Indonesia, with its capital city of Jakarta, is the largest archipelago in the world, located between mainland South-East Asia and Australia. The country consists of approximately 17,000 islands, of which approximately 6,000 are inhabited, stretching some 5,000 km from east to west and 1600 km from north to west where 80% of this area is covered by sea. Because of its complex geographical make-up and unique bio-geographical position, Indonesia has enormous ecosystem diversity as well as a fascinating history and heritage.
With more than 210 million inhabitants, Indonesia is the 5th most populous country in the world and is among the most culturally rich countries on earth. Indonesia has more than 300 ethnic with some 250 distinct languages and dialects throughout the nation. Despite of these differences, however, Bahasa Indonesia has been adopted as the national language as well as the language of unity which is spoken by almost everyone. English is generally spoken by businessmen, government officials, and foreign graduates. For the last ten years, Chinese or Mandarin language has been commonly used and has become advantage for businessmen doing business with China. As economic development and modern education spread throughout the country, the ethnic and regional differences are being diluted.
Advantages of investing in Indonesia
Following the experience of economic and financial crisis in 1997, the government of Indonesia recognized that foreign investments have important role in order to reconstruct the Indonesian economy. During the following years, the successive government enacted legal and regulatory reforms which were designed to make Indonesia an attractive and competitive destination for foreign investments.
Indonesia has increased domestic consumption and investment which should compensate for a global slow down in export growth to increase economic growth from 6.3 per cent in 2003 to 6.4 per cent in 2008. This should continue to attract foreign investment and support the focus on increased infrastructure spending and improving the investment climate. Indonesia’s developing economy has been largely based upon primary industries notably agriculture and natural resources such as oil and gas, minerals and forestry. The exploitation of natural resources is the most important source of taxation revenues and foreign exchange for Indonesia. In order to reduce its relative reliance on oil and gas related revenue and therefore its susceptibility to fluctuations in the world demand for oil and gas, the government is encouraging growth and investment in areas such as manufacturing and the exploitation of other natural resources.
The Government also recognizes the need for foreign investment in order to assist the continuing development of the economy. The government is particularly interested in foreign investment in areas where capital, advanced technology and management skills are not readily available internally and in areas where investment will increase export earning and transfer technology to Indonesians.
Indonesia proclaimed its independence and became a republic on August 17, 1945. The State’s basic legislation is Undang Undang Dasar 1945 (“The 1945 Constitution”). The Republic of Indonesia is governed by a president who is directly elected by the people through general election once every 5 years. The President of the Republic of Indonesia is the Head of the State as well as the Head of the Government.
Communication and Transportation
Domestically, Indonesia has good coverage for media across most major islands. The telecommunication companies are providing a wide range of services such as Local and International Call, Mobile Cellular Services, Internet Access, Multimedia, etc. Foreign GSM mobile phones are compatible with the Indonesian telecommunications network. International phone cards are also usable at public phone kiosk and the Internet Connections are widely available in the cities.
Public transportations are easily available and relatively inexpensive. The public transportation includes trains, busses and taxis. Bus services are available in most areas connected to the road network. Taxis or rental car with chauffeur for hire is readily available in the cities. An extensive network of trains for passenger transport currently exists only in Java. Air transports are also available but considerably more expensive than the above mentioned transport modes.
Language and Currency
Bahasa Indonesia is the national language, and Rupiah is the Indonesian currency. English is the second language which mostly practices amongst the business people and young executives.
The basic ideology of the state is set out in 5 fundamental principles known as “Pancasila”. This encompasses a belief in one supreme God, a just and civilized humanity, unity of Indonesia, sovereignty of the people, and social justice. The 1945 Constitution vests the highest authority and provides for a sharing of powers among the executive, legislature and judiciary.
Major exports and imports
Indonesia is the producer of oil and gas, and mining products, such as: coal, nickel, tin and others, agriculture products, and fishery.
Government Policy on Foreign Investment in Indonesia
The Foreign Investment law stipulates that foreign companies and individuals may invest and operate in Indonesia with 100% foreign ownership. Such investments must be approved by the President through BKPM. The investor deals, in principle, with BKPM for all the approvals, licenses and permits required to establish or expand production facilities and to receive fiscal facilities, grants and other incentives. Work permits for expatriates are issued by the Chairman of BKPM on behalf of the Minister of Manpower.
Foreign direct investment in the manufacturing, industrial or non-financial services sector is licensed by BKPM. The Investment Coordinating Board (BKPM) is responsible for promoting foreign and domestic investment and approving most project proposals in Indonesia. Investment in the areas of banking, insurance, general mining, oil and natural exploration, production and related activities are licensed by other regulatory bodies.
Imported goods must receive the approval of the appropriate Government of Indonesia agency. All imported food and beverages must be registered at the Indonesian Food and Drug Control Agency.
Duties and taxes which are applicable to imported goods consist of:
1. Import duty, generally the rates range from 5 to 30%, major exceptions to this are the 150% duty applied to all imported distilled spirits and wine and the 125% duty on built up passenger and light vehicles.
2. Value Added Tax (VAT) rate varies from 0 to 10%
3. Sales Tax on Luxurious Goods (STLG) or Excise Tax can be as high as 35% for certain Luxury products.
4. Income Tax (PPh) is 2.5% for a registered importer and 7.5% for an unregistered importer.
Specified Import Licenses are issued by the Department of Trade for general importers which is valid for one year up to five years and extendible.
The rupiah, the local currency, is freely convertible, although approval of Bank Indonesia (central bank) must be obtained before carrying more than IDR 100 million out of the country. Any person carrying IDR 100 million or more into the country must verify the authenticity of the funds with Indonesian custom upon arrival. Indonesia does not restrict the transfer of foreign currency funds to or from foreign countries, but incoming investment capital requires approval. Offshore loans must be registered with Bank Indonesia, with subsequent movements reported monthly so that the Bank Indonesia may monitor the country’s foreign exchange exposure. Domestic commercial banks must submit monthly reports to Bank Indonesia on their foreign exchange transactions.
Source of Finance
Generally, the major sources of finance in Indonesia are local and multinational banks (including sharia banks), financing companies, the stock exchange etc.