Indonesia Loosens Regulations on Tobacco Investment

Cigarettes
FILE PHOTO: Packs of Gauloises cigarettes are on display in a tobacco shop in Vienna, Austria, May 12, 2017.
(Photo: REUTERS/Leonhard Foeger/File Photo GLOBAL BUSINESS WEEK AHEAD)

The Indonesian government recently announced that the country plans to liberalize the tobacco industry. As part of this plan, Indonesia is looking to loosen regulations when it comes to tobacco investment. This comes in a time when most of the world's countries are working hard to curb tobacco production and consumption in general due to the health risk that the product imposes on its users.

Indonesia is positive that by expanding tobacco investments in the country, it will eventually trickle down to the masses. The Southeast Asian country believes that tobacco investments will in turn help in job creation and improve export outputs, this is despite the fact that majority of the country's tobacco products are consumed domestically.

Aside from creating new jobs and boosting the country's exports, Indonesia's proposed plan is expected to reinvigorate its small and medium business industry. This is according to one of the country's top ministry officials. The plan is part of the government's effort to rework its negative investment list or DNI.

Due to various regulations levied upon the tobacco industry, both small and medium scale domestic producers were hurt by high excise tax rates. With this new plan, Indonesia is betting that that local tobacco industry will receive foreign investments which in turn will inject the much-needed capital for domestic producers.

Indonesia expects that this capital injection will then be invested towards the improvement of tobacco-related business and the hiring of more workers, according to the country's Director of Beverages Tobacco and Refreshments Abdul Rochim.

Indonesia's domestic tobacco industry, especially those small and medium businesses, was severely hit by the global decline in demand. According to government data, Indonesia boasted more than 2,500 small and medium tobacco business in 2011. This figure shrank to just 487 in 2017. This decline was due to a rapid increase in tobacco excise tax rates.

 From January to September of this year, Indonesia reported a total export of $906.2 million worth of tobacco along with its derivative products. This figure represents a growth by 7.11 percent over the same period last year.

Mr. Abdul said that the Industry Ministry is planning to impose a new regulation that will require new investments from major cigarette producers should be made within the country's bonded logistics zone in order to boost exports.

Aside from tobacco products, white cigarettes and cloves also made up a substantial portion of Indonesia's exports. These industries are part of a total of 49 business sectors which are expected to be opened to foreign investments once Indonesia adopts the relaxation of the new DNI.

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