27 March 2020 (closed)
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The World Investment Report 2015 states that inflows of foreign direct investment (FDI) into Indonesia grew 20 percent (y/y) to USD $23 billion in 2014. As such FDI growth in Indonesia outpaced FDI growth recorded in Singapore (+4 percent y/y to USD $68 billion) and Vietnam (+3 percent to USD $9.2 billion), causing optimism that Indonesia - Southeast Asia's largest economy - will continue to form a lucrative investment destination in the Asian continent for foreign investors in the years ahead.
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:
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
| Getting Electricity
|Protecting Minority Investors||43||43|
|Trading Across Borders||61||62|
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.
• 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):
|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|
|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|
Source: Indonesia Investment Coordinating Board (BKPM)