Indonesia Operational Risk Index by BMI

Taken from

Indonesia Operational Risk Report

Published 11 September 2014

Investors in Indonesia face a variety of challenges that hinder the business environment in the country. Chief among these issues are the limitations on foreign direct investment (FDI), excessive red tape associated with trading and setting up a business, a poorly skilled labour market, a disjointed and highly variable logistics network, and the risks posed to foreign workers and businesses from crime and terrorism. Having said that, we note that there are opportunities for investment in Indonesia, which is South East Asia's largest economy. The manufacturing, oil and gas, and infrastructure sectors all represent attractive options for FDI, while portfolio investment has traditionally been a key source of capital inflows. What's more, businesses in Indonesia are able to make use of the country's strategic location on vital global shipping lanes, which keeps the cost of importing and exporting low.

The challenges faced by businesses in Indonesia mean that the country is a regional underperformer in the BMI Operational Risks Index, with a score of 46.8 out of 100 placing it 17 th out of 29 states in Asia, and 90 th out of 170 countries globally. This places Indonesia on a par with such countries as Serbia, Columbia and Moldova, which are all much smaller economies with far fewer opportunities for investment. Although Indonesia is placed just above India, it comes in below all the remaining BRICS countries (Brazil, Russia, China and South Africa), indicating that it is one of the less attractive emerging markets for investment.

Indonesia's geography poses a number of obstacles to the development of a sophisticated logistics network. The quality and extent of the transport network and utilities coverage is extremely variable island to island, and supply chains face frequent disruption due to poor-quality roads, port congestion and high levels of trade bureaucracy.