Perfect Time to Invest in Indonesia (Investment 2018)
The government’s hard work, which was supervised by the Office of the Coordinating Minister for Economic Affairs and Investment Coordinating Board of the Republic of Indonesia (BKPM), has resulted in the improvement of the country’s ease of doing business (EODB) rating. The World Bank’s 2018 EODB survey puts Indonesia in the 72nd position on the list, a significant improvement of 19 spots from its previous position in 2017. This also means that, in the last two years, Indonesia has moved up 34 spots.
Prior to 2017, the country’s EODB rank stood between 116 and 129. In the World Bank’s investment 2018 survey entitled “Reforming to Create Jobs,” the World Bank reports that Indonesia was named Top Reformer in Asia for reforming its EODB. The country was deemed successful in reforming the following seven indicators used to measure a country’s EODB rating: starting a business, getting electricity, registering property, getting credit, paying taxes, trading across borders and enforcing contracts.
Having seen success in 39 indicators of business reform in the past 15 years, Indonesia belongs to be named as one of the top 10 reformers in Asia.
The World Bank, in taking two cities — Jakarta and Surabaya — to measure the reform rate in the country, has noted several significant improvements. The cost for starting up a business decreased, from 19.4 percent of income per capita previously, down to 10.9 percent of income per capita. Today, to start a business in Jakarta, it takes around 22 days, as opposed to 181 days reported in the 2004 Doing Business report.
Furthermore, the cost of electricity connection is cheaper. This was made possible by getting rid of the connection charge and internal cable certification costs. The cost for electricity connection is 276 percent of income per capita now, a big decrease from 357 percent.
In Jakarta, electricity is more accessible with a shorter process for requesting an electricity connection. Access to credit has also improved with the establishment of new credit bureaus.
International trade has seen an improvement in the e-billing system for taxes, customs and excise, as well as non-tax revenue. This has resulted in a decreased time for preparing, processing and delivering import documents from 133 hours to 119 hours.
Registering property is getting cheaper due to the cut on transfer tax. This helped to cut the overall cost from 10.8 percent to 8.3 percent of the value of a property. Furthermore, minority shareholders have seen a boost in their rights with the reinforcement of their rights, roles in corporate decision making and corporate transparency.
BKPM chairman Thomas Lembong has reemphazed on several occasions concerns voiced by President Joko “Jokowi” Widodo over the importance of continuously improving and making it easier to conduct business. Such concerns have been addressed in the Economic Policy Package series XII, which requires that all parties work to their fullest to ease business.
Economic Policy Packages series I-XVI aims at accelerating deregulation and de-bureaucratization by way of simplifying procedures, accelerating the licensing process period and cutting the cost of the licensing process. Other improvements involve the restructuring of the licensing process by setting up a One Stop Shop integrated service (PTSP) and online licensing system, and improving law enforcement and business certainty. All these work to play a role in boosting the country’s EODB rating.
Focus on Six Issues
The BKPM hopes that ministries and government institutions improve their coordination in a bid to improve all indicators, and work hand-in-hand to educate international society on the reform, which is necessary to help change the world view on Indonesia. Better coordination will all ministries and related institutions, at both the provincial and regional levels, is indeed crucial.
After having ranked 72nd in the 2018 EODB survey, BKPM plans to prioritize improvement in six EODB indicators with score higher than 100. Those indicators are: Starting a Business ( 144 ), Dealing with Construction Permits ( 108 ), Registering Property ( 106 ), Paying Taxes ( 114 ), Trading Across Borders ( 112 ) and Enforcing Contracts ( 145 ).
Improvement on these indicators is necessary to keep the momentum and further improve scores, especially as President Jokowi has set an overall target of reaching number 40 on the list.
For instance, on the trading across borders indicator, the Trade Ministry is not the only institution responsible for improving the process; the job belongs to other government bodies as well. Recently, the government reformed the process of settling commercial disputes in the Supreme Court.
The development of each case can now be followed online, and small disputes can be settled through mediation and arbitration, without going through the judicial process. To save time and energy, courts can focus on major or big cases such as, for example, those on mass strikes.
Improvement in the taxation sector includes the ease of the tax payment process. The BKPM is of the opinion that the responsibility of processing taxes does not solely belong to the Finance Ministry; it should involve many parties, including the central and regional governments.
Some problems related to doing business, however, are still rampant in some regions, notably related to licensing. Because of this, the BKPM has planned to intensify information dissemination about improving the EODB score in 90 regencies next year.
Of course, with the country’s achievements in the investment 2018 survey, investors should have no doubt in investing their capital in Indonesia. Moreover, Indonesia has secured investment grade status from three major rating agencies in the world: Fitch Ratings, Moody’s, and S&P.
With the investment grade status and the growing middle class, as well as continuous improvements, Indonesia has all the potentials for lucrative investment.
The BKPM also offer potentials for investment in multiple sectors, including in infrastructure, with 14 new industrial estates outside Java, investment opportunities in 10 new tourist destinations and investment in special economic zones as well as in the fast-growing e-commerce.
Tourism and e-commerce business are two of the most salient sectors for investment 2018. Supported by massive infrastructure development, including in airports and the electrification program, and the visa exemption policy for 170 countries, the BKPM is optimistic that year of 2018 is the perfect time to invest. Let’s invest in Indonesia.