Ease of
Doing Business
Ease of Doing Business in Indonesia
Indonesia is the world's largest archipelago, with more than 17,500 (seventeen thousand and five hundred) islands. The said archipelago stretches between the Pacific and the Indian Oceans, and bridges between 2 (two) continents, namely Asia and Australia/Oceania. This strategic position profoundly influences the country's culture, social and political life, and economy.
Moreover, Indonesia has a population of 278,806,676 (two hundred seventy-eight million, eight hundred and six thousand, six hundred and seventy six) people as of 23 January 2024. Today, Indonesia is the world's 4th (fourth) most populous nation, the world's 10th (tenth) largest economy in terms of purchasing power parity, and a member of the G-20.
Regarding poverty reduction, the percentage of individuals living in poverty in March 2023 was 9.36% (nine point three six percent), reflecting a decreased of 0.21% (zero-point two one percent) from September 2022 and a decline of 0.18% (zero-point one eight percent) from March 2022. According to the BPS, the total labor force in Indonesia numbered at was 146.62 (one hundred forty six point six two) million people in February 2023, representing an increase of 2,61 (two-point six one) million when compared to February 2022.
This is consistent with labor market trends, which show a recovery in labor force participation and employment but a possible deterioration in job quality. The labor force participation rate rose by 0.9 (zero-point nine) percent between 2022-2023 to 69.8% (sixty-nine-point eight percent), with an additional 4.6 million workers being employed since 2022. Unemployment has been steadily declined to 5.3% (five-point three percent), converging to pre-pandemic levels (5.2% in 2019). Hence Indonesia has sustained seven consecutive quarters of growth surpassing 5% (five percent) (year-on-year), with a slight moderation to 4.9% (four-point nine percent) in Q3-2023 (third quarter of 2023).
Regarding investment opportunities, it is widely acknowledged that both domestic and foreign investors have expanded their businesses across various sectors through investments in Indonesia. According to research conducted by the BKPM, the top 5 (five) origin countries for foreign investors in Indonesia from Q1 2023 are as follows:
Foreign Investment by Nation of Origin in Indonesia from January to March 2023
Source: Indonesian Investment Coordinating Board
Following data from the ‘World Bank's Doing Business 2020’ index, gathered through research in Jakarta and Surabaya, Indonesia has initiated significant business reforms:
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to initiate a business, particularly in Jakarta, Indonesia has enhanced procedures by introducing an online platform for business licensing and transitioning from hardcopy to electronic certificates;
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In acquiring electricity, specifically in Surabaya, Indonesia has boosted power supply reliability through renovations and maintenance of electrical grids;
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For major tax payments, Indonesia has streamlined processes by introducing an online filing and payment system; and
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In facilitating cross border trade, Indonesia simplified procedures by enhancing he online processing of export customs declarations.
However, it is crucial to acknowledge that on 15 September 2021, the World Bank released a statement regarding its ’Doing Business‘ report, revealing an investigation into data irregularities. Consequentially, a decision was made to discontinue the publication of the report, raising concerns about the reliability of the data presented. Therefore, readers are advised to approach the referenced data from the World Bank ’Doing Business‘ report with caution.
Business Reforms in Indonesia Aimed at Enhancing the Ease of Doing Business
Source: World Bank’s Doing Business 2020 Index.
Indonesia is ranked 73rd (seventy-third) among 190 (one hundred and ninety) countries in terms of EoDB. The primary challenge related to licensing in Indonesia stems from the multitude of parties authorized to issue permits. This has led to a protracted licensing bureaucracy, prolonged application processing times, and elevated licensing fees within Indonesia.
With the implementation of Law No. 11/2020, the government aims to expedite licensing services in Indonesia to overcome various barriers to investment, particularly those arising from complex regulations and bureaucracy.
This law also signifies an initiative to amend regulations concerning the convenience, protection, and empowerment of cooperatives and UMKM. It further focuses on enhancing of investment ecosystem, and the accelerating of national strategic projects, including the improvement of protection and welfare for workers.
Unfortunately, Law No. 11/2020 faced significant criticism and objections from various parties and individuals during the legislating phase, leading to its submission to the culminating in filing to Constitutional Court of the Republic of Indonesia. On November 2021, the highly anticipated Constitutional Court decision regarding Law No. 11/2020 was been issued, known as Decision No. 91/2020.
The Constitutional Court outlined 5 (five) points in the verdict on the constitutionality of Law No. 11/2020, summarized as follows:
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declared that the creation of Law No. 11/2020 is contrary to the 1945 Constitution and is conditionally unconstitutional, lacking binding force unless procedurally corrected within 2 (two) years.
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stated that Law No. 11/2020 remains in force until the procedural correction is fulfilled within 2 (two) years;
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instructed legislators to complete the correction within 2 (two) years after the rendering of this verdict. If the correction is not completed within the specified time frame, Law No. 11/2020 shall be declared permanently unconstitutional;
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declared that if legislators fail to complete the procedural correction within the 2 (two) year period, the laws or provisions revoked or amended by Law No. 11/2020 shall re-enter into force;
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suspended all actions or decisions which are of a strategic and extensive nature, as well as the issuance of implementing regulations related to Law No. 11/2020.
To address Decision No. 91/PUU-XVIII/2020, the Parliament enacted Law No. 13/2022 which amended by Law No. 12/2011. The law aims to establish a legislative framework that is planned, integrated, and sustainable. Achieving the formation of legislation with these qualities necessitates the arrangement and improvement of the mechanism for law-making, encompassing planning, drafting, discussing, validating, and stipulating to the promulgation of laws. Several matters governed under this law include:
Lawmaking Methods Amended by Law No. 13/2022
Source: Law No. 13/2022.
Following to the enactment of Law No. 13/2022, on 30 December 2022 the Government of Indonesia issued GRLL No. 2/2022 revoking Law No. 11/2022. Subsequently, GRLL No. 2/2022 needs to be enacted as a Law. Therefore, on 31 March 2023, GRLL No. 2/2022 was officially promulgated as Law No. 6/2023. The establishment of GRLL 2/2022 by President Joko Widodo is an implementation of Constitutional Court Decision No. 91/PUU-XVIII/2020. The operative clause of the Constitutional Court's decision instructs the legislative body to rectify the Omnibus Law on Law No. 11/2020 a maximum period of 2 years from the pronouncement of the Constitutional Court decision. If the rectification is not carried out within this timeframe, Law No. 11/2020 will be deemed permanently unconstitutional.
In pursuit of the implementation of the Constitutional Court's decision, the following measures have been undertaken:
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the enactment of Law No. 13/2022 which regulates and outlines the omnibus method in the drafting of laws and clarifies meaningful participation in the formation of legislation.
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the enhancement of meaningful participation, where the Government has established the Job Creation Law Socialization Acceleration Task Force (Satgas UU Cipta Kerja) with the function of conducting the socialization process for the Job Creation Law.
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the completion of research, scrutiny, and re-examination of technical errors in Law No. 11/2020 encompassing issues such as incomplete letters, inaccurate references to articles or paragraphs, typographical errors, and discrepancies in titles or numbering of chapters, sections, paragraphs, articles, clauses, or points that are non-substantial in nature.
In its entirety, GRLL No. 2/2022 comprises 186 articles addressing topics closely aligned with those of Law No. 11/2020, covering issues of considerable significance such as business licensing, risk-based approach, and employment. Although GRLL No. 2/2022 replaces Law No. 11/2020, it maintains the validity of several matters:
The Measures Maintained by the GRLL No. 2/2022
Source: GRLL No. 2/2022
The implementation of licensing in the regions comply with the following conditions:
Implementation of Business Licensing in Regions
Source: Indonesian Investment Coordinating Board.
An overview of Law No. 11/2020 is as follows:
The Gist of the GRLL No. 2/2022
Source: the GRLL No. 2/2022.
The comparison between Law No. 11/2020 and GRLL No. 2/2022 reveals that a substantial portion of the changes presented in the GRLL No. 2/2022 framework pertains to terminology, references to articles, and the restructuring of various sentences. However, several substantial changes are introduced in GRLL No. 2/2022. For instance, references to articles related to the obligation of hazardous and toxic waste ("B3") management have been eliminated from provisions governing the imposition of administrative sanctions. This adjustment could potentially be interpreted as implying that no sanctions are imposed on parties failing to manage their B3 waste. Furthermore, the term "permit" has been replaced with "approval for spatial utilization compliance”. Additionally, GRLL No. 2/2022 explicitly emphasizes that, aside from business licensing, relevant parties must comply with the suitability of marine spatial utilization activities. There is also an inclusion of the term "building approval."
In alignment with the National Medium-Term Development Plan (RPJMN) 2020-2024, Indonesia aims to improve its EoDB ranking to 40th (fortieth) by 2024 from its current position at 73rd (seventy-third). Therefore, it is imperative for Indonesia to enhance its economy during the in the period of 2020-2024 period by increasing investments in the country measured by the formation of gross fixed capital, with a target growth rate of by 6,6% (six-point six percent) to 7,0% (seven percent) annually. To achieve this objective, both foreign and domestic private investments are encouraged through the deregulation of investment procedures, as well as the synchronization, and harmonization of licensing regulations.
Incentives for Investors
According to Article 21 Law No. 25/2007, the facilities or conveniences provided to the investors are as follows:
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land titles facilities;
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immigration service facilities; and
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import licensing facilities.
These facilities are specifically granted to investors involved in who are expanding their businesses or making new investments. However, to be eligible for these facilities, investments made by the investors must meet 1 (one) and/or more of the criteria outlined in Article 18 (3) of Law No. 25/2007. These criteria include, namely:
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absorbing considerable amount of labors;
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being categorized as a high priority scale;
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the relevant investment shall be included in infrastructure development;
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transferring technology;
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implementing pioneer industries;
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the relevant investments are located in remote areas, underdeveloped areas, border areas, or other areas deemed necessary;
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preserving the environment;
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implementing the research, development, and innovation activities;
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partnering with micro, small, medium enterprises or cooperatives;
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industries which utilize capital goods or manufactured machinery or equipment produced domestically; and/or
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being included in the development of tourism businesses.
