UK Business Confidence in Indonesia Subdued Amid Economic Challenges
A survey released by The British Chamber of Commerce Indonesia (BritCham) showed that United Kingdom (UK) investors’ confidence on doing business in Indonesia in 2013 and 2014 dropped but is still positive overall. One hundred corporate and other members of BritCham, 95% of whom hold Senior Management posts, participated in this survey. The survey showed that 60% of the total respondents remained confident about their business in Indonesia, down from 83% in 2012, while the Ease of Doing Business score fell by 15% from 65% to 50%.
These results show not only a steep decline in overall business confidence from previous years, but also highlighted concerns about a perceived increase in the difficulty of conducting business in Indonesia.
The survey also showed that bureaucracy, corruption, and labor policy are considered the biggest challenges for Indonesian and UK businesses. Around 74% of respondents considered that corruption forms a challenge, thus rising significantly from 63% in 2012. However, the most significant difference came from labor policy. According to the survey, 63% of respondents believes that Indonesia's labor policy forms one the biggest challenges, much higher than 2012 (47%).
Investment, workforce numbers and revenue are generally projected to increase, albeit at lower levels than last year, which may indicate that the pace of business growth is slowing. Importantly, confidence in the overall investment climate fell sharply from 69% to 31%, a fall of 38%, which is a matter of concern to BritCham.
On an industry-by-industry basis, UK confidence was highest in retail & consumer goods (72%), followed by engineering and construction (67%), hotels and tourism (83%), and real estate (73%), although all registered declines. Confidence was lowest in oil and gas (33%), mining (22%), utilities (40%) and agriculture (36%). Of concern here is that confidence is lowest amongst some of the industries which can benefit most from foreign investment and technical assistance.
“Growth outlook seems to decline across all sectors when compared to 2012. There is a significant negative impact on growth for manufacturing, oil, gas, and mining. On the other hand, the retail sector will be a star,” Chairman of Britcham, Haslam Preeston, said on the survey launching (Thursday, 28/11).
Preeston added that despite the economic challenges, British business remains broadly confident in doing business in Indonesia. UK investors expect to continue their investment and further increase revenue in the year ahead.
“The outlook towards investment, workforce and revenue growth are mostly set to increase, but at a slower pace than in 2012,”Preeston said.
According to the survey, 70% of respondents believe that their revenue - generated from business activities in Indonesia - will increase this year, thus lower than in 2012 (86%). Around 57% of respondents assume that their investment in the year ahead will increase, down from 86% in 2012.
Based on data from the Indonesia Investment Coordinating Board (BKPM), the UK is the fifth largest investor in Indonesia in the period January-September 2013 ( quarter I-III/2013) in terms of foreign direct investment (FDI) realization. The total investment of UK investors in the three quarters is USD $1 billion (in 178 projects). The five largest foreign investors in Indonesia are Japan (USD $3,6 billion), Singapore (USD $3,1 billion), USA (USD $2 billion), South Korea (USD $1,6 billion), and UK (USD $1 billion).
Further Reading:
• Risks of Investing in Indonesia
• Indonesian Business Culture
• Doing Business in Indonesia