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Jakarta Post

Keep watch over Jokowi'€™s business-licensing reform

  • Hari Kusdaryanto

    The Jakarta Post

Jakarta   /   Fri, November 21, 2014   /  11:22 am

President Joko '€œJokowi'€ Widodo has sent a clear message that he intends to create a business-friendly bureaucracy by eliminating costly red tape for entrepreneurs and investors.

He announced his intention during a surprise inspection of the One-Stop Integrated Service (PTSP) at the Investment Coordinating Board (BKPM) late last month, just one day after inaugurating his Cabinet. He instructed that the PTSP be fully realized within three to six months by cutting the processing time for investment-related permits.

It was reminiscent of Jokowi'€™s habit of making surprise visits to local government offices when he was the governor of Jakarta. In October 2013, he performed a snap inspection of East Jakarta'€™s PTSP Agency, where he was dismayed by the blatantly poor service: the key official was absent and no other staff knew the required computer password to process permits, while another computer screen showed a game was being played.

'€œIt'€™s actually all right to play games, but they should be able to process [permit applications] in five minutes,'€ Jokowi said at the time, as quoted by newspapers. '€œBut if they need two weeks to process [permits], how can they play games?'€

Despite Indonesia'€™s booming economy and market potential, micro and small enterprises still find it difficult to start up a business because of bureaucratic hurdles. A World Bank study on the ease of doing business ranked Indonesia at 175 out of 189 economies (compared with 171 in 2013): far below other Southeast Asian countries, such as Singapore (3), Malaysia (16) and even Vietnam (108).

The total number of procedures needed to start up a business in Indonesia is 10 and the total time needed for the whole process is 48 days. Compare that with countries grouped in the Organization for Economic Cooperation and Development (OECD), where the average number of procedures is just five and the average processing time is 11 days.

In Jakarta, applying for a business license has long been a burden. A recent study commissioned by the Regional Autonomy Watch (KPPOD) found that to obtain a business permit (SIUP), an entrepreneur must pay up to Rp 500,000 (US$40) and wait for two weeks, whereas a national regulation stipulates that the SIUP is free of charge and must be processed within three working days.

The streamlining of the process for investors to obtain business permits was pioneered by the administration of former president Susilo Bambang Yudhoyono through regulations mandating that all districts and municipalities establish a PTSP starting in 2009.

However, most of the PTSPs are purely cosmetic, lacking any genuine authority to process and sign business permits. Many function merely as a front office, receiving applications and checking whether they comply with requirements. The final approval for permits still lies with regents and mayors or is spread across local government technical departments.

In other words, the one-stop service has become '€œanother stop'€, making processing times even longer. The PTSPs are cynically referred to as Satu Pintu, Banyak Jendela (one door, many windows) in reference to the red tape and
the illegal charges still requested by many parties.

The reform of business licensing requires strong commitment from governors, regents and mayors. They should set the example for their technical departments to transfer all remaining authority to the PTSP, even though this could mean losing illicit sources of income. This transfer of authority needs to be complemented by formulating service standards, simplifying procedures and cutting waiting times.

A handful of regions, municipalities and provinces have reformed the business licensing process. Among them are East Java province, Yogyakarta city, Cimahi city in West Java and Barru district in South Sulawesi. The PTSPs in these regions have significantly reduced the number of permits needed to start up businesses by merging or eliminating some permits and by providing a parallel licensing process.

Jokowi, a former furniture exporter, is no different. He has consistently pushed for a business-friendly environment, ever since he was elected mayor of Surakarta, Central Java, in 2005.

During his tenure, Surakarta was one of the first cities to have a fully functioning PTSP. Licensing procedures were cut significantly, so the time needed to process five basic permits was reduced from around five months to only 26 days.

Jokowi also issued free permits for hundreds of shop-owners in traditional markets and for street vendors.

Eight years ago, the Asia Foundation brought a group of representatives of non-government organizations to the Surakarta one-stop service office and visited Jokowi'€™s residence to ask how other mayors and regents could be encouraged to be as innovative and reform-minded as him.

'€œIntegrity, innovation and reform-mindedness cannot be gained instantly through leadership training,'€ mayor Jokowi told us. '€œRather, they have to be developed since birth, nurtured by our parents over years.'€

Having been a leader in Surakarta and later in Jakarta Jokowi understands what it takes to push for reform. The country is waiting to see if he will be able to translate that experience to the national arena.

Beyond these impromptu visits he will continue to make, with strong public support, it will not be a surprise if he make bolds moves toward progress and reform. Will he?

________________

The writer is the program officer for local and economic governance, The Asia Foundation.

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