For all the talk of sluggish economic growth in 2018, Southeast Asia’s largest economy had a number of bright spots, including infrastructure spending, a jump in tax revenue and a booming digital economy. And the legal market became increasingly competitive as clients became more demanding. Lawyers in Indonesia talk about the trends they saw in 2018, and what we can expect this year.
Mohamed Idwan (Kiki) Ganie, managing partner, Lubis Ganie Surowidjojo
ALB: Looking back, what were some of the key trends in Indonesia’s corporate legal space in 2018?
Ganie: There was, in our view, more legal work generally on the market in 2018 than in the years before (i.e. high demand of legal services) although, in our view, more of corporate dispute and debt restructuring work compared to corporate transaction work. Concurrently, the number of lawyers and law firms, domestic and foreign/global, has increased beyond the increasing demand for legal services. This has created a competitive market, to a lesser extent among big domestic firms but primarily among the many mid-size and “start-up” firms.
For firms focusing almost exclusively on corporate transactions (non-dispute work), including big domestic and global firms exclusively focusing on corporate transactions, it may not have been an easy year, we assume.
Generally, an increasing “more for less challenge” (i.e. more services at lower cost) and “more with less challenge” (i.e. more services within less time) is imposed by clients on firms of all sizes. Firms have to be ready for this new paradigm.
We also see an increasing number of in-house legal departments serving their companies routine/recurring legal needs while dispute work or non-routine matters are still being referred to external counsel. On the other hand, in terms of quantity, in-house legal departments have become the main purchasers of external legal services.
ALB: Do you expect these to continue into 2019?
Ganie: We expect these trends to continue in 2019. Big law firms must be able to benefit from their size and apply an economy of scale for the benefit of their clients. Technology helps, provided that the right support system, in terms of legal project and time management, exists in the first place. Clients (rightfully) also expect an increasing level of responsiveness, accessibility, speed and reliability from their lawyers.
ALB: What were some of the important developments in the country’s business and investment landscape in the past year?
Ganie: It has not all been economic doom and gloom this year. Some sectors reported positive growth, particularly in the administration’s infrastructure drive, tax revenue and the booming digital economy. Natural and man-made disasters, however, overshadowed growth in tourism and the transportation sector.
There has been significant growth only in selected sectors, for example the digital economy. Also, there has been less new foreign investment from our observation. For foreign investors the decision to invest in Indonesia is a choice between a big domestic market and a fairly stable political situation, but still not enough regulatory certainty.
ALB: What were some of the trends in terms of the legal work your firm did in 2018? What did you see more, and less, of?
Ganie: Trends in legal work are basically a reflection of the economy and changing client needs. In our firm, more disputes, debt restructuring, enforcements and less of capital market transactions, less of new foreign investments and lesser M&A transactions (except in connection with debt restructuring and debt settlements). Whilst statistics look quite positive, the increasing number of cases of non-performing loans and debt restructuring we see in our firm leaves room for qualifications.
Fortunately, our firm focuses on both corporate transactions and corporate disputes. Our corporate transaction lawyers are trained dispute lawyers, and can adjust to the needs in changing economic climates and are capable to assist in both “good weather” and “bad weather.” The overall growth was still positive in our firm and slightly exceeded our conservative expectations at the start of 2018. Political stability has helped, and this is hoped to continue during the election year in 2019.
ALB: What are your predictions for 2019?
Ganie: Our prediction for 2019 is that this will continue. This will, of course, depend on developments in the global/regional economy. There will be lots of opportunities for clients, and therefore a need for legal services, but to benefit, everybody must be agile, innovative and be able “to sail against the wind” if necessary.
Ivan F. Baely, managing partner, IABF
ALB: Looking back, what were some of the key trends in Indonesia’s corporate legal space in 2018? Do you expect these to continue into 2019?
Baely: M&A, joint ventures, corporate restructuring and foreign direct investment were some of the key trends in Indonesia’s corporate legal space in 2018. In addition, the sector that was “booming” last year was fintech, especially peer-to-peer lending (P2P). We have assisted local and foreign investors in establishing and registering their P2P companies, acquiring shares in P2P companies and advising in data protection matters. We think that these trends will continue into 2019, especially after the first quarter, after the presidential election.
ALB: What were some of the important developments in the country’s business and investment landscape in the past year?
Baely: The issuance of Government Regulation No. 24 of 2018 regarding Electronically Integrated Business Licensing Service (GR No. 24/2018) was one of the most important developments in Indonesia’s business and investment landscape in 2018. GR No. 24/2018 regulates faster procedures in the issuance of business licenses in certain business fields through the Online Single Submission (OSS) system, which gives more benefits and certainty to the investors.
ALB: What were some of the trends in terms of the legal work your firm did in 2018? What did you see more, and less, of?
Baely: Our firm assisted various mergers and acquisition, joint ventures, corporate restructuring and foreign direct investment in 2018. We see more and more fintech related matters such as P2P, e-money and payment gateways in 2018. Meanwhile, we saw less of corporate matters related to mining in 2018.
ALB: What are your predictions for 2019?
Baely: We predict that there will be a lot of interest in information technology, especially about equity crowdfunding.
Denny Rahmansyah, managing partner, SSEK Legal Consultants
ALB: Looking back, what were some of the key trends in Indonesia’s corporate legal space in 2018? Do you expect these to continue into 2019?
Rahmansyah: In recent years, Indonesia has seen strong growth in the technology sector, particularly e-commerce and fintech, and infrastructure development.
With the advancement of technology, we witnessed an increase in e-commerce business establishment and transactions and fintech services such as payment gateways, e-money and peer-to-peer (P2P) lending in 2018. Along with this trend, we saw the Indonesian government trying to issue new regulations and amend existing regulations to ensure they remain relevant to the current environment and requirements. One example of this was the government’s implementation of a regulatory sandbox to align compliance and regulation with the rapid growth in the number of fintech companies.
As a result, there has been a tremendous growth in fintech transactions. For example, according to Indonesia’s Financial Services Authority (FSA) (Otoritas Jasa Keuangan or OJK), more than 70 P2P lending companies are now registered in Indonesia and there has been a more than 400 percent increase in the number of P2P lending borrowers. Given the enthusiasm of Indonesian consumers, we expect these trends to continue in 2019.
As for infrastructure, there has been marked growth in the number of projects being developed. We expect infrastructure will continue to be one of the main focuses of the government, as it continues to accelerate various infrastructure projects such as roads, power plants, ports, and railways through its infrastructure development program. The government is also inviting private parties to participate in infrastructure projects through various forms of cooperation, including public-private partnership. As a developing country, Indonesia’s growth will require the continued expansion and improvement of its infrastructure.
ALB: What were some of the important developments in the country’s business and investment landscape in the past year?
Rahmansyah: The government introduced an important development in Indonesia’s business and investment landscape by reforming the licensing process with the introduction of the Online Single Submission (OSS) system, a platform that aims to integrate Indonesia’s various business licensing systems, including licensing for foreign investment. The OSS system was initially aimed at speeding up the process to obtain business licenses and simplifying the license application process. Despite the sometimes-difficult transition from the previous systems to the OSS system, the government has been praised for working toward a more transparent and efficient bureaucracy, which will hopefully lead to a more investor-friendly climate.
ALB: What were some of the trends in terms of the legal work your firm did in 2018? What did you see more, and less, of?
Rahmansyah: In 2018, SSEK saw a significant number of investments in the fintech, e-commerce and infrastructure sectors. So far in 2019, we have already assisted with transactions involving the acquisition of start-up tech companies by established companies. We also advised several clients – state-owned enterprises and private companies through the PPP scheme – on their infrastructure projects throughout 2018.
On the other hand, last year saw a decrease in the number of investment in the mining and oil and gas sectors. This can be at least partly explained by the government continuing to impose stricter regulations on the mining and oil and gas business in Indonesia. Also, the government has declared its interest in taking control of natural resources operations from private companies in several areas of Indonesia.
ALB: What are your predictions for 2019?
Rahmansyah: We expect to see continued growth in terms of quality and numbers of electronic and technology-based services. We also predict that there will be a surge in investment absorption in various business sectors in Indonesia. This year, the government is planning to revise its Negative Investment List, which restricts or caps foreign investment in certain businesses, to expand investment opportunities in strategic sectors.
It is rumoured that the new Negative Investment List will allow 100 percent foreign ownership in more than 50 business sectors that were previously closed to foreign investment. In a public release, the government indicated that those business sectors being opened to foreign investors would include e-commerce, the cigarette industry, oil and gas construction services, drilling services, power plants with a capacity greater than 10 MW, data communication system services, and the over-the-counter drug pharmaceutical industry. While this new Negative Investment List is still in the process of being finalized, we predict that it will encourage foreign investment interest upon its release.
Mita Djajadiredja, M&A partner, Baker McKenzie
ALB: What were some of the important developments in the country’s business and investment landscape in the past year?
Djajadiredja: The regulatory development in 2018 was that the Financial Services Authority issued a regulation on innovation of digital financial technology, which introduced regulatory sandbox rules. In addition, the Financial Services Authority established the Innovation Centre for Digital Financial Technology in August 2018, which essentially functions as a place for collaboration and discussion amongst the industry, regulators, the Government, academics and other innovation hubs. In addition, Bank Indonesia also issued a new regulation on e-money and, as expected, the latest e-money regulation introduced a limitation of foreign ownership in e-money companies. In 2018, the On-line Single Submission (OSS) was introduced by the Indonesian Government and this simplifies the procedures for closing M&A transactions involving foreign investment companies as targets since the prior approval of the Investment Coordinating Board is no longer required. The procedures for establishment of companies are also simplified. However, the OSS required the Government to also deal with some issues in the implementation.
ALB: What were some of the trends in terms of the legal work your firm did in 2018? What did you see more, and less, of?
Djajadiredja: We were involved in certain M&A transactions as well as in business alliance transactions in the digital space in 2018, either combined together as a package or entered into individually, all of which were carried out with the purpose of creating connectivity through a digital platform. In addition, not only were transactions in those spaces done last year but the advisory space grew as well in relation to market entry into Indonesia. We expect that digital businesses, as well as connectivity, will continue to grow in 2019. Hence, we expect that more M&A and business alliance transactions, as well as advisory on market entry, will continue in 2019. We also believe the Government will continue to adopt new regulations dealing with digital businesses. In early January, the Financial Services Authority issued a new regulation on Equity Crowdfunding, and we expect that the Financial Services Authority and/or the Government will issue more regulations related to digital businesses.
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