JakartaGlobe-May 12
Indonesia’s economic competitiveness continues to falter due to high investment costs and a shortage of skilled labor, with illegal fees and local intimidation compounding the country’s business climate challenges, according to economist Nailul Huda. “These conditions have made Indonesia a high-cost economy, discouraging both domestic and foreign investors,” said Nailul, Director of Digital Economy at the Center of Economic and Law Studies (Celios), on Monday. He said that borrowing costs are high due to Bank Indonesia’s 5.75 percent benchmark interest rate. Investors also face unofficial levies and extortion, often imposed by corrupt officials or thuggish groups posing as civic organizations. “These are costs that ideally shouldn’t exist but are nonetheless paid as part of an informal permitting process,” Huda said. This inefficiency is reflected in Indonesia’s Incremental Capital Output Ratio (ICOR), which measures the investment required to generate a unit of economic output. In 2019, Indonesia’s ICOR stood at 6.8, well above the ASEAN average of 3.7 for the same year. Malaysia recorded an ICOR of 5.4, the Philippines 4.1, Thailand 4.4, and Vietnam 3.7. Indonesia’s ICOR surged to 8 in 2021 before declining to 6.2 in 2022, still higher than most regional peers. “Investors must spend significantly more in Indonesia than in Vietnam or Malaysia to generate the same output, which highlights inefficiency in our economy,” he said. The problem is more than just statistical. Two major electric vehicle (EV) projects in Indonesia –Vietnam’s VinFast and China’s BYD– have reportedly been disrupted by local civic groups, or ormas. The Indonesian Industrial Estate Association (HKI) said disturbances from these groups, including blocked site access and demands for control over auxiliary services, have cost the country hundreds of trillions of rupiah in lost investment. “The impact is clear, many global tech firms are now choosing Vietnam and Malaysia over Indonesia,” he said. Read more at: https://jakartaglobe.id/business/indonesia-ranks-top-3-in-asean-competitiveness-so-why-are-investors-still-hesitant
