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!