As the current government of Indonesia has mentioned (foreign and domestic) investment as an important pillar for economic growth, it has made efforts to smoothen the domestic investment climate in order to attract more investment. This investment climate is currently still being plagued by bottlenecks. Therefore, in the World Bank's Doing Business 2015 index Indonesia ranked 114th, lagging behind its regional peers. One of the major obstacles for investment in Indonesia is arranging the necessary business permits and licenses; this is a time-consuming and relatively costly affair.

In January 2015, Indonesian President Joko Widodo officially launched the integrated one-stop service center (Pelayanan Terpadu Satu Pintu, abbreviated PTSP) at the Indonesia Investment Coordinating Board (BKPM). This new service aims to simplify licensing procedures for investment projects. Since the start of this service, investors will no longer need to visit various ministries or government agencies to obtain permits but can simply turn to the BKPM’s one-stop service center. However, after six months in operation we are now waiting for an analysis whether this service has really impacted significantly on investment realization.

Doing Business 2015 Ranking:

     1.   Singapore
     2.   New Zealand
     3.   Hong Kong
     4.   Denmark
     5.   South Korea
     6.   Norway
     7.   USA
    18.   Malaysia
    19.   Taiwan
    26.   Thailand
    29.   Japan
    78.   Vietnam
    90.   China
    95.   Philippines
   114.   Indonesia

Source: World Bank 'Doing Business 2015'

Ease of Doing Business in Indonesia:

Please note that - when you click on the links below that lead you to the World Bank website - the 2014 ranking mentioned on the World Bank website is not last year's published ranking but a comparable ranking for the Doing Business 2014 Report that captures the effects of such factors as data corrections.

  2014 Rank   2015 Rank
 Starting a Business        158        155
 Dealing with Construction Permits
       150        153
 Getting Electricity
       101         78
 Registering Property        112        117
 Getting Credit         67         71
 Protecting Minority Investors         43         43
 Paying Taxes        158        160
 Trading Across Borders         61         62
 Enforcing Contracts        171        172
 Resolving Insolvency         71         75

Source: World Bank 'Doing Business 2015'

Franky Sibarani, Chairman of the BKPM, said that the BKPM is currently coordinating with several ministries and other government agencies to improve 7 out of 10 business indicators for Indonesia. These are starting a business, dealing with construction permits, registering property, getting electricity, tax payments, enforcing contracts, and resolving insolvency cases. Sibarani announced that the Indonesian government had already presented improvements for these categories to the World Bank and therefore hopes to see an improvement in the next World Bank ranking (to be released later this year).

Another subject that needs improvement in order to build a stronger economy and accelerate economic growth is growth of domestic entrepreneurs. Currently, only 1.6 percent of the total Indonesian population (which numbers around 250 million people) is an entrepreneur. Raising the number of businessmen in Indonesia is highly important in the context of job creation. Alarmingly, Indonesia lags behind its regional peers in terms of the number of entrepreneurs. For example, in Singapore about 7 percent of the population is entrepreneur, in Malaysia 5 percent and in Thailand 3 percent.

Besides the creation of new jobs that is generated by entrepreneurs, they also contribute to state income through taxes. Approximately 70 percent of state revenue originates from taxes.

Key Findings:

Indonesia’s economic growth cannot reach its full potential due to bureaucracy (red tape)

President Joko Widodo is eager to combat the country’s bureaucracy in an effort to optimize and maximize foreign and domestic investments

The number of domestic entrepreneurs in Indonesia is very low (1.6% of the total population), hence limiting job creation and state income (tax)

The World Bank is not positive about the ease of doing business in Indonesia. In its latest ‘Doing Business Ranking’ (published on 29 October 2014) Indonesia ranks 114th

Foreign and Domestic Investment in Indonesia (in IDR trillion):

  Q1   Q2   Q3   Q4   Q1  Q2  Q3  Q4
Domestic Direct Investment  34.6  38.2  41.6  41.7  42.5
Foreign Direct Investment  72.0  78.0  78.3  78.7  82.1
Total Investment
116.2 119.9 120.4 124.6


               2012                2013
 Q1  Q2  Q3  Q4  Q1  Q2  Q3  Q4  Q1  Q2   Q3   Q4
Domestic Direct Investment 14.1 18.9 19.0 24.0 19.7 20.8 25.2 27.5 27.5 33.1  33.5  34.1
Foreign Direct Investment 39.5 43.1 46.5 46.2 51.5 56.1 56.6 65.5 65.5 66.7  67.0  71.2
Total Investment
53.6  62.0 65.5 70.2 71.2 76.9 81.8 83.3 93.0 99.8 100.5 105.3

Source: Indonesia Investment Coordinating Board (BKPM)

Further Reading:

Investment Realization in Indonesia in Q4-2014 and Full-Year 2014
BKPM Press Release on Investment in 2014