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With a population of over 250 million, Indonesia is an attractive country for investors, particularly those interested in the distribution, retail and franchise sectors. But 2014 was a nervous time for new and existing investors in Indonesia, many of whom delayed any major actions to see how the country’s legislative and presidential elections would play out.
We would expect this situation to continue through the end of the year, despite Indonesia having elected a new President, Joko Widodo, on July 9. Investors are expected to wait and see the direction of the new government and the economic policies of President Widodo, but there is optimism. With his call “to work, work, work” in his inaugural address, President Widodo has engendered hope for a better business environment in Indonesia.
Investors in the franchise sector though must first be aware of the latest changes to franchising regulations issued by the Ministry of Trade just prior to President Widodo’s inauguration on October 20.
Before the latest changes, franchising regulations were covered under the following:
On September 17, 2014, the Ministry of Trade issued two amendments to the above regulations, as follows:
MOT Reg No. 57 changes the requirements and procedures for a franchisor to obtain a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba or STPW). Before entering an agreement with a franchisee, a franchisor in Indonesia must register a franchise prospectus with the Ministry of Trade to obtain the STPW. Under MOT Reg No. 57, instead of directly registering the franchise prospectus, a franchisor must first submit a copy of the draft master franchise agreement of the franchisor. Previously, a franchisor would submit a draft of the franchise agreement together with the franchise prospectus. The Ministry of Trade would then have two working days to review the documents and issue the STPW.
With the new requirement, the Ministry of Trade is strengthening its review process. The ministry now has 20 days to review the draft master franchise agreement of a franchisor to ensure it does not violate Indonesian laws and regulations. If it is found to be in violation, the franchisor cannot register its franchise prospectus.
In the food and drink franchise business, one of the most attractive areas of the franchise sector in Indonesia, MOT Reg No. 58 now provides administrative sanctions for failure to comply with the requirement for franchisors and franchisees in the restaurant, diner, bar/tavern or cafe business to report to the Ministry of Trade any change in the number of outlets that are self-owned and self-managed, franchised or opened through a capital participation system. Administrative sanctions include warning letters up to the revocation of the STPW. We view these new sanctions as the Ministry of Trade pressuring franchisors and franchisees to comply with reporting rules to help the ministry exercise greater supervisory power over one of the most attractive franchising sectors in Indonesia.
There is some good news for existing franchisors and franchisees. MOT Reg No. 58 now allows franchisors and franchisees in Indonesia that owned more than 250 food and beverage outlets as of September 17, 2014, to continue to operate and own their outlets. Under the previous regulation, they had five years as of February 11, 2013, to comply with the requirement that they own and operate a maximum of 250 outlets.
SSEK - 22nd December 2014
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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