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Indonesia pins its economic and health hopes on China | Analyst Picks| RiskMap 2021

Indonesia

Indonesia pins its economic and health hopes
on China

Achmad Sukarsono | Senior Analyst

Two issues will affect business in Indonesia in 2021: the COVID-19 pandemic and the recently passed jobs law. In both cases, President Joko “Jokowi” Widodo ranks China above all trading partners. Jokowi hopes the Chinese vaccine being distributed will rescue Indonesia from its spiralling health crisis, while Chinese investors will capitalise on labour reform to resuscitate its post-pandemic economy. We expect China’s expanded presence – and Jakarta’s reliance on it – to present a gamut of risks for foreign companies in the year ahead.  

COVID-19 has raged in Indonesia since March but, unlike neighbouring Singapore or Vietnam where infection rates are low, nobody in Indonesia has been legally punished for breaking regulations. This approach is unlikely to change in 2021, as Jokowi remains determined to motivate businesses and attract more investment. The cornerstone of this strategy is Indonesia’s collaboration with Chinese pharmaceuticals and a year-long vaccination programme for 200m people. If this plan works, Jokowi’s debt of gratitude is likely to see him unfurl an even longer red carpet for Chinese investors.  

The jobs law, passed on 5 October, which intended to be Jokowi’s signature piece of pro-foreign investment reform, has already rewarded Chinese investors. The revised law contains provisions that will improve the operational environment for many businesses, but not for Western and Japanese investors who hoped for an overhaul of severance payment and minimum wage systems. Those systems were simplified but intensive lobbying from labour unions kept the reforms mild. Similarly, licensing issues were relaxed, but covered environmental standards, which most non-Chinese multinationals have already overcome. Meanwhile, the new law provides more leeway for Chinese companies to import blue-collar workers from home – a rare practice for other investors.  

2021 will be the year Chinese investors find Indonesia’s market much friendlier. Not because Indonesia wants to be a political ally, but because China delivers on its priorities: rural infrastructure development, downstream industrialisation projects that create jobs, and affordable vaccines. Jakarta also wants investors to understand Indonesian business culture. In this regard, non-Chinese investors will increasingly be judged against the standards set by their Chinese counterparts. This means that, while Indonesia’s political stability will remain attractive, persistent integrity risks will be as tough as ever for businesses to navigate. Stakeholder engagement – finding shrewd but ethical ways to work with the country’s complex political web – will remain the name of the game for businesses seeking to thrive in 2021.  

Indonesia pins its economic and health hopes on China

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