Overseas Business Risk – Indonesia
Information on key security and political risks which UK businesses may face when doing business in Indonesia.
Political and Economic
Overall the political situation in Indonesia is stable. The country has gone through a remarkable transformation over the last 14 years from an authoritarian regime to one of the most free societies in south east Asia. See Freedomhouse.org for details. The transition was turbulent – involving the Asian financial crisis, the fall of a leader who had ruled for 32 years, an overhaul for the political and legislative frame-works, serious ethnic and religious conflict and the devastating 2004 tsunami.
Indonesia has now developed into the third largest democracy in the world with the first direct elections for President being held in 2004. A comprehensive push for decentralisation has seen much power transferred to the regions. President Bambang Yudhoyono became Indonesia’s first ever democratically re-elected president with 60% of the vote. He was inaugurated for his second term on October 2009, with the next elections scheduled for 2014. The overall human rights situation has improved significantly over the last 20 years. However there are ongoing allegations of human rights abuses in Papua and elsewhere in Indonesia. We raise credible reports with the Indonesian authorities. The Indonesian government has made real progress in tackling terrorism since the devastating bomb attacks in Bali in 2002 and subsequent bombings, but the threat of terrorism remains; please refer to the FCO Travel Advice for details.
More information on political risk, including political demonstrations is available in FCO Travel Advice.
Indonesia has had strong stable growth, averaging 6% over the last 4 years. GDP grew by 6.2% in 2012, but has slowdown slightly to 5.9% in the mid of 2013 due to domestic and external pressures. In the latter half of 2013 the economy is facing a more testing time with inflation rising above 8% since June 2013 due to food and fuel price increases, a current account deficit of 4.4% of GDP, (the worst in 15 years) and a declining currency and stock market. The delay in US withdrawal of Quantitive Easing and Government and Bank Indonesia measures have eased pressures for now, but action is needed to address structural impediments to growth. Indonesia’s medium to long term outlook is still strong due to its demographic advantages. The country still faces poverty and income inequality issues.
Indonesia’s economy has high rates of informality: an estimated 30% of firms in Indonesia start operations without being formally registered. UK Trade & Investment advises British companies to deal only with formally registered Indonesian companies. The UK Trade & Investment team in Jakarta can help to check whether a company is formally registered. This is particularly important before making payment and when making deals via e-commerce. The age-old maxim holds: “if its sounds too good to be true, it probably is”.
A complex and dynamic legal and regulatory environment can present challenges for business. Companies should research the market and prospective partners thoroughly and seek professional advice before entering into contracts.
Human Rights and Business
Indonesia was the first Asian country and the fifth country in the world to ratify all core International Labour Organisation (ILO) Conventions. Since becoming a member in 1950, Indonesia has ratified a total of 18 ILO conventions. Domestically, laws have been passed which have specific provisions referring to human rights and business including the 2007 Corporate Law which imposes mandatory duties on every limited liability corporation working directly or indirectly with natural resources to limit the environment and social impact of its activities.
Domestically, there are a number of institutions that have the responsibility to deal with human rights issues related to business. These include, but are not limited to, the National Human Rights Commission (KOMNAS HAM); Ombudsman and the Corruption Eradication Commission (KPK).
KOMNAS HAM has stated that the main human right issues related to business include issues around ownership of property and land, indigenous people’s rights environment, health, water and labour rights. In 2011 KOMNAS HAM received 1068 complaints involving corporations.
Trade unions are legal and active in Indonesia, but only represent a small proportion of total workforce. Strikes and demonstrations do occur, for example on Labour Day and often over pay and working conditions. There is a statutory minimum wage but there are issues with compliance and enforcement of this.
Child rights are protected according to the constitution and several national laws. For example, the Manpower Act sets the minimum age for work at 15 and the minimum age for hazardous work at 18. The Act also permits light work for children between ages 13 and 15, as long the work does not disrupt their physical, mental and social development. The Indonesian government has also stated that ratification of the Optional Protocol to the Convention on the Rights of the Child is a priority. However, child labour is prevalent in Indonesia, particularly in informal employment and in the agricultural and domestic service sectors. Girls under 15 are often employed as domestic workers, sometimes with long hours and no holiday.
Women make up approximately two fifths of the employed population in Indonesia; however, they are disproportionately represented in certain occupations, for example in the informal economy, and as unpaid family workers. Women are significantly underrepresented in senior professional positions but there has been some recent progress demonstrated by an increase in women’s participation in politics and management. This gap is largely because of cultural and social barriers, education attainment and lack of work experience. The National Commission on Violence against Women states that there are 154 local bylaws which intentionally or in practice discriminate against women.
Bribery and Corruption
It is an offence under UK law for British nationals or anyone who is ordinarily resident in the UK, (or for a body incorporated in the UK or a Scottish partnership), to bribe of offer to bribe, anywhere in the world.
In addition, commercial organisations carrying on business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In such a case it would not matter whether the acts or omissions which formed part of the offence took place in the UK or elsewhere.
Bribery and bribing public officials is against the law in Indonesia. The Indonesian Government is publicly committed to tackling all forms of corruption. The Corruption Eradication Commission (KPK) monitor interactions between companies and their staff and government officials related to the delivery of public services, such as the issuing of business permits or provision of other business documentation. . However, corruption remains a regular feature of business life. Indonesia is ranked 118th in Transparency International’s Corruption Perception Index (CPI) for 2012 with and CPI score of index of 32. Based on CPI results there has been no improvement in the last few years. Companies considering business partnerships should carry out due diligence prior to selecting partners to manage the risk of being affected by fraud or corruption carried out by a third party.
Foreign businesses should be aware that the risks of encountering bribery or attempted bribery is relatively high in Indonesia. A recent Control Risk Report highlighted demands for facilitation payments and payment of bribes by business intermediaries (eg agents) as particular risks.
There is a high threat from terrorism in Indonesia despite considerable success by the Indonesian National Police in disrupting and tracking down suspected terrorists. Terrorist groups continue to plan attacks and have the capacity and intent to carry them out at anytime and anywhere in the country.
Organisations such as Jema’ah Islamiyah (JI) and Jema’ah Ansharut Tauhid, commonly regarded as the principal threat to Western interests, continue to exist. Jema’ah Islamiyah is now mainly active in Indonesia and the southern Philippines. Its aim remains to create a unified Islamic state across the region.
Considered a regional terrorist organisation, Jema’ah Islamiyah and its offshoots are believed to have been responsible for several high-profile attacks, including the bombings of nightclubs and bars in Bali (2002), the JW Marriott Hotel in Jakarta (2003), the Australian Embassy in Jakarta (2004), three restaurants in Bali (2005). In 2009, attacks on the JW Marriott Hotel and the Ritz Carlton Hotel in Jakarta, claimed the lives of 7 people, serve as a reminder that terrorists still have the intent and capability to attack Western, including British interests in Indonesia.
Since 2002, in response to these attacks, Indonesian law enforcement counter terrorism operations have arrested over 800 individuals, severely weakening terrorist networks in Indonesia. However, since 2010, the terrorist threat has evolved to include new offshoot groups and autonomous militant groups which in recent years have usually targeted Indonesian law enforcement agencies. The Indonesian National Counter Terrorism agency announced in 2012 that terrorist networks in the country appear to have grown in sophistication and are larger in number and geographical reach than previously believed.
The UK works with Indonesia within international law to prevent terrorist attacks, encouraging law enforcement activities to track down and prosecute those who are responsible. This work also aims to provide better security against attacks and improve the response to incidents.
Protective Security Advice
People visiting and working in Indonesia should be aware that there has been a marked increase in the fraudulent use of stolen or cloned credit cards to purchase goods or services from the UK and elsewhere through the internet.
Credit card fraud is common. Don’t lose sight of your card during transactions. Criminals sometimes place a fake telephone number on ATMs advising customers to report problems. Customers dialling the number are asked for their PIN and their card is then retained within the machine
Indonesia is signatory to a number of international intellectual property (IP) treaties administered by the World Intellectual Property Organisation (WIPO), such as the Paris Convention, the Berne Convention relating to the protection of copyright, and the Patent Cooperation Treaty (PCT) which provides for a common patent filing system. Indonesia has been a member of the World Trade Organisation (WTO) since 1995, and is thus a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which sets international standards for various aspects of IP. Indonesia has accordingly enacted laws covering patents, copyright, trademarks, and industrial designs to implement its obligations under the international treaties.
While there have been efforts to improve the IP protection and enforcement system in Indonesia, including various technical assistance and capacity building programmes rendered under bilateral or regional programmes, effective IP protection and enforcement remain challenging. Businesses are generally encouraged to learn more about IP issues relevant to their specific industry sector and to consider defensive measures early in their plans to enter the Indonesian market. Useful information can be found at the , a project funded by DG Enterprise and Industry of the European Commission to provide free information and training for European SMEs in the ASEAN region.
We have no evidence of organised crime affecting foreign companies doing business with Indonesia.