Indonesia urgently needs to make it easier for companies to legally register if the millions of tiny businesses in the country are to develop properly, a senior World Bank official said on Tuesday.
“The development of small businesses in Indonesia is critical because the number of people working in the informal sector is still high and around 90 percent of businesses are small ones,” said Brigit S. Helms, head of advisory services at the Indonesian office of the International Finance Corporation, the private-sector investment arm of the World Bank.
Ministry of Manpower and Transmigration data show that as of February more than a third of Indonesia’s 97 million workers were working in the informal sector in as many as 5 million micro-, small and medium-sized businesses.
These businesses are not registered and therefore are not taxed. They also do not enjoy legal protections or access to bank loans. They include street-side food sellers and other warung-style businesses. The informal sector is still believed to generate more than 70 percent of the country’s economic wealth.
Helms said encouraging informal businesses to register themselves could be achieved by making the registration process easier and cheaper.
To that end, she said, the World Bank and the Ministry of Justice and Human Rights on Tuesday held a workshop to share experiences about global business-entry reforms, aimed at improving the quality of business-registration services.
“Business-entry reform is a stepping stone and is fundamental for Indonesia to speed up private sector development, reduce poverty and create jobs,” she said.
The main benefits to the economy were companies having greater access to banking services to finance expansion and the capacity to employ people formally, which gave employees greater benefits and certainty, Helms said.
Freddy Harris, a Ministry of Justice and Human Rights spokesman, said the government recognized the importance of implementing administrative reforms.
“Improvements can be made to simplifying the registration process by reducing minimum capital requirements for starting a business or a limited company,” he said.
The World Bank’s latest Ease of Doing Business survey ranks Indonesia at 122 out of 183 economies. While the country has reduced the average time needed to a start a business to 60 days from 76 days last year, formally starting a business is still too time-consuming and expensive for many micro- and small-scale businesses.
The average minimum deposit needed to register a business equates to 59 percent of the country’s per capita income, while average business start-up costs are 26 percent of per capita income, according to the survey.
This compares to the Asian averages of 25 percent and 21 percent, respectively. Top-ranked Singapore has no minimum capital requirements and start up costs are only 0.7 percent of per capita income.