5 Top Challenges Facing Foreign Businesses in Indonesia

Indonesia is not an easy place to do business, especially for foreign firms. Import tariffs tightened foreign work permits and other regulations are difficulties that facing foreign businesses in Indonesia every day. However, fastest-growing middle class and stable GDP growth are worth to start your business in Indonesia. In this article will be discussed 5 top challenges doing business for a foreigner in Indonesia.

 

  • Infrastructure
    The lack of sufficient quality and quantity of infrastructure in Indonesia impedes economic and social development to reach their full potential. The country's recent macroeconomic growth is, in fact, a burden on its existing infrastructure since it must absorb significantly increased economic activity. The government is aware of the need for huge investments in the country's infrastructure, but in general, as a rule, more planning than much-needed action.
  • Trading Across Borders
    Indonesia is largely reliant on global trade, making the cost of importing and exporting goods relatively low. It costs far less to trade across borders than in the rest of East Asia and Pacific, although it can take a long time to get containers cleared for transportation.
  • Culture
    A lack of transparency and corporate governance means that there is widespread corruption and organized crime in Indonesia. Industrial disputes are also commonly stated by businesses as being a difficulty, and it is recommended to do extensive due diligence on all contracts.
  • Starting a Business
    The World Bank and International Finance Corporation (IFC) rank Indonesia in 166th place in the world for ease of doing business, underlining the rigorous processes involved in starting up. Compared to the OECD average of five, it takes nine procedures to establish a corporate entity in Indonesia, taking an average of 47 days to complete. Businesses must liaise with the State Treasury, the Ministry of Law and Human Rights and the Ministry of Manpower, as well as completing several registrations.
  • Administrative issues
    - Getting Electricity: There is an enormous cost associated with getting electricity, far higher than the OECD average. The main cost is in obtaining a certificate of Guaranteed Electrical Installation (JIL) and Certificate of Operation Worthiness (SLO) from the Indonesian Electrical Contractors Association (AKLI), although external works and final connection can also be a costly endeavor.
    - Dealing with Construction Permits: Construction permits take an average of 158 days to acquire and involve 13 procedures. The Zoning Department must be consulted with and several certificates should be acquired before registering with the land and building tax office and the regional office of the ministry of industry and trade.
    - Registering Property: It takes 22 days to register a property and six procedures, which includes getting a land certificate examination and paying tax on the acquisition. Once again, the cost of registering property is far higher than the OECD norm.

 

However, the Indonesian business climate has also greatly improved in the past decade, and particularly the past couple of years has seen a wide-ranging clean-up of Indonesia’s regulatory and legal framework. For businesses looking to take advantage of its high growth levels and ambitious economic future, having local help can prove to be a real asset.




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