Gold, platinum, and other precious metals are favored by the wealthy not only in Japan but also in Indonesia. Similarly, diamonds, gemstones, branded watches, and branded bags are popular among affluent consumers.

When you visit shopping malls in Jakarta that are frequented by the middle and upper-income classes, you will find such branded items being sold and often see Indonesians happily purchasing them.

Indonesia is an attractive country with a population of approximately 280 million (with an average age of around 30), a stable economic growth rate of over 5% for the past 20 years, currently ranked 17th in the world in terms of GDP, and is the largest market in Southeast Asia, often referred to as the “Next China.”

In such a country, engaging in the business of purchasing gold, precious metals, or branded goods holds great potential for the future. However, the gold and precious metals purchasing business involves complex licensing and store operations, and it is not always straightforward.

This article summarizes the key points that purchasing businesses should be aware of when expanding into Indonesia.

Reasons Why Expanding into Indonesia Is Challenging

To expand into Indonesia as a foreign company, a capital investment of IDR 10 billion (approximately USD 620,000)* is required per business license. This high capital requirement poses a significant barrier to entry for all foreign companies.

For instance, ALLU, which has already expanded into Indonesia, is operated by PT. Mastro Luxe Indonesia. Since it has obtained multiple business licenses, it has invested several hundred million yen solely for capital.

However, when confirming with ALLU’s store staff whether they purchase gold ingots, they responded that they do not. In fact, there is no business code under Indonesia’s licensing system that classifies the retail of gold, silver, or platinum. Upon directly inquiring with BKPM (Indonesia Investment Coordinating Board), they replied that “there is no business license categorized under retail” for such activities.

Because there is no explicit classification, it becomes necessary to obtain surrounding business licenses as the legal basis for conducting a gold purchasing business. However, for foreign companies to do so, multiple business licenses are required, which in turn means a large capital investment.

*Conversion rate: 1 IDR = approx. 0.000062 USD

Business Licenses Required to Purchase Gold Ingots

As mentioned above, there is currently no business code under the Indonesian licensing system that classifies the retail of gold, silver, or platinum. Therefore, if one intends to establish a legal entity that can purchase gold ingots, the following combination of business licenses is recommended.

This recommendation is based on multiple hearings with lawyers, notaries, the Investment Coordinating Board, the Ministry of Industry, and other relevant authorities. As there is no explicit business code for gold purchasing, decisions must be based on careful consultations with these entities.

• KBLI 47714 (Retail trade of bags, wallets, suitcases, backpacks, and other similar items)
• KBLI 47749 (Retail trade of other second-hand goods)
• KBLI 47742 (Retail trade of clothing, footwear, and fashion accessories)
• KBLI 47743 (Retail trade of personal second-hand items)
• KBLI 47735 (Retail trade of jewelry)
• KBLI 47852 (Jewelry trade/sales in markets)
• KBLI 47739 (Retail trade not classified elsewhere)

If a foreign company were to be established with the assumption of obtaining the above licenses, the capital required would amount to IDR 70 billion (approximately USD 4.3 million). However, if the number of business licenses were significantly reduced, it would become difficult to purchase gold ingots, thus diminishing the attractiveness of the purchasing business in Indonesia.

So, what is the best course of action? If your company wishes to learn the answer, please feel free to contact us. We will propose the optimal expansion strategy we have developed.

Restrictions on Combining Retail and Wholesale Businesses in Indonesia

In addition to the complexity of business licenses, Indonesia prohibits a single company from engaging in both retail and wholesale businesses simultaneously.

For example, if a company starts a purchasing business in Jakarta and buys gold ingots from general consumers (a B2C retail business), it cannot sell those ingots to a local precious metals refining company in Indonesia (which would constitute a B2B wholesale business).

There are two major solutions to this issue.

The first is to export the items abroad. Selling the purchased items to businesses in the destination country does not violate Indonesian law. In fact, in an interview article with ALLU mentioned at the beginning:

“All purchased items are sent to Japan once and then sold in the global market, so the probability of those items returning to Indonesia is extremely low.”

This response reflects the restriction on combining retail and wholesale businesses.

Does this mean that precious metals purchased domestically must be exported abroad? Some may wonder if local small-scale precious metal buyers in Indonesia also export their purchases.

This leads to the second solution. We would like to share this information in a closed setting. If your company has a strong interest in the purchasing business in Indonesia after reading this article, please feel free to contact us.

Why Early Expansion into Indonesia Is Advantageous

Jakarta, the capital of Indonesia, suffers from some of the worst traffic congestion in the world. As a result, Indonesians prefer visiting shopping malls that consolidate everything in one place—dining, apparel, cafes, general merchandise, electronics stores, game centers, cinemas, and more—to minimize the need to travel around the city.

However, each shopping mall has its own unique concept and operational policy, and some do not accept tenants from certain industries (such as second-hand goods shops). In fact, at Central Park, one of Jakarta’s top five malls in terms of customer traffic, where ALLU has a store, the current policy does not allow other purchasing business tenants from the same industry (though this may change in the future).

Given such circumstances, if a company attempts to enter Jakarta after Indonesia joins the ranks of advanced economies, it may find that the most attractive mall spaces are already occupied, forcing it to abandon its expansion plans.

Already, two companies from Japan engaged in the purchasing business have expanded into the market, and we must not overlook the potential entry of companies from countries other than Japan, as well as the presence of local enterprises. If you are thinking ahead and planning strategically, now is exactly the right time to act.

If you have any questions or concerns after reading this article, please ask them below.
We will respond within a couple of days.

Sources

• Indonesian Law Firms
• Investment Coordinating Board (BKPM)
• Ministry of Industry
• Ministry of Trade
• Notaries
• ANTAM (State-owned enterprise responsible for gold pricing)