Business environment ranking takes a dip

Indonesia’s business environment ranking is hovering at 64 globally based on its five-year score projection. — The Jakarta Post

JAKARTA: Indonesia has fallen behind its peers regarding business environment despite the government’s efforts to improve the ease of doing business in the country, as other countries have made more significant improvements.

Indonesia’s business environment ranking is hovering at 64 globally based on its five-year score projection, lower than a ranking of 60 based on historical score data from the past five years, according to the latest annual study from the Economist Intelligence Unit (EIU) this March.

EIU country forecast manager Prianthi Roy told The Jakarta Post that Indonesia actually made improvement to its overall business environment score, but other countries happened to do even better.

“However, faster improvements made by Indonesia’s regional peers mean that its rank slips,” Roy said.

Malaysia, which had stood far above Indonesia, slipped by one spot to 29th, while Thailand maintained its rank of 39 in the same period.

Vietnam, meanwhile, saw a drastic upgrade to the 47th spot compared to the EIU’s historical data of 53rd for the same period.

Roy explained that Indonesia did improve everywhere, but its macroeconomic outlook has been “the main factor holding back Indonesia’s business environment”, hindering South-East Asia’s largest economy from going higher up the ladder.

Roy also pointed to twin deficits that the country was facing, namely regarding its fiscal and external accounts. Both are expected to become more expensive to finance considering how global interest rates have remained near cyclical highs.

“This is because the country has struggled with significant volatility in the value of its currency and elevated inflation in the early part of 2024-2028 forecast period,” said Roy.

She also pointed out that the country has a high reliance on commodity exports which made Indonesia “highly vulnerable” to fluctuations in global commodity prices and changing demands.

Other factors include Indonesia’s likely dampened economic growth this year amid the transition to a new administration as well as the impacts of prolonged high interest rates.

She recommended that the Indonesian government take further steps to reform and simplify the tax burden, retrieving unpaid state revenue and introducing tax holidays to incentivise foreign and domestic investment into the Nusantara Capital City project, along with selected industries.

The Investment Ministry’s undersecretary for capital investment climate development Iwan Suryana acknowledged that “other countries achieved more significant improvements than Indonesia”.

Nevertheless, he told the Post that Indonesia has made significant improvements as well, particularly in corporate regulations, foreign investment, exports, infrastructure, the financial ecosystem and technological readiness.

He also defended the country’s export ban of raw materials, saying it would help kickstart the country’s manufacturing capability.

This is especially regarding the electric vehicle industry, which in theory should help reduce the impacts of fluctuating commodity prices. — The Jakarta Post/ANN

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