 of 2010, which means the Omnibus Law does not regulate the import and export of seeds to and from Indonesia. Whereas in the previous law this matter was regulated, as the article 63 states as follows (1) Entry and release of seeds to and from the territory of the Republic of Indonesia must obtain a permit; (2) Entry of seeds into the territory of the Republic of Indonesia for commercial purposes must meet the specified quality requirements; (3) Entry of seeds into the territory of the Republic of Indonesia for commercial purposes is only permitted if it cannot be produced domestically or domestic needs have not been fulfilled; (4) Further provisions regarding the entry and release of seeds to and from the territory of the Republic of Indonesia as referred to in paragraph (1), paragraph (2), and paragraph (3) shall be regulated by Ministerial Regulation.
Once again, the partisanship for farmers who cultivate horticultural products is also not yet apparent in the Omnibus Law. This is reflected by the amendment to article 73 of Law Number 13 of 2010. The amendment to article 73 in the omnibus law reads as follows: (1) Horticultural product trading business regulates the process of buying and selling between traders and between traders and consumers; (2) Business actors trading in horticultural products must implement a product welding system based on quality standards and price standards in a transparent manner; (3) Further provisions regarding the obligation of a product welding system based on quality standards and transparent price standards as referred to in paragraph 2 are stipulated by Government Regulation, even though the same article in the previous Law stipulates that the business actors trading in modern market horticultural products are obliged to trade horticultural products in the country. Other articles that are aligned to loosen imports include article 88 paragraph 1 of the Omnibus Law which eliminates the sentence: Importing horticultural products must pay attention to aspects of the availability of domestic horticultural products.
Omnibus Law also opened the door to foreign investors more widely in the horticulture cultivation business as stated in article 100, while the same article relatively limited the space for foreign investors in this business. Article 100 of Law Number 13 the Year 2010 explains the rules of how foreign investors can invest in horticultural cultivation, as stated in the paragraphs of the article, including paragraph (1) The Government encourages investment by prioritizing domestic investment; paragraph (2) Foreign investment can only be carried out in large horticultural businesses; paragraph (3) The amount of foreign investment is limited to a maximum of 30% (thirty percent); paragraph (4) Foreign investors as referred to in paragraphs 2 and 3 must place funds in domestic banks in the amount of their capital ownership; paragraph (5) Foreign investors as referred to in paragraph (2) are prohibited from using credit from banks or financial institutions owned by the Government and/or regional governments. Omnibus Law gives more freedom to foreign investors by eliminating the obligation of foreign investors to transfer technology to domestic business actors as stated in article 101 of the omnibus law.
Finally, the enthusiasm of the government to increase investment into Indonesia by facilitating the business climate in agriculture is very much appreciated. However, after reading, and comparing the articles in the Omnibus Law with the articles in the same law, then digesting it turns out there are still many things that need to be examined. No wonder the Omnibus Law is still highly debated for its existence in the community because the enthusiasm of bringing businesses to do business in the agricultural sector turns out to be loosening imports to reduce protection for domestic agricultural commodities and domestic farmers, whereas the government needs to be concerned about realizing food sovereignty and not just in food security, meaning that the dream of food self-sufficiency must be realized not just looking for ways to supply food consumption needs in Indonesia. Besides, the Omnibus Law also provides more room for foreign investors who do business in the agricultural sector. Moreover, foreign investors who are engaged in the agricultural sector have no obligation to transfer technology, so that the Indonesian people will always rely on imports of agricultural commodities from abroad. The reduction of the authority of ministers and local governments to expedite the cultivation business of the agricultural sector must also be observed, lest this reduction of authority reduces the quality and merely loosens imports of agricultural commodities and allows more space for foreign investors. (Esther Sri Astuti)
Dr. Esther Sri Astuti S.A. Ph.D. is currently Program Director at INDEF (Institute for Development of Economics and Finance) in which she joined since 2008. She received her doctoral degree from Maastricht University. She is also a Lecturer in the Faculty of Economics and Business at Diponegoro University.