Asian superstar

Indonesia has performed well in the past few years. In the last five years, the country has doubled its economy; during the global financial crises of 2008-09, it was the only G20 member to record economic growth. And this year, the consumer demand-led economy has grown at a rate of more than six percent.

With the blessing of natural resources, Indonesia's export commodities include rubber and plywood, oil, coal, gold and copper. The agrarian economy is also the world’s number one supplier of palm oil, which goes into many food products and cosmetics.

Hanns Günther Hilpert, expert on Asian economics at the German foreign policy think tank SWP, says Europe should start thinking about Indonesia being its next business partner. He says, for Europe, Indonesia is a country which is gaining economic weight and political weight. "So it is very interesting. It is a going market," he adds. "And it has lots of resources which are interesting for European investors."

Hilpert believes one downfall could be the country’s political situation, which must be stable in order to attract foreign investment. But so far he is impressed by Indonesia’s "transformation from dictatorship to democracy" that has taken place in the last ten years. Now, Indonesia is the third biggest democracy after the US and India. As a funding nation and current chair of ASEAN, Indonesia is also gaining more political weight in Asia.

Corruption

But despite the positive outlooks, BRICS expert David Thomas thinks that Indonesia still needs to do some homework. "I think the first step is to attract foreign investment and to do that it needs an open free market and it needs a system that foreigners can feel comfortable in, which includes a legal system, accounting and transparency," he explains, adding that he thinks Indonesia "still has a long way to go."

One main problem for Indonesia is corruption. For Yose Rizal Damuri, an economic expert from the Indonesian Centre for Strategic and International Studies, this is the number one factor that slows down the country's economic growth.

On Transparency International’s latest Corruption Perception Index, the country scores 2.8, with 0 being the most corrupt and 10 the least. This was the same in 2009, showing that there has been no progress on tackling the corruption.

Damuri points out that though the cost of setting up a company in Indonesia is officially "a very small amount of money, but in practice you have to pay a lot to the officials or to many other parties that is related to this kind of practice." He adds that setting up a company in Indonesia "takes about 150 days" because of the long list of people that need to be bribed.

Infrastructure

Damuri also says there is a real problem with the country's infrastructure, like electricity grids, roads and transportation systems. He believes that the government has to make large reforms to tackle this problem in order for Indonesia to offer a modern business environment and to be able to develop its economic potential. Although there have been some efforts from the current administration to do that in the last few years, Damuri still has not seen any significant changes.

He adds one further area that Indonesia needs to work on for increases in long-term economic growth: the education system. Due to the low level of education, almost half of Indonesia's population is employed in low-skill work and earns less than 1.20 euros per day.

Author: Anggatira Gollmer

Editor: Sarah Berning