Dec 13, 2012

Indonesia - Asean services to flood Indonesia

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Indonesia is slated to ratify the eighth package of the Asean (Association of Southeast Asian Nations) Framework Agreement on Services (AFAS) next year, which will further open the country's service sector to regional players.

The deal is a prelude to the establishment of the Asean single market in 2015 that will see free flows of labour, trade and services among the association's member nations.

AFAS ratification will affect sectors related to telecommunications, business services, education, tourism, health, recreation and logistics, covering around 22 subsectors, according to the Trade Ministry.

The agreement is expected to strengthen Indonesia's commitment to the liberalisation of the sectors by 2015.

"In 2015, companies [from other Asean nations] will be able to have as much as 70 per cent of foreign equity participation in Indonesia," said the ministry's director for trade and service negotiations, Sondang Anggraini, yesterday during a workshop hosted by the ministry.

The government is preparing several legal frameworks to further regulate the service trade that will help local firms to achieve greater gains from liberalisation, such as by selling services to other countries, according to Anggraini.

"The policy will help shift the country's source of foreign currency from the export of goods to the export of services," Anggraini said.

In recent years, Indonesia has seen a rise in the contributions made by the service sector to its economy.

Service-related sectors accounted for 53.13 per cent of gross domestic product (GDP) in 2011, up from 48.20 per cent in 2006.

Indonesia Logistics and Forwarders Association executive director Theo Kumaat was cautious about liberalisation in the logistics sector, as it would severely impact local logistics players still struggling with output inefficiency.

According to Kumaat, Indonesia's high costs of doing business had undermined its performance relative to its regional peers.

Indonesia ranks 59th on the World Bank's 2012 logistics performance index, lower than fellow ASEAN members Vietnam and the Philippines.

Despite the low ranking, Indonesia has seen a significant improvement in logistical handling competency and tracking systems, according to the World Bank.

"Most of our local companies are not yet ready to compete with regional players. If the government insists on liberalisation, I am afraid that local players will only deal with subcontracting work to serve foreign companies," Kumaat said.

The logistics sector, according to Kumaat, was still grappling with a shortage of skilled local workers. Opening more doors for more skilled foreign workers could result in jobs filling up once liberalisation takes place.

In anticipation of changes in labour regulations, local stakeholders are planning to set up an institution that will establish standards and certifications for both local and foreign workers.

Liberalisation of logistics services under the eighth AFAS comprises two major sectors: packaging and freight transportation, including maritime, freight, rail and road transportation; cargo handling services; storage and warehousing; freight transportation agency services; and courier services.

Indonesian Logistics Association chairman Zaldy Masita said the government should keep the 49 per cent cap for foreign ownership in local firms ahead of 2015.

"In general, our domestic players are not ready because there are so many issues that have yet to be addressed by the government. Only big local firms will thrive under liberalisation," he said.

At present, several foreign companies own majority stakes of up to 95 per cent in local logistics firms as they operated before the government included logistics on a list of investments restricted for foreign entities in 2010. At present, foreign ownership is capped at 49 per cent.

Linda Yulisman

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