Government Policies and Expat Employment in Indonesia

The number of expat workers in Indonesia continues to decline this year due to low commodity prices and the government tightening rules related to employing foreigners, according to a mid-2016 report from local business portal Indonesia-Investments.

In the first five months of last year, a mere 72,399 temporary residential permits (including renewals) were issued to expats. The chances are slim that the number of foreign workers in the archipelago during 2017 will equal the 171,944 expat workers that were active in 2015.

Experts say the main reason for fewer incoming foreign workers is the fact that consistently low commodity prices have led to a slowdown in exploration and production within Indonesia’s oil and gas sector.

Chevron Indonesia Company (the local subsidiary of US-based Chevron) is an interesting case. Last year, the business announced that it would give back all of its oil and gas assets in the East Kalimantan block to the government by October of 2018.

France’s Total and Japan’s Inpex – each holding a 50 percent stake in the Mahakam block – will see their production sharing contracts with Indonesia come to an end this year due to the government not extending their contracts.

Instead, the country’s state-owned Pertamina and the regional East Kalimantan government will grab 70 percent ownership of the Mahakam block next year and the remaining 30 percent will be divided between Total and Inpex.

Most people who care about news related to the employment of foreigners in Indonesia will be aware of the massive dispute between American mining giant Freeport-McMoRan and Indonesia. Essentially, the government has asked Freeport to divest 51 percent of its ownership stake in the Grasberg mine in Papua, build a smelting plant of its own and pay an export tax with rates linked to the progress of said smelter construction.

The company employs approximately 32,000 people in Papua and has already laid off 10 percent of its expatriate workforce as a result. It plans to dismiss more contract workers if the production halt continues.

Policy plays like this are what will continue to reduce the number of foreign workers in Indonesia. But apart from the country making moves to take back more ownership of its natural resources, the government also aims to address the issue of unemployment in the nation.

Early 2016 stats show that nearly 5.5 percent of the population is unemployed, and a sizable portion of that number includes skilled professionals. Government policy is clear that it doesn’t want a firm in Indonesia (be it foreign or local) to hire an expat for a role that can be done by an Indonesian.

Essentially this means young foreigners with little work experience will only end up in Indonesia as English teachers or a volunteers. Although it’s important to note that along with the country’s Internet business boom, some people in their mid- and-late 20s do get parachuted into Indonesia by company builders like Rocket Internet to work at digital startups.

Additionally, the government claims to have begun reworking its oversight system on foreigners amid growing concerns of expats exploiting their visas to work in the country illegally. Coordinating Political, Legal and Security Affairs Minister Wiranto said in January that Indonesia would set up a task force to monitor the movement of foreigners entering the country.

“The monitoring will ensure foreigners who enter and move across Indonesia do not have a hidden agenda, such as working illegally, or even committing terror acts or being involved in the illegal drug trade,” the minister told reporters.

The task force is supposedly designed to fill a gap in the current system, which is more geared towards monitoring foreigners when they entered the country, yet inevitably lost track of them when they moved to other areas, he added.

National Police Deputy Chief Comr. Gen. Syafruddin said the task force would be similar in nature to the foreigner oversight team under the National Police, which was established by the Suharto administration but later dissolved by a 2011 immigration law.

The announcement of said task force comes after a crackdown on foreigners violating visas in Indonesia in 2016. Data from the Law and Human Rights Ministry’s Directorate General of Immigration showed that last year, 7,787 foreigners (the largest portion of whom were from China) were penalized for violating immigration policy.

In order for a business in Indonesia to hire an expat, it must have permission from the government. Getting this permission can be a long and arduous process, one that is expensive for the company and laden with difficult bureaucracy. Hiring a foreigner is not a decision taken without careful consideration by most companies.

The government’s policy states that expats working in Indonesia need to be ‘experts’ in their industries, effectively meaning the candidate must have five or more years of experience. In the case of native speaking English language teachers, however, this usually doesn’t have to be the case.

For the the government to grant permission to a business looking to hire foreigners, the company needs to show precisely why the job needs to be occupied by a foreigner. It also needs to prove that the expat has the proper and relevant education for the role.

It also needs to make it through an interview with the department of manpower and offer a plan to the department which shows an open slot in the business for a new employee.

After all the dust settles and the visas and documents are issued that make the foreign employee legitimate, the company must also pay a monthly tax of roughly US$100 for each expat it brings aboard. This money goes to the manpower ministry, which in turn is supposed to use it for the sake of training Indonesian workers and levelling up their skills in certain sectors. This tax alone results in an approximate US$1,200 annual cost for employing one foreigner.

For this reason, the upfront expenses are high as this monthly fee must be ready immediately. However, it’s worth noting that the employment taxes are relatively low compared to developed countries. The total cost of hiring a foreigner is not exactly low but it achieves what the law intends to – qualified local candidates have an advantage over similarly qualified foreign ones.

But in spite of the government’s protectionist attitude towards the employment of foreigners in Indonesia, in recent months, President Jokowi has said he would like foreigners to run some of Indonesia’s big state-owned businesses for the sake of knowledge transfer to the locals.

“The bottom line is that foreigners could temporarily lead and manage some state-owned enterprises so that those companies could progress rapidly,” suggested the president.

“But we would retain ownership [and these] companies should remain state property.”

Several of the government’s initiatives – namely an ambitious infrastructure push for the archipelago – rely on foreign investment. Critics will argue that Indonesia, through its policy plays, aims to have all the benefits of foreign talent and money (e.g. teaching locals how to replace their foreign counterparts, setting up infrastructure and operations for oil, gas and mining sectors, and more), but without the pesky caveat of letting foreigners easily own or control much of anything in reality.

Those at the opposite end of the spectrum are sure to argue the counterpoint, which is that Indonesia needs to protect its resources and find smart ways to solve its unemployment problem.

 

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Leighton Cosseboom covers a variety of topics related to news, business, and technology in the region.


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