Since becoming Indonesian President, Joko Widodo has been eagerly pushing for more foreign direct investment (FDI) into Indonesia. Considering the country's household consumption has remained subdued in recent years, while the 2000s commodities boom ended quite some years ago and therefore dragged down Indonesia's export performance, Widodo regards FDI as a great source of structural economic development.

FDI opens up employment opportunities for the local population, brings new technology and knowledge to Indonesia, helps to integrate the domestic economy with the international economy, and - more generally - encourages rising economic activity as well as economic development. Hence, it makes sense that Widodo wants to see more FDI flow into Indonesia.

In fact, Indonesia is competing with several other emerging markets in the Southeast Asian region for FDI inflows. But to win this battle a conducive investment climate is required. This is a major bottleneck. Indonesia's competitiveness is undermined by weak infrastructure (giving rise to high logistics costs), a high degree of red tape, as well as a high degree of legal and regulatory uncertainty.

Widodo has been eager to improve the investment climate of Indonesia, for example by investing heavily in infrastructure development and reduce red tape (through deregulation). An example of the latter is Presidential Regulation No. 20/2018 on the Use of Foreign Workers in Indonesia. This regulation, which was signed last month, will make it easier for local companies to hire foreign workers once it comes into effect on 29 June 2018 as it simplifies the permit application process for the foreign workers.

Number of Foreign Workers in Indonesia:

   2015  2016  2017
Foreign Workers
77,149 80,375 85,974

Source: Manpower Ministry

Origin of Foreign Workers in Indonesia (2017):

Country Number
China  24,804
Japan  13,540
South Korea   9,521
India   6,237
Malaysian   4,603
Philippines   3,174
Australia   2,603
United States   2,526
United Kingdom   2,016
Singapore   1,915
Others  15,035

Source: Manpower Ministry

Gerindra Chairman Prabowo Subianto, who will likely be the sole rival of Widodo in the 2019 presidential election (if he can obtain enough support from other political parties), unofficially kicked off his presidential campaign on International Workers' Day on 1 May 2018. In front of a big crowd of workers Subianto vowed to revoke the aforementioned presidential regulation. Obviously his statement was cheered by the group of protesting workers on May Day. One of the key issues that was at the center of the May Day protests was workers' opposition to the arrival of (low-skilled or unskilled) foreign workers from abroad (especially from China).

The issue of foreign worker has thus become one of the selling points for Widodo's opponents in the context of the elections. However, is there really a massive influx of low-skilled (or unskilled) foreign workers in Indonesia? Or is it merely a hoax designed to create some chaos in Indonesian society. After all, with the long colonial period still fresh in mind, it is rather easy to exploit Indonesians' fear of "the foreigner" who comes to Indonesia to "steal" jobs, money or commodities. Not only the lower educated and poor Indonesians are vulnerable to such doctrine, but these sentiments are also shared by part of the middle class and higher educated people.

This tactic actually goes back a long way in Indonesian history. If there is not a real enemy (the best example being the Dutch colonial regime), then it is fruitful to simply create an enemy so that a feeling of unity is fostered.

But is it really only a hoax or tactic to incite fear for political gain? Well, the problem is that there is some haziness about the data as different government institutions come up with different data. Also in local media we detect a wide variation in data ranging between 85,000 and 127,000 foreign workers in Indonesia in 2017. It is unclear what causes these different data (do some include non-working foreign residents in Indonesia? Do some include estimates of illegal foreign workers? Do some exclude short-term foreign workers?) Therefore, last week, several lawmakers urged the government to do additional research and come up with accurate data regarding the number of foreign workers in Indonesia.

Number of Foreign Workers in Indonesia per Sector (2017):

Sector Number
Services  52,633
Industry  30,625
Agriculture   2,716

Source: Manpower Ministry

Number of Foreign Workers in Indonesia per Job Position (2017):

Job Title Number
Professional  23,869
Director  15,596
Manager  20,099
Consultant  12,779
Technician   9,144
Supervisor   2,314
Commissionaire   2,173

Source: Manpower Ministry

According to Indonesia's Manpower Ministry, there were 85,974 foreign workers in Indonesia in 2017, up from 80,375 in the preceding year. Most of these foreigners are professionals, directors and managers in Indonesia's services sector. Considering Indonesia has a population of around 260 million people, foreigners only make up 0.05 percent of the total in Indonesia. This is a very low ratio compared to Malaysia (1.8 percent), Thailand (1.7 percent), Singapore (1.4 percent), or Hong Kong (0.3 percent). Thus, if the data of the Manpower Ministry are reliable, there is nothing to worry about. For comparison, there are about 160,000 Indonesians working in Hong Kong; a figure that exceeds the total number of foreign workers in Indonesia.

Is there a threat that the foreign workers ratio of Indonesia will rise drastically in the foreseeable future due to the implementation of Presidential Regulation No. 20/2018 on the Use of Foreign Workers in Indonesia? Well, we don't think so because the regulation does not allow low-skilled or unskilled foreign workers to take up employment in Indonesia. The regulation primarily focuses on the simplification of the permit application process (it does not set a lower threshold for foreigners to work in Indonesia in terms of skills, education and experience).

Foreign Workers Ratio Comparison (2017):

Country Foreign Workers
Malaysia          1.8%
Thailand          1.7%
Singapore          1.4%
Qatar          1.2%
Japan          0.9%
Thailand          0.5%
Hong Kong          0.3%

Source: Manpower Ministry

But we do expect to see rising numbers of foreign workers in Indonesia in the foreseeable future. This is only natural because FDI is rising continuously in Indonesia. When a foreign investor sets up a company in Indonesia, it is common to fly in foreign directors, commissioners and managers. However, we do assume (implying that we lack actual data or evidence) that rising investment from China (for example several big infrastructure projects) does lead to the arrival of low-skilled Chinese workers in Indonesia. Considering low-skilled Indonesians cannot communicate in other languages besides Indonesian (or regional Indonesian languages such as Javanese), while Chinese people are also not known for their great mastery of foreign languages (such as English), we assume that Chinese investors prefer to use temporary Chinese workers for the projects. Moreover, Chinese workers are known for their high productivity, unlike Indonesian workers. Furthermore, it is of course fairly simple to find loopholes in Indonesian immigration laws and regulations. For example, simply give the low-skilled worker a label such as "safety engineer" and he is free to temporarily work in Indonesia for the project.

What is a problem though is the issue of illegal foreign workers. Regularly foreign workers, especially from China, are caught working illegally in Indonesia (meaning that they do not have a work permit). Reportedly, these illegal workers are especially found in the more remote industrial areas away from the center where they do not easily come on immigration officers' radar. And it could very well be that the 2016 presidential regulation that provides visa-free access to citizens of many nations (a strategy of Widodo to boost foreign tourist arrivals in Indonesia, hence boost foreign exchange earnings) makes Indonesia much more accessible for foreigners and therefore opens up opportunities for foreigners to work illegally in Indonesia (by overstaying and abusing the visa-free access facility). The solution would be to improve immigration's monitoring system and encourage companies in Indonesia to check the legal status of foreign workers more carefully. It is of course very difficult to pinpoint the exact number of illegal foreign workers in Indonesia. Some claim it is double the amount of legal workers.

Another matter that is expected to have contributed to the rising number of foreign workers in Indonesia is the implementation of the ASEAN Economic Community (AEC) on 1 January 2016. The AEC turns the region into a single market and production base, characterized by the free movement of goods, services, and investment as well as a freer flow of capital and skills. But also under the AEC only skilled labor is allowed to be employed in Indonesia.

Thus, overall, we feel the issue is a hoax aimed at inciting fear among the Indonesian population with the aim to undermine popular support for the government. There are no signs of an enormous wave of low-skilled or unskilled foreign workers into Indonesia. However, it is important for authorities to improve data, enhance monitoring and catch those foreign workers who work illegally in Indonesia.