9 Jan 2018
A Practical Guide to Doing Business in Indonesia
Indonesia is the largest economy in ASEAN with average GDP growth more than 5% over the past few years. With a population of more than 260 million, Indonesia has the world’s fourth largest population. Aside from abundance in natural resources, service and industry are the main economic drivers. Robust GDP growth in recent years has helped translate into strong income growth and expand the size of middle class in a rapidly developing consumer market. The Indonesian economy advanced slightly more than 5% year-on-year in Q3 2017 on the back of strong consumption and a rebound in government spending. The IMF’s World Economic Outlook, October 2017 projected Indonesia’s GDP growth to reach 5.2% and 5.3% in 2017 and 2018 respectively.
Doing business in Indonesia is not without challenges, as the country ranks 72 out of 190 economies in the World Bank’s Doing Business 2018 report. In the World Economic Forum’s Global Competitiveness Report 2016-17, Indonesia ranked 41 out of 138 economies.
Both reports highlight many challenges including:
- Starting a business – ranking 144 out of 190 by the World Bank’s Doing Business 2018 report, and this process is found to be more time consuming in Indonesia than many other countries in ASEAN and the East Asia and Pacific region.
- Workforce – while half of the Indonesian population is under the age of 30, only 10% of the people have tertiary education and the majority of the workers are considered unskilled.
- Infrastructure – Indonesian infrastructure and service networks have not been well developed and maintained to keep pace with the booming consumer-led economy, causing increased transaction costs and inefficiencies. The World Bank ranks Indonesia 108 out of 190 in its dealing with construction permits.
- Corruption and bureaucracy.
President Joko Widodo (also known as Jokowi) took office in 2014 with an aim to boost the economy, improve infrastructure and public services, and accelerate growth. The Jokowi government is committed to reforming the investment environment and tackling the challenges identified by different supranational institutions, setting its sight to make it easier for foreign companies to invest in Indonesia. To boost investment and foreign direct investment (FDI), the government has introduced since September 2015 several reform and incentive packages, including streamlining approval and procurement procedures for infrastructure projects. In the first half of 2017, FDI inflow to Indonesia reached US$16 billion, most of which went to the sectors of mining, metal, machinery, electronics, utilities, chemicals, pharmaceutical and food. This business guide provides practical information for Hong Kong companies who are looking to invest and do business in Indonesia.
- Regulatory Environment
- Establishing a Presence
- Intellectual Property Protection
- Staff Recruitment
- Tax Considerations
- Import/Export Procedures
- Further Information