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Will Indonesian regulation changes encourage investment?

For a country with one of the biggest populations on the planet and the largest economy in South-east Asia, Indonesia has lagged slightly behind in terms of investment in recent years, but the nation's new prime minister is taking steps to boost the amount of money being pumped into it and subsequently boost its attractiveness to global investors.

One of the fastest growing sectors in Indonesia is construction; something recognised by Joko Widodo, who has rolled out new measures designed to eventually make it easier and less costly for both domestic and international firms to invest in new building projects.

His latest announcement will allow state-owned firms to use their profits for capital expenditure, rather than sharing it with the government in the form of dividends - something which, if successful, could open the floodgates for new ventures

Immediate impact

Less than two months into his administration, Mr Widodo has already revealed that the dividend payment requirements for many of the 138 state-owned enterprises in the country will be reduced, providing that the firms use the money saved to develop their business operations and build new premises and infrastructure.

The intention, it seems, is to reduce the red tape that sees firms pay the state, only for the government to then use the proceeds to erect new buildings and provide other catalysts to boost business; instead, companies will now be able to have a direct effect, which not only saves time, but saves them money.

Although the initial measure will only affect state-owned firms, it is a move that could then be applied to independent companies - including those owned or operated overseas - which would have the added effect of boosting cityscapes.

Major changes

Ultimately, President Widodo is aiming to generate around $450 billion over the next five years, which will not only help so solve some of the infrastructure bottlenecks that have constrained growth in the country, but also improve business connections in major cities.

Commenting on the move, National Development Planning Chief Andrinof Chaniago said: "The performance of state-owned enterprises will not be based on their dividend payments or profits, but by their capital spending and the effect it has on development. This will be the new paradigm for SOEs."

With Indonesia's state-owned firms including the construction giant PT Wijaya Karya Tbk, and the Finance Ministry reiterating its support for firms willing to reinvest their money in bolstering new projects, the country looks set for an influx of new developments that will further galvanise its increasing prominence on the global stage.

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