From the fall of General Suharto after 30 years of authoritarian rule and a collapse of the Rupiah, Indonesia has undergone a major political transformation which other countries in Asia have not seen.
Today, the country is a vibrant democracy nation that is continuing to strengthen its political structures, deepening the liberation of its population and growing her economy with more business opportunity available.
Over past two decades, experiments with democracy has seen the rise and fall of some political parties and a symmetry found in the direction of secular, reform minded nationalism.
Although it still remains in the growing stage despite the various push and, Indonesia’s economy remains on a stable track and it is only projected to grow.
The deepening politicization of the electorate is seeing greater demands and expectations being placed upon the Indonesian politicians. From increasing the GDP, bringing in foreign businesses, to raising the standard of living into the lives of the citizens, it all lies on the shoulders of the entire President, present and future.
That being said, Indonesia’s advantages as a business and investment destination are defined by the global and political environment that is highlighting several key parameters to be considered in emerging markets.
The country’s natural resources, potential in renewable energy and food security offer a sustainable buffer to the climbing prices being seen in oil and foodstuffs which is fueling social discontent in other markets.
The population is also projected to grow to a staggering figure of 288 million by 2050, and this will serve in both a highly skilled productive capacity as well as consumer market as the country reaches its predicted position of being the world’s 6th largest global economy.
Indonesia – a preferred location for Foreign Business
Indonesia’s economy is on the rise, which is one major reason this country is taking its rightful position as a major destination for foreign investors. Although major players in Asia like Singapore, China, Malaysia and India was seen as preferred destinations for investors, Indonesia is becoming a country hard to ignore.
The country is unique in many ways as the biggest archipelago in the world, the largest Muslim majority country; albeit young it is also the world’s third largest democracy and a leading exporter of numerous high value commodities such as palm oil and coal.
Indonesia has now position itself as an economy in transition from that of a low income to middle income economy and from a primary producer to a value added exporter as well as knowledge based economy.
Investment opportunities are maturing in all industries and sectors, which mean it represents a window of opportunity for foreign investors to participate in the worlds’ fastest growing.
In terms of future, Indonesia has already position itself in a promising spot, as a convergence of its young, working population with that of relatively stable inflation and sustained economic growth is fuelling consumer spending.
The Risks Incorporating in Indonesia
Incorporating a business in a new, foreign and unknown country always encompasses risks. The higher the risks are, the higher the yields can become.
This rule is no different, particularly to an emerging market like Indonesia. Investing in Indonesia can be highly lucrative; however, it also entails more risks than investing in an existing developed country. Why? Because Indonesia contains a number of characteristics, that has the potential to frustrate any investment and business climate coming into here.
Solid preparation is definitely a key ingredient for investing in any country. Below we discuss a list with potential risks or issues that is capable to disturb the investment climate of Indonesia.
Corruption and Bribery
In the Annual Corruption Perceptions Index by Transparency International, Indonesia has rarely impressed. Currently ranking at number 88, its performance has shown a steady improvement since the start of former President Susilo Bambang Yudhoyono’s administration in 2004. Apart from political corruption, there are other factors that negatively influence the effectiveness and performance of good governance in the Republic.
Corruption remains a challenge for Indonesia and acts as a major deterrent to business and investment. Bribery is against the law in Indonesia and the Indonesian Government is publicly committed to tackling all forms of corruption. However, the Government of Indonesia has streamlined business licensing procedures and transitioned to online systems to reduce the potential of illegal payments. Still, corruption remains a regular feature of business life.
This takes place almost every day in Indonesia, usually small sometimes in big-scale. Matters that are protested range from political and economic issues. As we have mentioned above, low wages and poverty poses a big threat to the locals.
These demonstrations are directed towards the government. However so, this sort of demonstration can disrupt the flow of any businesses. Although it is highly unlikely that extreme events, such as the ouster of Suharto in 1998 re-emerge, one should be aware that being repressed can frustrate Indonesian society.
Insufficient amount of quality and quantity infrastructure has been barring economic and social development to reach its full potential. This is not gone unnoticed, as the Indonesian government is aware of the need for huge investments to improve the country’s infrastructure. There tend to be more planning rather than much-needed action, and it might just be coming soon.
Volcano eruptions, earthquakes, tsunamis, and floods are all phenomenon that rather occasionally make news headlines in Indonesia.
High inflation rate, depreciating rupiah exchange rate, rising poverty, slowing GDP per capita growth, rising unemployment, or fiscal instability due to a widening current account deficit or weak tax revenue are various macroeconomic shocks or developments that can jeopardize economic stability in Indonesia, and damage any new investment or business coming in.
Development Plans for Indonesia
The Indonesian government has place a high priority on nationwide economic and social development. They drafted a number of objectives that should be reached by the year 2025. This objective plans to grow the nation’s economy and also increase numbers of businesses coming in to Indonesia.
To achieve their objectives, the government drew up three interrelated and interdependent development plans:
- National Long Term Development Plan (RPJPN – Rencana Pembangunan Jangka Panjang Nasional)
- National Medium Term Development Plan (RPJMN – Rencana Pembangunan Jangka Menengah Nasional)
- Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI – Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia)
These development plans are designed in such a way that it includes to resuscitate
- a competitive and innovative population
- an orderly, developed, peaceful and socially just society
- to become an important global economic and diplomatic force
- social and developmental equality among all people and all areas in the country
- a just democracy
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.
National Medium Term Development (RPJMN 2015 to 2019)
Indonesia’s National Medium Term Development Plan is the third phase of implementation of the 2005-2025 National Long-Term Development Plan (RPJPN). It constitutes the basis for all ministries and government agencies for formulating their respective strategic.
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!
Paul Hype Page & Co – OSS service provider and Asean Chartered Accountant.
Paul Hype Page & Co. have 3 physical offices in Singapore, Malaysia and Indonesia
Our Firm Goal is to assist Foreigner and Foreign Companies to set up business in Asean.
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