Doing Business in Indonesia

Published on 26 August 2014

The attractiveness of Indonesia as an investment destination is indeed improving with positive outlooks for credit ratings and record investment levels. The recent visits of numerous senior European company representatives and surge in foreign investment indicate that Indonesia is becoming a priority country, for the European companies, mainly due to its massive consumer market, but also as a production hub for ASEAN and greater Asia.

Indonesia’s growth trajectory over the past four years has been impressive. The economy has expanded by a rate of almost 6% or more per annum, fuelling the rapid rise of the middle class and boosting consumption. Indeed, Indonesia’s vast consumer market has attracted record levels of foreign direct investment (FDI) over the past five years.

According to the Investment Coordinating Board (BKPM), FDI in Indonesia grew by 22.3% - $28.62 billion USD (EUR 20.9 billion) from January to December 2013. BKPM Chairman Mahendra Siregar said in December 2013 that the agency is putting several policy reforms in place in order to attract more investment in 2014, including, improving its one-stop service investment unit at local levels and opening up more sectors to foreign investors.

While Indonesia has done well in the past, in the future the country is expected to continue to grow its economy, albeit at a slower pace for the next decade or more. The middle class will continue to expand, creating one of the largest markets in the world. The services sector, however, is expected to see the fastest growth as demand for finance and banking, healthcare, education, retail and property grows at a rapid pace. Indonesia is currently the 16th largest economy in the world with a GDP of close to $1 trillion USD (EUR 735 billion).

However, in the recent Doing Business report from IFC, Indonesia is losing ground compared to its regional competitors. The country slipped four places to 120th out of 189 economies surveyed, compared to 116th in 2013. According to the report Indonesia's efforts to improve its business climate were insufficient to match those of neighbouring countries. It showed the country's competitiveness fell in most of the aspects of doing business that it assessed.

On a domestic level, the Government of Indonesia is aiming to boost prospects for increased investment and job creation. The Government is aiming to boost infrastructure and domestic demand through the Economic Master Plan (MP3EI) for the period 2011-2025 with its six economic corridors and by linking up to regional efforts on infrastructure such as the Master Plan on Regional Connectivity (MPAC) and the ASEAN Infrastructure Fund. The ambitious Economic Master Plan, which foresees Indonesia becoming the world's 12th largest economy by 2025 is still very much a focal point of investors as well as the Government. The plan includes USD 470bn of investments, the majority expected from the private sector. Related to the domestic infrastructure developments the foreign investment community is still awaiting the passage of the land acquisition bill.

During Q4 2013 the FDI inflow decreased by 67.7% compared to last year to IDR 71.2 Trillion. (Q4 2012: 68.8%; IDR 56.8 Trillion). For the period of January-December 2013, the domestic and foreign investment realization amounted to IDR 398.6 Trillion, up 2.67% compared to the same period last year (January-December 2013: 27.3%; January-December 2012: 24.63%). The total labor force absorption as a result of investments realization in Q4 2013 were 159.315 people from domestic investmtnes and 279.792 from foreign investments. (Source:

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