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Jakarta Post

Indonesia lags even further in competitiveness index

  • Fedina S. Sundaryani and Ina Parlina

    The Jakarta Post

Jakarta   /   Thu, September 29, 2016   /  09:43 am
Indonesia lags even further in competitiveness index Tourism Minister Arief Yahya (fifth left) and Bank BRI institutional business director Kuswiyoto (sixth left) pose with staff members after signing a memorandum of understanding (MoU) between the Tourism Ministry and BRI on Friday to boost inbound tourism through the use of digital banking products. (Courtesy of BRI/File)

Indonesia’s inefficient labor market and poor information and communications technology (ICT) penetration are just some of the reasons Indonesia’s global competitiveness continues to nosedive.

According to the Global Competitiveness Index (GCI) report published by Geneva-based World Economic Forum on Wednesday, Indonesia’s ranking dropped four places to 41st out of 138 economies, following last year’s fall to 37th out of 140 economies.

Indonesia lags well behind its regional neighbors, including Singapore, Malaysia and Thailand. At the top of the list is Switzerland, ranked first for eighth consecutive years and closely followed by Singapore and the US.

The GCI noted Indonesia’s efforts to reform its business environment and reported that the country had performed well in terms of financial development, gaining seven places to 42nd. The report also noted Indonesia’s macroeconomic environment, which remains satisfactory in spite of the protracted commodities slump, and ranked the country in 31st place for innovation.

However, Southeast Asia’s largest economy still scored a poor 108th place in labor market efficiency “as a result of various rigidities, prohibitive redundancy costs that amount to over a year’s salary”, the report noted, despite moving up seven places.

Corruption, bureaucratic inefficiency and policy inconsistency also remained major problems in doing business within Indonesia. This will come as a blow to the government, which has launched 13 economic policy packages in the past two years in order to cut red tape and improve the business climate.

Bank Central Asia (BCA) chief economist David Sumual noted that the implementation of the deregulation measures had been extremely due to the country’s overblown bureaucratic structure at central and provincial government level.

“The bureaucratic structure of our central and regional [governments] remains sclerotic, so it makes sense that our position is still not great in the eyes of investors and businesspeople. This is just a characteristic of a developing country, where the structure is still inefficient as job creation is still mostly centered on the bureaucracy sector,” he said on Wednesday.

Furthermore, Indonesia’s technological readiness also dropped six places to 91st due to low ITC penetration. The report pointed out that only one fifth of the population used the internet and that there was just one broadband connection for every 100 people.

David claimed that this was highly interconnected with Indonesia’s deplorable health and basic education ranking, which dropped 20 places to 100th in the report.

An inadequately educated workforce and poor public health were included as some of the most problematic factors in doing business.

“The quality of our education is still low, meaning access to technology and innovation is also low. The fact that most Indonesians still download more than upload reflects this” he said.

Yogyakarta-based Gadjah Mada University economist Tony Prasetiantono, meanwhile, acknowledged that the country had made several improvements in the health and education sectors, but that other countries had also improved and thus overtook Indonesia.

However, there is still a silver lining as the GCI claims that technology uptake by firms is more wideslow spread, with Indonesia moving to 53rd place, and this trend may continue as the government has expressed its commitment to deregulating the e-commerce sector.

The government is currently preparing a presidential regulation (Perpres) encompassing e-commerce, which will be the subject of its upcoming 14th economic policy package. “The government is about to issue a policy on deregulation in e-commerce, so it makes sense that we’re a little behind,” Tony said.

By going mainly digital, Indonesia would be able to unleash its next level of economic growth to the tune of US$150 billion in terms of impact by the year 2025 if it is able to address the most pressing and basic issues adequately, said management consulting firm McKinsey & Company in a report released on Tuesday.

Neither Cabinet Secretary Pramono Anung nor State Secretary Pratikno, however, would comment on Indonesia’s performance in the index, saying only that “it’s difficult”.

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