Challenges to Investors

The Indonesian economy is ripe for investment. Unsurprisingly, the variety of opportunities also comes with several challenges and risks. Here are three to keep on your radar.

1) Natural Disasters

Indonesia lies along the infamous Ring of Fire volcanic belt, with more than 200 volcanoes located along the islands of Java, Sumatra, Bali and in the eastern part of the archipelago. Its geographic location has also made it prone to other disruptions caused by earthquakes, eruptions and even tsunamis.

2) Volatile Exchange Rate

The Indonesian Rupiah is weak compared to many of the world’s most-traded currencies. As of end-April 2022, it was trading at Rp14,500 (rupiah) to US$1 (US dollar). Its volatility makes it doubly challenging for investors to use it in making international trade and investment decisions. After a recent drop in value triggered by hawkish comments made by U.S. Federal Reserve officials on Indonesia’s crude palm oil export ban, the country’s central bank announced that it would be stepping up efforts to stabilize the rupiah.

3) Ease of Doing Business and Corruption

Indonesia’s score in the World Bank’s Ease of Doing Business index has greatly improved over the last decade, from a score of 58.7 in 2010 to 69.8 in 2020. According to Transparency International, its 2021 Corruptions Perception Index score (38) is below the global average of 43. This notably places it ahead of other Asian countries, such as China (45) and India (40). 

The government has made progress in addressing petty corruption in recent years. However, grand corruption – that is, the abuse of power by high-level public officials – remains a problem which will require stronger measures from President Jokowi’s government if it is to be addressed.

Conclusion

Investing in Indonesia, as with any country, has its risks. However, it is widely considered to be one of the best countries for investment in Southeast Asia, particularly when it comes to certain sectors. It boasts a comparatively lower competition for opportunities and a massive population that is eager for better products and services. Its workforce is young and energetic, and many have proven themselves hungry to strive and achieve their goals. The policies of the Indonesian government over the past 20 years has consistently been pro-business and foreign investment, regardless of which political party was in power. 

These advantages provide a strong argument for taking the leap into Indonesia, even if you may face certain challenges along the way.

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