Jakarta – Reports of rampant extortion of companies in the country will shock nobody on the ground, and yet it is very timely to talk about the issue as the government vows to push gross domestic product (GDP) growth through increased investment.
A study from Transparency International Indonesia found that illegal levies can eat up as much as 30 percent of a company's total production costs. While that figure represents extreme cases, even 5 percent can make or break an investment decision.
Also, the issue extends far beyond the numerical damage as it taints the overall image of Indonesia as a place for doing business.
An extra 2 or 3 percentage points in production costs due to input prices for wages or materials is far less problematic than unpredictable levies and bribes paid to an undefined set of illegal actors. One can be calculated by investors and booked as an unfortunate but official expense, the other is the stuff of sleepless nights for executives.
According to the Indonesian Industrial Estates Association (HKI), industrial estates like those in Karawang, West Java, and Batam, Riau Islands, are prime hunting grounds for extortion. That is particularly troubling because those zones promise legal clarity and cost predictability as key selling points for companies to set up shop there.
Not that that makes such corrupt practices any less wrong in, say, a remote mining operation, but the damage is likely greater in estates that aim to lure export-focused, labor-intensive industries that could easily opt for another country should they find Indonesia inhospitable.
The HKI says illicit payments extracted from investors have cost Indonesia hundreds of trillions of rupiah as projects are canceled and companies pull out. Failure to comply with the payment demands can see factories blocked by demonstrations or property vandalized.
The association identifies organisasi kemasyarakatan as the key bad actor. While that term translates to "community organization" or "social organization", its acronym ormas is often translated somewhat misleadingly as "mass organization".
The perpetrators are typically local advocacy groups built around a social cause, but in practice, they often serve much narrower interests, with little to no transparency on where the collected funds end up.
The government must get a grip on this thuggery issue, and fast, if it hopes to seize the moment of global trade wars to pitch unaligned Indonesia as a safe place for international investors.
The issue here is not just straight-up criminal activity, such as protection fee shakedowns. It extends to coercion for firms to employ local staff or use certain subcontractors for accommodation or catering services and the like.
It is fair enough to expect investors to contribute to the local economy, or more generally to the surrounding community, but this expectation must be clearly defined, and its scope limited.
Businesses need certainty up front regarding what is expected from them in terms of corporate social responsibility, and what is not. They need to know that, once all the requirements regarding a project have been set out, they can get on with business, working within the agreed-on parameters, and not have any additional demands piled on.
Solving social issues is, first and foremost, the responsibility of the government. Similarly, a company's environmental responsibility must be clearly delineated. The issue is not so much how strict, but how clear, the rules are. As long as they are clear, expectations may be high.
The government must also communicate to the local community that all requirements have been met and protect an investor against any attempts to extract more.
The Industry Ministry has admitted that extortion and racketeering have deterred foreign investment, but the issue has been going on for far too long. Telling the affected companies to report extortion attempts to the local authorities will not cut it, because often those authorities are slow or reluctant to respond.
There is a reason why many investors prefer to take up such cases directly with the central government, and that very fact should give Jakarta pause for thought.
Source: https://www.thejakartapost.com/opinion/2025/02/25/extortion-kills-investment.htm