Challenges of Business in Indonesia

Despite Indonesia’s great economic potentials and investment opportunities, there are hardly any low-hanging fruits for foreign investors to pick. Indonesia has remained a country of many ironies and confusing complexities. Some critics have labeled it hopelessly chaotic; others have cited gradual improvements. The difficulties confronting investors in Indonesia are by no means insurmountable; they are, on the contrary, can be neutralized through better planning and market intelligence.

In fact, successive Indonesian governments have taken many efforts to reform the economy, reduce corruption and streamline bureaucracy. However, improvements have been limited and investors have continued to face a range of hurdles, such as regulatory complexity, procedural uncertainty or inconsistency and still pervasive red tape. Many Indonesian laws and regulations are seen to be vague and requiring substantial interpretation. Detailed administrative procedures are not commonly available and often these differ from one place to another (e.g. In different cities), even within the same organization.

Meanwhile, Indonesian courts have been considered among the most corrupt by Indonesians themselves, causing firms to avoid the justice system. With decentralization now putting significant decision-making in the hands of 33 provincial governments, 398 regency/district governments, and 93 city administrations throughout the country, many local regulations have proved to be conflicting with the national ones.

Furthermore, there is no systematic provision of information in Indonesia through a centralized portal or institution(s). Data and statistics are generally piecemeal and scattered. For example, there are two different sets of realized foreign investment data in Indonesia – one issued by Bank Indonesia and the other by the Investment Coordinating Board (BKPM) – with significantly different figures presented. Indonesia’s Central Statistics Agency (BPS) does publish a lot of useful data, but these are insufficiently comprehensive and organized and to provide a useful picture of the Indonesian economy.

Indonesia also has the so-called Negative Investment List (Daftar negatif Investasi, or DNI), that outlines the business fields closed to investment, or open to investment subject to certain conditions, including foreign ownership limitations. The government has sought to make the list specific and more transparent, with the current DNI (issued in April 2014) containing numerous business fields. However, in certain cases the list is open to interpretation, causing uncertainty.