Indonesia is Southeast Asia’s largest economy. Not only does it have the largest population, it is also home to 260 million young Indonesians, which is the highest in the region. Coupled with the fact that Indonesia’s economy has been growing steadily over the past decade, the country makes for one of the most attractive locations to invest in the region — and Singapore has taken notice. In fact, according to a recent survey conducted by the Singapore Business Federation, almost half of 1,100 Singaporean firms ranked Indonesia as their top overseas destination for investment. In view of the recently introduced Omnibus Law in Indonesia, how will that impact Singaporean businesses looking to invest there? What about existing Singaporean businesses with operations in Indonesia?
In order to better comprehend the Omnibus Law and its economic implications, Page Executive recently held an exclusive webinar specifically for business leaders in the manufacturing sector. However, even though the webinar covered a lot of grounds with regard to the Omnibus Law, there were questions left unanswered due to time constraints.
To tie up those loose ends, we have collated the most frequently asked questions about the Omnibus Law and tapped experts to answer those very questions.
General inquiries about the Omnibus Law
Question: The Omnibus Law has been passed but has yet to be implemented — what does that mean? Is there a waiting period that businesses need to be aware of?
The Omnibus Law has already been approved and signed off by Joko Widodo, the President of Indonesia. At the time of writing, derivative laws have also been signed, which include 46 Government Regulations and four President Regulations. Since the Omnibus Law became effective upon the signing date, which was 2 November 2020, there is no waiting period planned.
Question: Does the Omnibus Law apply to new industries or existing industries?
The Omnibus Law is applicable for both new investors and existing companies.
Question: Do expatriates in Indonesia receive an exemption of work visa due to the Omnibus Law?
Yes, but it only applies to startups with urgent need of expatriates and only for short-term stays that last no more than three months. Furthermore, this rule applies only to specific technology- and vocational-based sectors, business visits, as well as equipment installation. For longer-term hires of expatriates, an Expatriate Hiring Plan (RPTKA) is still required.
Question: The resistance against the Omnibus Law is substantial. Will it still be implemented?
Yes, the Omnibus Law has already been signed by Joko Widodo, the President of Indonesia, and is now legitimate for implementation.
Question: Is the Manpower Law No.13/2003 still valid?
Yes, the Manpower Law No.13/2003 is still valid, unless it is revoked by the new law or the derivatives law. Several chapters within Law No.13 have been revoked or improved upon, but the rest remains the same.
How will it impact employee contracts?
Question: Should we base our severance pay calculation on the Omnibus Law or the Law. No.13/2003?
Base your severance pay calculations on the Omnibus Law (UU No.11 Year 2020 — Cipta Keria).
Question: What if the current Benefits and Terms & Conditions are higher than what’s stated in the Omnibus Law? Should we negotiate with the Union or can we lower it on our own accord?
When a law is implemented, it becomes normative. In other words, what’s stated in the law becomes the expected minimum amount given to employees. However, if the company is able to afford better benefits, it is up to the company itself to do so.
Question: What will most companies do with the employees that are currently on their termination/retirement benefits? Will and should they keep implementing the old law?
Defer to the Omnibus Law for calculation and benefits. There is a specific derivative law that pertains to termination/retirement benefits.
Question: In view of the Omnibus Law, should companies renegotiate and/or resign existing contracts with their employees?
The law states that all valid contracts must conclude before a new one can be renegotiated or resigned.
Market trends for Industrial & Logistics sectors
Question: Since the Omnibus Law was signed, have there been more international companies entering or investing further into Indonesia?
We have not come across any company that has entered or invested in Indonesia specifically because of the Omnibus Law. With that said, there have definitely been more discussions around setting up businesses in Indonesia.
Question: Nearly half, or 44%, of all Industrial & Logistics companies responded that headcounts will remain the same in 2021. Is this an indication that the sectors are hesitant to automate their operations?
Automation requires further capital investments. Given the current pandemic, most manufacturing would rather make full use of the resources that they currently have.
Question: There have been a significant number of senior leaders looking for opportunities elsewhere — is this a pattern that you have noticed within the industry also?
We are indeed seeing a lot of movements specifically in the Chemical Manufacturing, Packaging and Logistics sectors. Most of these senior leaders, especially expatriates, are seeking new opportunities due to several reasons, such as restructuring and redundancies, as well as personal reasons to return to their home countries.
Question: One big challenge is to look for prominent partners that are capable of delivering nation-wide logistics services. Unfortunately, these partners are hard to come by. Will the Omnibus Law have an impact on the situation?
Yes, we believe that the Omnibus Law will replace the older, more inflexible labour rules that greatly disadvantaged employers. The amended provision will offer more flexibility when hiring contractors or outsourcing workers, which will in order help companies adapt to change.
Question: With the Omnibus Law in place, do you foresee MNCs moving their headquarters from other Asian countries to Indonesia?
We have not seen any drastic changes as of the time of writing. However, a growing trend on the Manufacturing and Logistics fronts is that Indonesian Managers and Directors are holding more regional roles that cover other Southeast Asian countries while being based in indonesia. Previously, these roles would be based mainly in Singapore, Malaysia or Thailand.