Thursday, 06 Dec 2012
Businessman reading newspaper
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 13 years from an authoritarian regime to one of the most free societies in south east Asia. See 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 20 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.
The economic situation in Indonesia is also relatively stable. Although Real GDP grew by 6.5% year on year in 2011. GDP growth of between 6.1-6.3% is predicted for 2012 as the global economic downturn continues. Inflation in 2011 was 4.1%. Increasing food and fuel prices are likely to contribute to a higher rate for the remainder of 2012. Although most economic indicators show positive results, unemployment and poverty rates remain a problem.
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.
Trade unions are legal and active in Indonesia. 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 or 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 is illegal in Indonesia and the Indonesian Government is publicly committed to tackling all forms of corruption. In 2002, a Corruption Eradication Commission (KPK) was established to investigate and prosecute alleged offenders and several high level officials and businessmen have been taken to court. Public sentiment towards corruption is changing and Indonesians generally are becoming less tolerant of corruption.
Indonesia ranked 104th in (CPI) for 2011 an improvement of ten places from 2010. Corruption remains a regular feature of business life. 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.
The Indonesian National Police have been very successful in disrupting and tracking down suspected terrorists. However, a high threat from terrorism persists.
The nature of the terrorism threat in Indonesian continues to evolve, having mutated from Jema’ah Islamiyah (JI) being commonly regarded as the principal threat to Western interests to the emergence of JI-affiliated and offshoot groups as well as autonomous militant groups.
Considered a regional terrorist organisation, 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.
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) and three restaurants in Bali (2005).
Since 2002, Indonesian law enforcement counter terrorism operations have arrested over 600 individuals, severely weakening terrorist networks in Indonesia. However, in the last 12 months, many analysts believe that terrorist networks in the country appear to have grown in sophistication and were larger in number and geographical reach than previously believed.
The 17 July 2009 attacks on the JW Marriott Hotel and the Ritz Carlton Hotel in Jakarta, which 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. The Indonesian National Police counter terrorism response to the attacks led to a number of arrests and deaths, including Noordin Muhammad Top, the leader of a JI splinter group held responsible for many of the terrorist bombings in Indonesia since 2002.
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.
Meeting in the city
Protective Security Advice
Businessmen 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.
Indonesia is a member of the World Intellectual Property Organisation and a party to the Paris Convention for the protection of intellectual property. It is also a signatory of the General Agreements on Tariffs and Trade (GATT) and to its subsidiary agreement, GATS. It recognises the importance of intellectual property protection, and has drawn up a number of bills increasing the protection of intellectual property rights. Indonesia has laws covering patents, copyrights (Law No 19 of 2002) and trademarks. It should be noted however that local implementation remains weak; there is a lack of capacity and enforcement of regulations. Indonesia remains on the United States Trade Representative’s IPR Priority Watch List. British and foreign companies operating in the market have been affected by a number of IP issues including, Trade Mark Registration squatters, counterfeiting.and piracy (including over the internet).
We have no evidence of organised crime affecting foreign companies doing business with Indonesia.