challenges of doing business in Indonesia

Top 10 challenges of doing business in Indonesia

The future, ambitious and fast-growing economic expansion is expected to consider more inclusive growth, as per capita GDP is estimated to quadruple by 2020, according to a report by the Standard Chartered. Economically strong, politically stable and open to reform, Indonesia is a powerful emerging global force in Asia that is worth monitoring independently of the sector.

However, despite its strong economic performance, Indonesia faces challenges that
stifle private sector development. For companies seeking to take advantage of their high growth levels and ambitious economic future, local support can be an advantage.

Starting a business

The World Bank and the International Finance Corporation (IFC) rank Indonesia 166th in the world for ease of doing business, while stressing the thoroughness of the processes involved in starting a business. Compared to the OECD average of five procedures, setting up a business in Indonesia takes an average of 47 days to complete. Companies have to deal with the tax authorities, the Ministry of Justice and Human Rights, and the Ministry of Labour, in addition to handling various registrations.

Dealing with construction permits

Getting a building permit takes an average of 158 days and involves 13 procedures. The Zoning Department must be consulted and several certificates obtained before registering with the Land and Building Taxation Agency and the regional office of the Ministry of Industry and Trade.

Obtaining electricity

The cost associated with obtaining electricity is enormous, much higher than the OECD average. The most expensive thing is to obtain a Guaranteed Electrical Installation (JIL) certificate and a Solvent Operation Certificate (SLO) from the Association of Indonesian Electrical Contractors (AKLI), although external work and final connection can also be costly.

Property registration

It takes 22 days and six procedures to register a property, which includes obtaining a land certificate examination and paying the purchase tax. Again, the cost of registering a property is much higher than the OECD standard.

Obtaining credit

The World Bank and the IFC rank Indonesia 129th in the world for the ease of obtaining credit, although it is taking a lot of work to rebuild its reputation. A government study concluded that strengthening the legal rights of creditors by improving the asset-based lending system, and promoting a true property registration system, will improve the credit environment.

Investor protection

In Indonesia, investors are well protected, making the country the 50th largest in the world. The government continues to recognize and support the property rights of foreign and domestic investors, and there has been no covert expropriation action imposed on investors in recent years. The 2007 Investment Law cemented this approach by opening up major sectors of the economy to foreign investment.

Payment of taxes

There are 51 tax payments to be made each year. This requires 259 hours of a company’s time on average. The 25% corporate income tax is processed in 75 hours, and social security and VAT contributions add 184 hours to the total.

Marketing in other countries

Indonesia is very dependent on global trade. Therefore, the cost of importing and exporting is quite low. It is less expensive to trade in other countries than in the rest of East Asia Pacific, although getting the containers for transport can take a long time.

Contract enforcement and insolvency resolution

A contract is very expensive to fulfill and takes 498 days. The same applies to insolvency cases, where the average time over the 5.5 years and the recovery rate is 14.2 cents on the dollar, compared to the OECD average of 70.6 cents.

Culture

The lack of transparency and corporate governance means that in Indonesia there is both widespread corruption
as an organized crime. Industrial disputes are also mentioned by companies as a difficulty, so it is recommended to be very familiar with all contracts.