Not the lack of (soft and hard) infrastructure development in Indonesia, or the lack of quality human resources, nor corruption or protectionism but the difficulty to obtain the necessary permits from the local governments are the biggest obstacle to investment and business in Indonesia according to a survey that was conducted by the Regional Autonomy Watch (KPPOD) in the 32 regional capital cities across the Archipelago.
This is a disappointing result because Indonesia's central government has actually been eager to cut red tape across the nation in order to enhance the investment and business climate in Indonesia. The series of economic policy packages that have been released by the central government since September 2015 include several reforms aimed at deregulation.
Boedi Rheza, Senior Researcher at the KPPOD, said the results of the latest KPPOD survey are different from results in the preceding survey. The previous survey showed businessmen were particularly plagued by the lack of (quality and quantity of) infrastructure development in Indonesia. This obstacle gives rise to high logistics costs and thus undermines the competitiveness of Indonesian companies (compared to foreign counterparts). Although Indonesia still requires a lot of infrastructure development today, the central government has recently rather significantly raised its efforts to enhance infrastructure development. According to Rheza this positive stance of the government is reason why weak infrastructure development is now regarded the fourth-biggest obstacle to investment and business in Indonesia in the latest survey.
With regards to the arrangement of permits in Indonesia, entrepreneurs say the biggest problem is that deregulation measures implemented by the central government are not fully embraced and applied at the regional government level. For example, the central government cut fees for the registration of new companies. However, local governments continue to request fees (which is a problem for small or medium-sized companies that have limited funds available). Another example is that it should require only five days to register a new company at the regional authorities. However, in reality it takes about 14 days. In Jayapura (Papua) it can even take up to 118 days. Such bureaucratic hurdles can make businessmen decide not to register their company.
Biggest Obstacles to Investment & Business in Indonesia
• Lengthy, costly & complex permitting process
• Private enterprise development program
• Interaction between local governments and private businessmen
• Lack of infrastructure development
• High transaction costs
• Weak human resources
• Access to - and certainty about - land ownership
• Conflict resolution
• Quality & integrity of local governments