Indonesia Investments wishes all Muslims a happy & generous Ramadan
25 May 2018 (closed)
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The number of expat workers in Indonesia is declining due to persistently low commodity prices and the government's stricter regulations regarding the hiring of expats. In the first five months of 2016 a total of 72,399 temporary residential permits (including renewals) were issued to expats. It is highly unlikely that the number of expat workers in Indonesia this year will equal the total of 171,944 foreign workers that were active in Indonesia in 2015. Actually the number of expats working in Indonesia has already been on the decline since 2011 (when the commodity slowdown reemerged).
Low commodity prices are the reason behind fewer exploration and production in the oil and gas sectors of Indonesia. Several big foreign players announced to reduce or cease their activities in Indonesia. For example, Chevron Indonesia Company (a unit of the US-based Chevron Corporation) announced earlier this year that it will return all its oil and gas assets in the East Kalimantan block back to the Indonesian government in October 2018. Meanwhile, France-based Total and Japan-based Inpex - each commanding a 50 percent stake in the Mahakam block - will see their production sharing contract with the Indonesian government expire in 2017 because the Indonesian government will not extend the contract. Instead Indonesia's state-owned energy firm Pertamina and the regional East Kalimantan government will obtain a 70 percent stake in the block (after 2017), while the remaining 30 percent will be split between Total and Inpex. These development should further curtail the number of foreign workers in Indonesia in the future.
However, in the meantime, oil & gas exploration and production activities have slowed significantly due to crude oil prices having plunged severely in the second half of 2015 and start of 2016. Therefore there also exists less need for (foreign) workers.
Fewer expats living in Indonesia does impact the Indonesian economy as this group also forms a "big spender" group. In fact, often they create employment for the lower-class Indonesians. For example, an expat family living in a house will usually hire one or more housemaids, or nannies, drivers, gardener and guards. With the return of expats to their home countries, these Indonesian workers will need to find a new job.
Indonesian property owners now have more difficulty renting out their higher-class houses and apartments due to the decline in foreign workers. Meanwhile, it has also been reported in local media that enrollment in international schools has fallen over the past years.
Overall, the Indonesian government tries to curtail the influx of expat workers into Indonesia as it is eager to cut the unemployment rate among its own citizens. In essence, the government only want to accept those expats who have exceptional qualities that are not easily found in Indonesia. By discouraging the arrival of those foreigners who lack exceptional skills it is easier to develop the country's (local) human resources. However, it should also not be forgotten that - overall - expat workers have higher skills and can therefore transfer knowledge and skills to Indonesian workers. With fewer expats working in Indonesia there will also be fewer transfer of knowledge and expertise to Indonesian counterparts. In fact, it could lead to a skill shortage in the future when the commodity downturn is reversed.
Although Indonesian President Joko Widodo, often called Jokowi, recently opened up room for foreign investment in Southeast Asia's largest economy (in an effort to boost the nation's economic growth), the government has also showed a more nationalist (protectionist) approach regarding regulation-making for foreign workers (perhaps due to concern that there would occur a massive inflow of foreign workers after the implementation of the ASEAN Economic Community). For example, last year the government said it would introduce an Indonesian language proficiency requirement for expat workers. Another government- made rule was that all companies in Indonesia that hire expats should hire 10 local workers for each expat. However, due to resistance from the business community both requirements were dropped later. It did introduce an age ceiling (at 55 years) for foreign workers in the oil and gas sector as this group is regarded less productive.