Indonesia's improving ranking in the World Bank's Ease of Doing Business Index shows that the government's reform efforts have had a positive effect. However, there is no time for complacency as most industries in Indonesia continue to lack competitiveness compared to regional counterparts, while many entrepreneurs in Indonesia continue to complain about (the lack of) legal certainty as well as (the lack of) good coordination and cooperation between Indonesia's central and regional governments (in terms of policy implementation).
There are also several influential international institutions that detect persistent weaknesses within the Indonesian economy. For example, the World Economic Forum (WEF) emphasizes that there are several structural issues in Indonesia that have a negative impact on the investment climate and create an inefficient economy, such as corruption, red tape, and the lack of adequate infrastructure (both in terms of quality and quantity). Therefore, Indonesia fell four places (to 41st) in the WEF's Global Competitiveness Report 2016-2017, released a month ago. The WEF did acknowledge that Indonesian authorities have done a lot to improve the investment climate, but it still needs to show real results.
Meanwhile, Indonesia fell 10 positions in the World Bank's 2016 Logistics Performance Index (LPI), from 53rd position in 2014 to 63rd position in 2016, scoring particularly poor in the infrastructure category. This signals that the lack of adequate quality and quantity of infrastructure in Indonesia remains the main bottleneck that causes significant economic costs. Although the government has raised efforts to boost infrastructure development across the Archipelago (and increased the infrastructure budget to a new record high), these projects require time to be developed and make a real impact on the Indonesian economy (multiplier effect).
Indonesian Malt Beverage Producers Association (GIMMI) executive committee member Ronny Titiheru said the Indonesian government needs to improve legal certainty within the economy. Some members of GIMMI have been active in Indonesia even before the declaration of independence in 1945, showing that these companies have a high degree of confidence in the Indonesian market. It would be a shame if some of these companies will relocate due to persistent weak legal certainty in Indonesia.
Eric Sugandi, economist at the Kenta Institute, believes investment in Indonesia could rise significantly next year provided the government enforces its reform program up to the regional level.
Meanwhile, credit rating agency Standard & Poor's (S&P) is still reluctant to raise Indonesia's rating to investment grade, a move that would result in additional capital inflows into Indonesia (the other two big credit rating agencies - Moody's Investors Service and Fitch Ratings - have already promoted Indonesia to investment grade). Reportedly, one of the main reasons why S&P is reluctant to give the upgrade, is the high amount of debt in Indonesia's private sector as well as the rising amount of bad loans in the banking sector.
Government officials give the right signal by not showing too much enthusiasm about Indonesia's rise in the latest Ease of Doing Business Index. Indonesian President Joko Widodo stated that he is not satisfied yet with the result. Meanwhile, Indonesian Coordinating Ministry for Economic Affairs Darmin Nasution expressed the idea that Indonesia needs to assign a special team that is tasked to monitor Indonesia's ease of doing business in order to attract more private investment.
Logistics Performance Index 2016:
|1. Germany =||4.12||4.44||3.86||4.28|
|2. Luxembourg ↑||3.90||4.24||4.24||4.01|
|3. Sweden ↑||3.92||4.27||4.00||4.25|
|5. Singapore =||4.18||4.20||3.96||4.09|
|9. Hong Kong ↑||3.94||4.10||4.05||4.00|
|12. Japan ↓||3.85||4.10||3.69||3.99|
|24. South Korea ↓||3.45||3.79||3.58||3.69|
|27. China ↑||3.32||3.75||3.70||3.62|
|32. Malaysia ↓||3.17||3.45||3.48||3.34|
|35. India ↑||3.17||3.34||3.36||3.39|
|45. Thailand ↓||3.11||3.12||3.37||3.14|
|63. Indonesia ↓
|64. Vietnam ↓||2.75||2.70||3.12||2.88|
|71. Philippines ↓||2.61||2.55||3.01||2.70|
|73. Cambodia ↑||2.62||2.36||3.11||2.60|
Source: World Bank
Global Competitiveness Index 2016-2017:
Source: Global Competitiveness Report 2016-2017
Doing Business 2017 Ranking:
|1. New Zealand|
|4. Hong Kong|
|5. South Korea|
|7. United Kingdom|
|8. United States|
Source: World Bank 'Doing Business 2017'
Ease of Doing Business in Indonesia:
Please note that the 2014, 2015 an 2016 rankings are revised rankings
||2014 Rank||2015 Rank||2016 Rank||2017 Rank|
|Starting a Business||158||163||167||151|
| Dealing with Construction Permits
| Getting Electricity
|Protecting Minority Investors||43||87||69||70|
|Trading Across Borders||61||104||113||108|
Source: World Bank's Doing Business Reports