On 5 October 2020, the House of Representatives gave its approval to the “Omnibus Law”, which is also referred to as the ‘UU Cipta Kerja”. Then, at 2 November 2020, President Joko Widodo formally announced the legislation. It is important to note that while the law has been enacted, certain parts will not take effect until the relevant implementing regulations or derivative regulations have been enacted.
The omnibus law represents a substantial reform, as it encompasses numerous areas of reform simultaneously. A number of international institutions, including the World Bank, have publicly endorsed the implementation of the omnibus Law, which represents the most extensive and comprehensive competitiveness reform to date.
The fundamental purpose of the establishment of Law Number 11 of 2020 on omnibus law, as elucidated in Article 3, is as follows: (a) The creation and increase of employment is to be achieved by providing convenience, protection, and empowerment for cooperatives and small and medium enterprises (MSMEs) as well as national industry and trade. This is to be done as an effort to absorb the widest possible Indonesian labour force, while still paying attention to balance and progress between regions in the national economic unity; (b) It is to be guaranteed that every citizen will receive a job and receive fair and decent compensation. (c) Adjusting various regulatory aspects related to the alignment, strengthening, and protection of cooperatives and small and medium enterprises (MSMEs) and national industries; (d) Adjusting various regulatory aspects related to improving the investment ecosystem, ease and acceleration of national strategic projects oriented towards national interests based on national science and technology, in alignment with the ideological direction of Pancasila.
There are ten main clusters of policy focus are as follows: investment development and licensing simplification, research and innovation, human resources, empowerment of Micro, Small and Medium Enterprises (UMKM), Investment Management Institutions (LIPI) and national priority programs, ease of doing business, Special Economic Zones (KEK), government administration, land management, and legal enforcement and protection.
Quoted from the Job Creation Law Booklet published by the Indonesian Ministry of Economic Affairs, broadly speaking, the benefits of the Omnibus Law are to improve the investment climate and realize legal certainty. The following are the benefits of the Omnibus Law:
- Simplify of Licensing
The Omnibus Law has a beneficial impact on the simplification of licensing in business. This is achieved by simplifying and integrating basic licensing from a number of laws related to location, environmental and building permits.
Two clusters of licensing simplification can be identified. The first of these, Business Licensing Simplification, is included in cluster I of the Omnibus Law and comprises several points. The initial alteration pertains to the concept of a business activity licence, which is transformed into an application of standards and a risk-based approach (RBA). The scope of business sector licensing in cluster I encompasses 15 sectors, including agriculture, forestry, marine and fisheries, energy and mineral resources, nuclear power, industry, trade, medicine and food health, tourism, education, religion, transportation, PUPR, post, telecommunications and broadcasting, and defence and security (Hankam).
Cluster 2 of the investment requirements encompasses six business activities that are closed to investment based on national interests, principles of propriety and international conventions. These are gambling and casinos, the cultivation and production of class I narcotics, the chemical weapons manufacturing industry, the ozone-depleting substances (BPO) manufacturing industry, the capture of fish species and the utilisation
- Achieving quality of investing
The objective is to achieve quality investment, which can be defined as encouraging investment in accelerating economic transformation. In order to accelerate economic transformation, it is necessary to increase investment in line with Indonesia’s increasing international competitiveness.
The minimum capital requirement of IDR10 billion remains in place. In general, any foreign investor is required to provide the company with a minimum capitalisation of the aforementioned amount, with a 25 percent payment due at the time of establishment. It should be noted, however, that there are certain exceptions to this rule. In order to facilitate the development of Special Economic Zones, Presidential Regulation No. 10/2021 stipulates that the restrictions on business activities that are open with certain requirements do not apply to investment in Special Economic Zones. Furthermore, with regard to foreign investment in technology-based start-ups in Special Economic Zones, Presidential Regulation No. 10/2021 permits the investment value to be less than the conventional minimum investment value requirement for foreign investment, namely IDR10 billion (exclusive of land and buildings). This represents a positive development for foreign investors, a considerable proportion of whom were previously unable to invest in Indonesia due to the prevailing minimum capital requirement.
- Creating quality jobs for welfare
The Omnibus Law is beneficial for quality job creation through arrangements related to increasing government investment and accelerating national strategic projects.
The law is designed to facilitate the creation of quality employment opportunities by providing a framework for increased government investment and the acceleration of national strategic projects.
The omnibus law was drafted with the objective of fostering prosperity and providing assistance to those seeking employment in Indonesia. The omnibus law stipulates that the government will foster the creation of labour-intensive jobs, particularly in the textile industry, the production of snacks, and the manufacture of beauty products, among other sectors. The omnibus law’s primary objective is to ensure equal employment opportunities for Indonesian citizens, irrespective of their geographical location. These workers will also receive remuneration in accordance with the minimum wage applicable in their respective provinces. It is anticipated that the omnibus law will enhance investment prospects in Indonesia and foster a more conducive business environment, thereby creating additional employment opportunities.
- Empowerment and protection of small and medium enterprises (UMKM) and cooperation
The Omnibus Law on Job Creation also provides benefits for higher productivity for micro enterprises. This enables the empowerment of small and medium enterprises (UMKM) and cooperatives to enhance their competitiveness.
The new omnibus law is a great step forward for Indonesia. It’ll help the country to improve and prosper by creating new jobs for the many productive-age Indonesians who are currently struggling to find work.