Impact of Political Stability on Indonesia Company Incorporation

5 min read|Last Updated: Januari 10, 2023|

Today, Indonesia is a thriving democracy that is strengthening its political institutions, deepening its population’s liberation, and expanding its economy with more business opportunities.

As the electorate becomes more politicised, more demands and expectations are being placed on Indonesian politicians. It is all on the shoulders of the entire President, present and future, to increase the GDP, bring in foreign firms, and raise the standard of living in the lives of the inhabitants.

Indonesia Incorporation Specialist Eric

However, the global and political climate, which is highlighting various essential characteristics to consider in rising countries, defines Indonesia’s advantages as a business and investment destination.

The country’s natural resources, renewable energy potential, and food security provide a long-term buffer against rising oil and food costs, which are stoking social unrest in other markets.

By 2050, the population is expected to reach a whopping 288 million people, serving as both a highly skilled productive capacity and a consumer market as the country approaches its predicted position as the world’s sixth largest economy. This makes Indonesia as attractive place for incorporation of businesses.

Why is Indonesia a Preferred Location for Foreign Businesses?

Indonesia’s economy is growing at a rapid speed, which is one of the main reasons this country is reclaiming its proper place as a key investment destination for foreigners. Despite the fact that big Asian players such as Singapore, China, Malaysia, and India are seen as ideal investment destinations, Indonesia is fast becoming a country that is part of this group.

The country is remarkable in many ways, with it being:

  • The world’s largest archipelago
  • The world’s largest Muslim majority country
  • The world’s third largest democracy
  • A prominent exporter of high-value commodities such as palm oil and coal

Indonesia has positioned itself as a low-income to middle-income economy in transition, as well as a primary producer to a value-added exporter and a knowledge-based economy.

Investment prospects are maturing across all industries and sectors, which means foreign investors have a window of opportunity to engage in the world’s fastest rising economies.

In terms of the future, Indonesia has already positioned itself in a promising position, as consumer spending is fuelled by the confluence of its young, working population with relatively stable inflation and sustained economic growth.

The Risks Incorporating in Indonesia

Incorporating a company in a new, foreign, and unfamiliar country is usually fraught with dangers. This rule applies equally to all emerging markets, including Indonesia.

Investing in Indonesia can be extremely profitable, but it also comes with more risks than investing in a developed country. Why? Indonesia has a variety of traits that have the ability to stymie any investment or business atmosphere that enters the country.

Solid planning is essential when it comes to investing in any country. The following is a list of potential challenges that could disrupt Indonesia’s investment climate.

1. Corruption and Bribery

Indonesia is currently ranked number 96 in the Transparency International’s Annual Corruption Perceptions Index. While its performance has steadily improved since previous President Susilo Bambang Yudhoyono took office in 2004, there is still a long way to go.

Corruption is still a problem in Indonesia, and it is a major barrier to trade and investment. Bribery is illegal in Indonesia, and the government has made a public commitment to combating all forms of corruption.

To lessen the risk of unlawful payments, the Indonesian government has simplified business registration procedures and moved to online systems. Corruption is still a common occurrence in the business world.

2. Demonstrations

This happens virtually every day in Indonesia, generally on a small scale but occasionally on a large scale. Protests are held on a variety of topics, including political and economic challenges. As previously stated, poor salaries and poverty represent a significant threat to the local population.

These protests are aimed squarely at the government. However, any firm can be disrupted by these types of demonstrations.

3. Infrastructure

Inadequate infrastructure, both in terms of quality and quantity, has hampered economic and social progress from reaching its full potential. This has not gone unnoticed by the Indonesian government, which recognises the need for significant expenditures in the country’s infrastructure.

4. Natural Disasters

Volcano eruptions, earthquakes, tsunamis, and floods are all phenomenon that occur frequently in Indonesia, which could disrupt company operations.

National Long Term Development Plan (RPJPN 2005 to 2025)

The long-term development plan of the government serves as reference point for the whole Indonesian society. In this plan everyone including the government, the people, and their businesses are included in order to achieve the national objectives as drafted and formulated by the democratic chosen government of Indonesia. This development plan, which runs until 2025, is divided in four medium-term plans and assisted by the MP3EI.

Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI)

Unveiled in the year 2011, this master plan provided the government an estimated target for an economic growth rate of seven to eight percent per year after 2013, while aiming to turn Indonesia into one of the world’s largest economies by 2025.

The masterplan includes US$470 billion in investment that needs to be supplied by the private sector through public-private partnerships.

With all stated above, it is obvious that the Indonesian Government is trying all its best to make Indonesia and a major player in Asia. With the government backing and the increasing rates of potential employers, it is understood that in no time, this archipelago nation is going to make it big in no time!


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How corrupt is Indonesia?2021-12-23T11:54:46+08:00

Transparency International’s 2020 Corruption Perception Index ranks the country 102 place out of 180 countries, dropped from 96 the previous year. There are two key areas in the public sector in which corruption in Indonesia can be found. 

How does government stability affect business?2021-12-23T11:54:24+08:00

The stability of a political system can affect the appeal of a particular local market. Government’s view business organisations as a critical vehicle for social reform. Governments pass legislation, which impacts the relationship between the firm and its customers, suppliers, and other companies. 

Why is it difficult to do business in Indonesia?2021-12-23T11:54:04+08:00

What are the primary challenges for businesses in Indonesia? The primary challenges in doing business include a complex market, business culture, the persistence of corruption, bureaucratic inefficiency, elaborate tax system, and mobile-only population. 

How stable is the political environment in Indonesia?2021-12-23T11:53:18+08:00

The Indonesia Political Stability index is at -2.5 weak; 2.5 strong. 

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