COUNTRY BUSINESS PROFILE: INDONESIA

A Research Paper
Presented to the
School of Management
NU-Asia Pacific College
Makati City

In Partial Fulfillment
of the Requirement for the Course
International Business

Presented By:
Cacalda, James Victor L.
Cacalda, Jimnah Joseph V.
Goedings, Joshua
Solis, Sherbby P.

Presented to:
Roy R. Avecilla
International Business Instructor

September 2022
1st Term
A.Y. 2022-2023

TABLE OF CONTENTS
1. Name of the country 3

2. Neighboring countries 3

3. Territorial size of the country 3

4. Size of the population, major languages/dialects, religion, literacy rates 3

5. Type of Political System and Government (describe briefly in a minimum of 10 sentences) 3-4

6. Who is the Prime Minister, President? 4

7. What political party is in power? 5

8. Derivation of the form of law: Common, civil, other. 5

9. How would you classify its economic system? (briefly describe in a minimum of 10 sentences) 5-6

10.What is that country’s current GDP, GNP, rate of inflation, rate of employment and
unemployment, and peace and order situation. 6

11. Major Natural Resources 6-7

12. What major products are exported and to which countries? 7

13. What are the major imports and from which countries? 7-8

14. Member of what economic integration and international organizations 8

15. Name of the currency and currency exchange rate vis-à-vis the US Dollar and the Euro. 8-9

Analysis

Political 9

Economic & Legal 9

Cultural 10

Opportunities 10

Challenges 11

Guidelines 11

Recommendations 11

References: 12-13

1. Name of the country

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 Off the coast of Southeast Asia, in the Indian and Pacific oceans, is the country of

Indonesia. Indonesia was formerly known as the Dutch East Indies (or Netherlands East Indies).

The term "Indonesia" was coined by a German geographer in 1884, but it wasn't until the

country's independence that it was used as the official name. Indonesia declared its independence

from the Netherlands in 1945 after being invaded by the Japanese from 1942 to 1945. However,

it persisted in its independence fight until 1949, when the Dutch formally acknowledged

Indonesian sovereignty

2. Neighboring countries

Indonesia has common boundaries with East Timor on Timor island, Papua New Guinea on

Papua island, and Malaysia on Borneo island. Singapore, the Philippines, Australia, and the

Indian union territory of the Andaman and Nicobar Islands are some other nearby nations.

3. Territorial size of the country

With a maximum length from east to west of nearly 3,200 miles (5,100 km) and a width from

north to south of 1,100 miles, Indonesia is the largest nation in Southeast Asia (1,800 km).

4. Size of the population, major languages/dialects, religion, literacy rates

As of Sunday, September 4, 2022, Indonesia had a population of 279,794,865. The majority of

people in Indonesia—90% of the population identify as Muslims. As of literacy rate, there is an

increase of 0.34% from 2018 which resulted to the 2020’s rate of 96% according to Macro

Trends, 2020. The official language of Indonesia is Indonesian (Bahasa Indonesia)

5. Type of Political System and Government (describe briefly in a minimum of 10 sentences)

The president, members of the House of Representatives, the Regional Representative Council,

and representatives to the provincial and district parliaments are all chosen by Indonesian voters

every five years. They also cast ballots for mayors, district and village officials, as well as

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governors. In other words, Indonesia is a solid democracy as the constitution was declared in

1945 in which provided basis for Indonesia’s government. The body of government consists of

branches such as executive, judicial, and legislative. The president, who is supported by a vice

president and a cabinet, is given the majority of the executive branch's authority under the 1945

constitution. The legislative branch of Indonesia's government is made up of the MPR, which is

largely in charge of interpreting both the constitution and the broad outlines of state policy. Since

the 2004 elections, the MPR has had two houses, the Council of People's Representatives

(Dewan Perwakilan Rakyat; DPR), and the Council of Regional Representatives (Dewan

Perwakilan Daerah; DPD). Members of the DPR are directly elected using a province-based

proportional system that enables voters to cast ballots for both specific parties and specific

persons, whereas members of the DPD are directly elected from a pool of national nonpartisan

candidates. The Supreme Court of Indonesia (Mahkamah Agung), which is based in Jakarta, is

the final court of appeal; high courts, which are found in major cities, handle appeals from

district courts. The president appoints Supreme Court judges from among the candidates put up

by the Judicial Commission, a unique organization whose members are nominated by the upper

house. The justices of the Supreme Court elect the chief justice and any deputies from among

themselves.

6. Who is the Prime Minister, President?

Joko Widodo, also known as Jokowi, is the president of Indonesia. He became the first

Indonesian president who didn't have a military background or belong to a distinguished political

family. His success at the polls was viewed by some as marking the start of a more democratic

era in Indonesian politics.

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7. What political party is in power?

Indonesian democratic party of Struggle (PDI-P), Indonesian Partai Demokrasi

Indonesia-Perjuangan, political party in Indonesia formed in 1973 through the forced merger of 5

non-Islamic political parties. Within the final 3 decades of the twentieth century, it was one of 2

opposition parties formally recognized by the government.

8. Derivation of the form of law: Common, civil, other.

The major legal system used in Indonesia is the civil law system, which was adapted

from Dutch colonial law. After gaining independence in 1945, the country began to develop its

own contemporary Indonesian legal system by adapting existing Dutch legal norms and drawing

from both the pre-Dutch colonial customary law (adat) and the Islamic law (sharia), which is

applicable to Muslims.https://unimelb.libguides.com/c.php?g=930183&p=6721974

9. How would you classify its economic system? (briefly describe in a minimum of 10 sentences)

In Indonesia's market economy, major private corporate groups (conglomerates) and

state-owned businesses (SOEs) play a key role. Together with the SOEs, hundreds of diverse

privately held company groupings dominate the home economy in Indonesia. These

organizations make up a very small percentage of all enterprises operating there. Wealth is

therefore concentrated at the top of society (and not unoften there are close links between the

corporate and political top of the country). Additionally significant are Indonesia's micro, small,

and medium-sized businesses, which together make up 99 percent of the nation's operating

businesses. They generate employment for roughly 108 million Indonesians and make up about

60 percent of Indonesia's GDP. This suggests that the micro, small, and medium-sized businesses

mentioned above form the foundation of the Indonesian economy. In other words, this market

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economy allows a fair distribution of resources. For it actually based on the law of supply and

demand. This suggest that despite the Indonesia’s political risk, its economic system allows them

to lessen the risk factor of government intervention. Eventually, this type of economy would

come to fruition. Since this allows them to maximize the amount of resources without

compromising its sustainability.

10.What is that country’s current GDP, GNP, rate of inflation, rate of employment and

unemployment, and peace and order situation.

Indonesia's GDP is expected to rise by 5.1%, aided by rising commodity exports and flexible

fiscal policies. In terms of inflation rate, the CPI inflation reported in July 2022 stated an

increase from 4.35% (from the previous month) to 4.94%. By worldwide standards, communal

violence is still at a moderate to low level. On the other hand, it was reported in June of 2022 that

Indonesia's GNP is 329.618 UST bn, an increase from the March's 306.566 USD bn of the same

year. Indonesia's unemployment rate decreased from 6.26% to 5.83% in the first quarter of 2022.

11. Major Natural Resources

First, Oil, In June 2022, production of crude oil for Indonesia was 639.7 thousand barrels per

day. Though Indonesia production of crude oil fluctuated substantially in recent months, it

tended to decrease through July 2021 - June 2022 period ending at 639.7 thousand barrels per

day in June 2022. Eventually the also had coal, in which production plans submitted to the

government amount to 663 million mt of thermal coal being produced in 2022, up from 610

million mt in 2021, according to the Ministry of Energy and Mineral Resources.

In the first half of this year, Indonesia produced 315.28 million mt of thermal coal, up from

298.56 million mt in the same period of 2021. Production in 2021 was impeded by unseasonal

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rains and a severe COVID-19 wave in the country. Furthermore, Indonesia is home to 22% of the

world's known nickel reserves. It is also by far the top producer of the metal, although

production levels fell 11% in 2020. The government hopes to turn growing global interest in

nickel into a driver of economic development. with companies such as EV-manufacturer Tesla

showing interest in the region’s supply chains. Also, Gold and Copper, here there is Grasberg

Mine, its a vast open pit mine in Papua, Indonesia, forming a crater an entire mile wide. For

years it has been one of the most productive mines in the world, with massive reserves of gold

and copper. Since the early 1990s, the Grasberg operation has been busily extracting this ore at a

staggering volume. In 2016, the vast mine produced more than 1 billion pounds of copper and 1

million ounces of gold. Then, Bauxite, in which most of Indonesia's bauxite was exported to

China, by far the world's largest producer of aluminium. This all stopped in 2014, when

Indonesia banned exports of its raw ore. The policy was an effort to encourage Indonesian-based

companies to refine the ore into alumina.

12. What major products are exported and to which countries?

According to OEC (2020).”The top exports of Indonesia are Palm Oil ($17.9B), Coal Briquettes

($15.6B), Gold ($6.31B), Petroleum Gas ($5.71B), and Ferroalloys ($4.74B), exporting mostly

to China ($32.6B), United States ($19.6B), Japan ($14.4B), Singapore ($12.6B), and India

($11B).

13. What are the major imports and from which countries?
According to OEC (2020), Indonesia's major imports are refined petroleum ($7.45 billion), crude

petroleum ($3.13 billion), telephones ($2.95 billion), planes, helicopters, and/or spacecraft

($2.69 billion), and petroleum gas ($2.42 billion), mostly from China ($40.8 billion), Singapore

($14.8 billion), Japan ($9.24 billion), Thailand ($7.76 billion), and the United States ($7.59

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billion). Also making them, in the year 2020, the world's biggest importers of Steam Turbines

($485M), Steam Boilers ($361M), Military Weapons ($197M), Boiler Plants ($182M), and

Human Hair ($58.3M).

14. Member of what economic integration and international organizations

Indonesia is one of the five original member countries that formed the Association of

Southeast Asian Nations (ASEAN). Its contributions help to improve institutions across

Southeast Asia, provide International public services, and contribute to the settlement of regional

disputes. Additionally, the nation has been crucial in helping Southeast Asia create a stable and

independent security environment. Indonesia is also a member of Brunei Darussalam–Indonesia–

Malaysia–Philippines East ASEAN Growth Area, or BIMP-EAGA; which was formed in 1994.

According to BIMP-EAGA their aim is to foster development in remote and underdeveloped

areas, as well as promote trade, tourism, and investments by facilitating the movement of people,

goods, and services across borders.

15. Name of the currency and currency exchange rate vis-à-vis the US Dollar and the Euro.

The Bank of Indonesia issues and controls the Rupiah, the official currency of Indonesia.

Its currency code is (IDR), which stands for Indonesian Rupiah, and its symbol is Rp. Indonesian

banknotes come in denominations of Rp1000, Rp2000, Rp5000, Rp10000, Rp20000, Rp50000,

and Rp100000. Coins in circulation include: Rp50, Rp100, Rp200, Rp500, and Rp1000. At the

time of writing, the conversion of IDR to Euro is equivalent to 0.000068 Euro, and 14,789.39

IDR is equals to 1 Euro. The exchange rate of 1 IDR is worth 0.000067 USD, and 1 USD is

equal to 14,914.00 IDR.

Analysis

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Political

Despite having a strong democracy, Indonesia is nonetheless quite corrupt. However, it is one of

the few nations that has seen a continuous decline in corruption over time. 2024 will mark the

next presidential election. If Pranowo wins the election, a notable coalition government with a

moderate stance and liberal economic principles will likely be established. However, if either

Prabowo Subianto or Anies Baswedan triumphs, the political rift between Islamists and

Nationalists can widen, posing a threat to societal harmony.

Economic and Legal

Indonesia prioritizes economic development by keeping interest rates low, carrying out bilateral

and international accords, and putting trade policies into action. The nation's considerable

protectionist policies, however, prevent it from reaching its full potential such as Indonesia's

palm oil export ban since the war in Ukraine. In 2020, Indonesian economy contracted by 3.2%

in 2021 unlike in 2015 which was 5.02%. As oil and coal prices go up, the Indonesia export will

likely to increase which provides the foundation in responding to the import prices of wheat. The

disruption in semiconductor chip has led them to implement policies in order to cope with this

such as travel corridor arrangements to lessen travel restrictions and invested in technology for

the sole purpose to avoid being dependent on supply chains. Recently, the government also

introduced the Harmonization of Tax Regulations Law which has a direct effect on Income tax,

Value-added tax, and General Provisions law. This law would provide liquidity (aside from the

lowering interest rates) and funding on the country’s expenditures and control price hikes.

Cultural
They will expect an honest commitment from you to the partnership because they view trust as

the foundation of successful company. As nepotism is thought to guarantee trust, their business

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networks are frequently made up of family members and peers. In Indonesian business culture,

individuals feel that good harmony and relationships are the most crucial elements to successful

business. The adage "time is money" does not apply across all cultures. People attempt to

maintain a fun/pleasant mood while they work, as opposed to being urgently productive.

Therefore, be aware that they can require more time to negotiate and complete tasks. Avoid

being aggressive or overly insistent on timeliness or speed, as these behaviors may make

Indonesians wary of doing business with you.

Opportunities

Jakarta has designated wireless communication equipment, electronic audio and video

equipment, semiconductors and other electronic components as "key industries". For

international investors, the required minimum investment to be eligible for the incentives is

$710,000. According to the presidential decree, those who make investments in the essential

industries would be eligible for both fiscal and non-fiscal incentives. While non-fiscal

inducements include streamlined licensing, assured access to energy and raw materials, and

"other conveniences in accordance with the provisions of laws and regulations," fiscal

inducements include various tax breaks. Due to its broad network of connections, Indonesia is a

key hub for trade within Southeast Asia. Its mining industry could pose as an opportunity in

utilizing its resources into product development for trade such as in the case of creating batteries

for Tesla.

Challenges

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The fines provoked in not having vaccinated would lead to additional cost in investing in the

country. This is the case for Indonesia’s capital, which is Jakarta. As well as the fact that there is

a corruption that is occurring in the country.

Guidelines

The first step in starting a business in Indonesia is to ensure the business activity is on the

Positive Investment List. After reviewing the Positive Investment List, the next step is to decide

which type of company a foreigner can establish. The next thing to do is to deal with the

bureaucracy. An investor must first acquire the Deed of Incorporation or the Articles of

Association and legalize the company through a public notary in order to start a business in

Indonesia. ). Basically, there are the following conditions to establish a business in Indonesia :1)

Deed of Incorporation; 2) Approval from the Ministry of Justice and Human Rights (SK HAM);

3) Company tax identification number (Nomor Pokok Wajib Pajak or NPWP); 4) Business

License (Izin Usaha); 5) Single Business Identity Number (Nomor Induk Berusaha or NIB);

6)Commercial/Operational License (Izin Komersial/Operasional), all of which can be obtained

via the Online Single Submission or OSS). The fourth step is to prepare the location. The fifth

step is to find resources.

Recommendations

Focus on sectors that Indonesia specializes in. From there you would try to maximize in utilizing

these resources to its advantage. The six priority industries that will be further developed by the

government are mining, electronics, renewable energy, infrastructure, and the health sector.

These industries have had consistent growth over the years, which has made them quite popular

with investors.

References:

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https://www.unav.edu/documents/16800098/38256567/Indonesia_PRR_2022_IGerdts-
IIzquierdo-ILeon.pdf.(political, legal, and economic analysis)
https://www.euronews.com/green/2022/04/27/palm-oil-exports-banned-in-indonesia-as-ukraine-
war-causes-prices-to-soar (economic and legal analysis)
https://www.indonesia.travel/gb/en/news/going-on-a-business-trip-to-indonesia-soon-read-the-
requirements-here (economic and legal analysis)
https://www.jus.uio.no/smr/english/about/id/events/natural-resources-corruption-
indonesia.html#:~:text=Indonesia%20is%20a%20country%20that,%2C%20rainforests%2C
%20various%20marine%20species.(natural resources intro)
https://knoema.com/atlas/Indonesia/topics/Energy/Oil/Production-of-crude-oil#:~:text=In
%20May%202022%2C%20production%20of,per%20day%20in%20May%202022. (oil)
https://www.spglobal.com/commodityinsights/en/market-insights/topics/asia-pacific-energy-
crisis. (coal)
https://www.atlasobscura.com/places/grasberg-mine (gold and copper)
https://chinadialogue.net/en/pollution/indonesia-gambles-bauxite/ (bauxite)
https://www.britannica.com/place/Indonesia (name and territorial size)
https://www.aseanip.org/Resources/ASEAN-IP-Offices-Details/Indonesia#:~:text=Indonesia
%20shares%20borders%20with%20Malaysia,and%20Nicobar%20Islands%20in%20India
(neigboring countries)
https://www.macrotrends.net/countries/IDN/indonesia/literacy-rate#:~:text=Indonesia
%20literacy%20rate%20for%202020,a%200.28%25%20increase%20from%202016. (literacy
rate)
https://www.britannica.com/place/Indonesia/Chinese-and-other-Indonesian-people
https://www.worldometers.info/world-population/indonesia-population/ (population)
https://www.britannica.com/place/Indonesia/Chinese-and-other-Indonesian-people (religion &
language)
https://www.britannica.com/place/Indonesia/Government-and-society. (type of political system)
https://unimelb.libguides.com/c.php?g=930183&p=6721974 (form of law)
https://www.indonesia-investments.com/culture/economy/item177 (type economy)
https://oec.world/en/profile/country/idn (import and export)
https://culturalatlas.sbs.com.au/indonesian-culture/indonesian-culture-business-culture (cultural)
https://asia.nikkei.com/Economy/Indonesia-to-offer-investment-incentives-for-priority-sectors
(opportunities)
https://www.bizlatinhub.com/why-invest-and-do-business-indonesia-2019/ (opportunities)
.https://news.trust.org/item/20210223133903-1yqor/ (challenges)
https://www.gov.uk/government/publications/overseas-business-risk-indonesia/overseas-
business-risk-indonesia#economic (challenges)
.https://www3.bkpm.go.id/en/publication/detail/news/priority-sectors-for-investment-in-
indonesia#:~:text=Six%20Priority%20Sectors%20in%20Indonesia&text=The%20six
%20priority%20sectors%20that,a%20major%20hit%20for%20investment. (recommendations)

Number 10:
https://knoema.com/data/indonesia+employment-rate

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https://www.ceicdata.com/en/indicator/indonesia/gross-national-product#:~:text=Indonesia
%20Gross%20National%20Product%20(GNP)%20was%20reported%20at
%20329.618%20USD,USD%20bn%20for%20Mar%202022.
https://tradingeconomics.com/indonesia/unemployment-rate#:~:text=Indonesia
%20Q1%20Jobless%20Rate%20Down,0.35%20million%20to%208.4%20million. https://bti-
project.org/en/reports/country-report/IDN
https://www.indonesia-investments.com/news/todays-headlines/consumer-price-index-
inflationary-pressures-rising-in-indonesia-nearly-at-5-in-july-2022/
item9537#:~:text=With%20annual%20headline%20inflation%20at,highest%20inflation
%20since%20October%202015.
https://www.reuters.com/markets/asia/indonesia-gdp-growth-beats-forecast-q2-fastest-year-
2022-08-05/#:~:text=However%2C%20Indonesia's%20central%20bank%20said,the%20middle
%20of%20that%20range.
https://www.worldbank.org/en/country/indonesia/overview
https://www.permitindo.com/news/starting-a-business-in-indonesia (guidelines)

Number 14:
https://www.nti.org/education-center/treaties-and-regimes/association-southeast-asian-nations-
asean/
https://www.paulhypepage.co.id/indonesias-role-in-international-trade-organizations/
https://bimp-eaga.asia/about-bimp-eaga/what-bimp-eaga
Number 15
https://www.indonesia.travel/cn/en/general-information/currency#:~:text=The%20official
%20currency%20of%20Indonesia,the%20currency%20symbol%20is%20Rp.

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