Mon, 07 Aug 2000

Ban on foreign investment in dot-com firms upheld

JAKARTA (JP): The government defended here on Saturday its latest move banning foreign investors from entering multimedia businesses such as Internet Service Provider (ISPs), portals, e- commerce services and dotcom companies.

Riza Primadi, senior assistant on communications and media to the Minister of Investment and State Enterprises, said that the ban was needed to protect existing companies.

"We just want to give local players more space to develop their businesses. We hope to create a more level playing field for them by slowing down the arrival of foreign players," he told The Jakarta Post.

He said the measure was not really new because such businesses had been on the negative investment list for years.

The restrictions imposed on foreign investment in multimedia information services are contained in the new negative investment list issued by the government last week. Several other business sectors such the print industry, radio and television broadcasting, cable television as well as public transportation are also on the list.

The government has yet to formally announce the new regulation but a leak caused confusion among the country's mushrooming dotcom companies which mostly rely on foreign funds for continuing operations.

The dotcom companies are puzzled whether the new ruling affects their businesses because it only mentions "multimedia information services" on the negative investment list. There is not single word in the ruling which specifically mentions internet or dotcom businesses.

"All multimedia, including internet services are now banned to new direct foreign investment," he told the Post. He emphasized that the multimedia information services as contained in the ruling included ISP, portals, e-commerce and all dotcom companies.

However, Riza said he was not certain whether services like web site development and e-business incubator were also prohibited to foreign investors.

"The ban is not meant to discourage foreign investors as they can still participate, but through portfolio investment on the stock markets," he said.

Existing foreign investors should not be worried because the new ruling on foreign investment does not affect them, he said.

He said the ban only affects new foreign direct investment proposals submitted to the government after July 20, when Presidential Decree No. 96/2000 on lists of various industries closed for foreign investments was signed by President Abdurrahman Wahid.

It meant that the existing dotcom companies could not receive new funds from new foreign investors, he said. But it is not clear weather foreign investors of unlisted dotcom companies could increase their equity.

Major existing internet-based companies are mostly operated by joint ventures of local and foreign firms, including news portal, which is jointly owned by local firm Agrakom and Hong Kong-based venture capital firm; consumer- based portal, which is owned by the international business information firm Castle Group and India-based Internet application developer Edge NetVentures; search engine portal, which is jointly owned by Singapore's Arboc Investments Pte Ltd., Hong Kong's Axiom Funds Management and Geneva-based Alternative Investment Management Group; and, in which foreign partners own up to 90 percent.

Even the country's first on-line credit card authorization dedicated to e-commerce service, Cipas Indonesia, was set up by Malaysia-based Sdn Bhd with its local partner PT Rajawali Tri Manunggal.

Sachin Gopalan, chief executive officer of the India-based Edge NetVentures that partly owns, said he hoped the decree would not affect internet business because "it did not mention anything about internet".

"But, if it did, the government is definitely taking a step backward... For the sake of the country's economy, I think you better allow foreign investment to come here," he said.

Eddie Darajat, director of financial news portal, in which up to 90 percent is owned by foreign investors, said the government must clarify its new ruling to avoid confusion among foreign investors.

"It's unreasonable to ban foreign investors from entering the internet business while the President himself has been begging for foreign investors to come here," he said.

Gopalan said Indonesia's prospective internet industry was one of the main attractions for foreign investors to come here.

"And it will remain the same in the next five years. But, the decree will likely change that trend," he said.

Indonesia is considered as a highly potential market for internet and e-business due to its huge population of around 210 million and predicted five million Internet users by 2002.

While Ai Mulyadi Mamoer, chairman of the information technology and multimedia division at the Indonesian Chamber of Commerce and Industry, said the decree would definitely discourage foreign investment.

He said it was feared that the banning of foreign investment would hamper not only the development of the country's internet industry, but also telecommunications because the government was expecting the rapid growth of internet use to help accelerate the growth of telephone use, especially mobile telephones. (cst)