BUSINESS AND POLITICS IN INDONESIA

Respondents whose firms were also doing business in Southeast Asian countries other than Indonesia were asked whether the profitability of their Indonesian operations was much lower than, lower than, about the same as, higher than, or much higher than that of their other Southeast Asian operations. Of the 89 senior executives who answered this question, 4 % said much lower; 8 % said lower; 28 % said about the same; 40 % said higher; and 19 % said much higher. In other words, only 12 % reported making less or much less profit in Indonesia, while 59 % (nearly three-fifths) reported making more or much more profit there.

Business obstacles:

Respondents were asked to identify, from their experience, impediments to doing business in Indonesia. Listed below are the 59 resulting obstacles, ranked by frequency of mention from the most to the least commonly cited.

  1. Staffing:hard to find good management staff
  2. Government regulation
  3. Corruption
  4. Staffing:hard to find good technical staff
  5. Inconsistent application of regulations
  6. Staffing:hard to find local technical/engineering staff
  7. Infrastructure:generally poor
  8. Weak legal protection
  9. Infrastructure:poor roads
  10. Customs clearance issues
  11. Currency fluctuations
  12. Weak contract enforcement
  13. Poor quality of legislation
  14. Infrastructure: poor ports
  15. Rigid employment regulations
  16. Domestic politics: uncertainty
  17. Domestic politics: issues
  18. Inflation
  19. Taxation: poor administration
  20. Infrastructure: poor electricity
  21. Domestic market conditions
  22. Rising cost of middle management
  23. Infrastructure: poor telecom connectivity
  24. Staffing: rising cost of senior management
  25. Domestic politics: government instability
  26. Infrastructure: poor telecom bandwidth
  27. Infrastructure: poor domestic sea transport
  28. Inability to pass rising costs to consumers
  29. High commodity prices
  30. Taxation: hard to obtain tax refunds
  31. Infrastructure: poor international sea transport
  32. Intense competition with other companies
  33. Domestic politics: rising nationalist sentiments
  34. Restrictions on expatriate work permits
  35. Government price controls
  36. Labor: rising costs
  37. Taxation: high rates
  38. Rising protectionist sentiments
  39. Infrastructure: poor domestic air transport
  40. Labor: poor work ethic in domestic work force
  41. Rising input costs
  42. Insecurity: crime and theft
  43. International market conditions
  44. Infrastructure: poor international air transport
  45. Non-tariff trade barriers
  46. Poor protection of intellectual property
  47. Restrictions on foreign investment
  48. Non-tariff barriers (other than trade-related)
  49. Negative image of Indonesia in head office
  50. Insecurity: social instability
  51. Low commodity prices
  52. Low profitability
  53. ASEAN-China FTA
  54. Inadequate availability of international credit
  55. Product registration problems
  56. Restrictions on expansion
  57. Inadequate availability of domestic credit
  58. Insecurity: personal
  59. Restrictions on foreign currency transfers

Respondents were asked to score each of 13 sectors along two dimensions: (a) its attractiveness as a choice for investment, i.e., its business potential; and (b) the quality of government regulation regarding it, i.e. the extent to which such regulation helped or hurt the realization of its investment potential. Columns (a) and (b) show, respectively, how each sector ranked for business potential and regulatory quality relative to the other sectors, from 1st (the greatest potential or the highest quality) to 13th (the least potential or the lowest quality).

In an optimal relationship between the two variables in a given sector, the quality of regulation would exceed or match the promise for investment, i.e. the difference between rank (a) and rank (b) would be positive (e.g., insurance) or zero (e.g., legal services) rather than negative (e.g., infrastructure). These differences in “business-relevance,” displayed in column (c), show the relative extent to which, in the executives’ eyes, a sector’s regulatory quality was commensurate with its promise as an investment. (The underlying numerical scores are omitted to avoid cluttering the table.)

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