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 1^st (the greatest potential or the highest quality) to 13^th (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.)