Eisya A. Eloksari, Jakarta – Indonesia has risen six places over the last decade to be ranked 68th out of 170 countries in the Global Index of Economic Openness as shown in a recent study by a London-based think-tank the Legatum Institute.
The study focused on four aspects the institute considers key to having an open economy, namely market access and infrastructure, investment environment, enterprise conditions and governance.
The institute's policy director, Stephen Brien, said the country had improved across the board, with the report pointing to an improved investment environment and easier procedures for business creation as the most notable.
Indonesia's investment environment soared to 53rd position, rising 34 places since 2009, on the back of improved patent laws and relatively better investor protections. However, Brien said Indonesia needed to lower its protectionist measures.
"Indonesia's restrictions on international investment are more extensive than many other countries and it still has a negative investment list (DNI), which hampers foreign investment flow, although the President said it is being revised," he said at the Investment Coordinating Board (BKPM) office in Jakarta on Tuesday.
President Joko "Jokowi" Widodo planned to relax the DNI by revising presidential decree No. 44/2016, which is aimed at opening up more business sectors to foreign investment.
The government has unveiled plans to open up 49 economic sectors by allowing foreigners to hold larger shares or by freeing investors from having to obtain recommendation letters.
Recently, Trade Ministry Foreign Trade Director General Indrasari Wisnu said the ministry would revise 18 regulations that have hampered exports and investment and could revoke several of them.
According to the World Bank, Indonesia's net foreign direct investment (FDI) inflows only accounted for 1.9 percent of gross domestic product last year. The figure is considerably lower than Cambodia and Vietnam with 11.8 percent and 5.9 percent, respectively.
Meanwhile, the country's environment for business creation ranking rose 10 places to 43rd overall following the rise of local unicorns such as ride-hailing company Go-Jek and e-commerce platforms Bukalapak and Tokopedia.
The Global Entrepreneurship Monitor report stated that 14 percent of Indonesians aged 19 to 64 years old were either nascent entrepreneurs or owner-managers of new businesses, indicating a high rate of entrepreneurial activity.
However, the challenge for these new businesses lies in turning them into formal entities. The country recorded only 0.33 new business registrations per 1,000 people in 2016, showing that many entrepreneurs choose to remain informal.
Meanwhile, those who registered their businesses were driven by necessity rather than opportunity, according to the Legatum Institute study.
"The government needs to incentivize businesses to become formal entities such as by reducing redundancy payments and making hiring easier," Brien said.