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Indonesia to Make Starting a Business Easier, But Experts Remain Sceptical

Photo Courtesy of Muhammad Rasyid Prabowo

The Indonesian government looks to slash the number of days it takes to start a business from 47 days down to 10. But experts and analysts remain cautious.    

Although it has a budding middle class and by far the largest population in the region — 250 million people spread across more than 17,000 islands — Indonesia’s economy and small-and medium-sized-enterprise (SME) business growth lags far behind other Southeast Asian nations, namely Singapore, Brunei, and Malaysia.

The World Bank says Indonesia’s GDP per capita trapped around US$3,492 in 2014. Singapore brought in US$56,284, while Brunei’s GDP per capita was clocked at roughly US$40,979. Malaysia came behind them, but still miles ahead of Indonesia, at US$11,307.

Analysts have long been concerned about the difficulty of doing business in the archipelago. Once again, the nation is well below its regional peers Thailand, Brunei, and Malaysia, while Singapore is the outlier, ranked as the overall easiest place in the world to set up a new company. The World Bank’s Doing Business 2016 report points out that Indonesia is ranked 108th out of 189 countries for its ease of doing business. To wit, this means it’s super hard to build a business locally.

But that could soon change, as the president recently announced what could be a major overhaul. Jokowi wants to make it easier for anyone to do business in the nation. As such, the government is looking to do away with around 3,000 regional government regulations that have made it tough for businesses to get set up and start to operate. In total, the package sees 94 procedures cut down to 49. The time spent on procedures should drop from 1,566 days to 132 days. Costs should also drop from Rp.92.8 million (US$7,036) to Rp.72.7 million (US$5,440).

“It’s a headache to look at the procedure. But I have been there and done that,” said Jokowi, shaking his head in disappointment at a press conference in the State Palace. The news came as the president unveiled his administration’s 12th economic policy package since September.

Jokowi, who used to be a furniture entrepreneur before getting into politics, claims to understand the situation that most local SMEs face today.

For this reason, over the next two years, the administration is ambitiously hoping to boost Indonesia to number 40 on the World Bank’s list before the end of his term in 2019.

In Indonesia, anyone who wanted to start a company was previously required to complete 12 procedures that take an average of 47 days. Fledgling entrepreneurs had to also endure a cost of around Rp.6.7 million (US$500) to Rp.7.8 million (US$580). Under Jokowi’s new regulation, incorporating a new business entity would require founders to complete seven procedures that take around ten days, and endure a cost of around Rp.2.7 million (US$200).

Previously, if someone wanted to construct a venue in which to do business, the process was nightmarish at best. Construction required 17 official procedures, around 210 days, and would generally cost Rp.86 million (US$6,400) just to make it legal. Under Jokowi’s new regulation, the process would be slightly less painful, clocking in at 14 procedures, 52 days, and having a price tag of Rp.70 million (US$5,200) per case.

Tax is another important factor. In the past, entrepreneurs were forced to cope with 52 separate taxes, which must be paid offline. Under the new procedure, business owners would only be required to pay 14 different taxes, all of which can be done online.

In terms of getting electricity hooked up to one’s business, Jokowi said it would now take four procedures to subscribe to a new grid, and it will take around 25 days to complete. This is a decrease from the previous five procedures over an 80-day period.

For businesses in Indonesia looking to import and export goods, the president explained that the government is reducing the time in port from 4.5 days to a maximum of three days.

“Cross-border trading, which was previously done offline, can now be done online with a way to send a notification of when goods are exported and imported. In addition, there will be a limit for keeping goods at the harbour for a maximum of three days,” said the president. Overall, the new move by the Indonesian government is meant to help SMEs cut down on red tape that might otherwise prevent them from starting up.

Although in theory the content of the stimulus package is good for SMEs, a great deal of uncertainty looms about its effective implementation in Indonesia. The archipelago is notorious for widespread discrepancies between government planning and actual execution.

Enny Sri Hartati, director of the nation’s Institute for Development of Economics and Finance, echoes this viewpoint in an interview with Indonesia Expat.

“This is a good move by the government. I believe this will help the SMEs and economic growth in Indonesia. But something that becomes my concern is the consistency of the government and how they plan to fully implement this regulation. For example, the first point is reducing the procedures from 12 to seven, then cutting the duration it takes [to incorporate] from 47 down to ten days, and finally [lowering] the cost to Rp.2.7 million (US$200) when starting a business,” explains Hartati. “In real life, will this implementation be consistent or not? It’s hard to say.”

William Suryawijaya, an investment analyst at Jakarta-based financial consulting firm Asjaya Indosurya Securities agrees to a certain extent. He says, “If this new regulation can be done consistently, of course this will attract the investors toward doing business in Indonesia.” It’s true this reform will take time to be fully implemented, “but at least right now we have a guide of where Indonesia’s economy will go,” Suryawijaya tells Indonesia Expat.

According to Franky Sibarani, chairman of the Indonesia Investment Coordination Board, implementation of the first 11 economic stimulus packages is nearly complete. “A few regulations have taken longer to implement, but right now we have reached 94 percent [completion],” Sibarani recently told reporters.


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