Businesspeople normally state that the quality of local governance and institutions is the principal factor that helps determine whether they will invest in a particular region.
However, according to a survey on investment competitiveness conducted by Regional Autonomy Watch (KPPOD), an NGO, businesspeople this year say they are more concerned about economic potential, infrastructure and labor relations when deciding where they will put their money.
The survey was conducted in 169 regencies and 59 municipalities across the archipelago to find the most attractive investment destination, as part of an annual competition run by the KPPOD for the past five years.
KPPOD executive director P. Agung Pambudhi, speaking to the press Tuesday, said that ever since the introduction of local autonomy five years ago, expectations had been high that the regions would attempt to reform their institutions so as to improve their competitiveness.
"To date, however, they have failed miserably to deliver on these expectations," he said.
Sofjan Wanandi, the chairman of the Indonesian Employers Association (Apindo), said during the press conference that businesspeople had probably given up hope of meaningful reform in the regions.
"They may have come to the conclusion that there is no point in hoping for institutional improvements at the local level. So they may have decided that it's better to focus on the tangible factors, such as a region's real economic potential," he said.
Agung noted that although the survey respondents placed less emphasis on institutional factors this year, this by no means suggested the institutional constraints on doing business had been eliminated.
For example, about 30 percent of the 8,727 businesspeople who responded to the survey said that local leadership was frequently an obstacle to doing businesses.
Some 87 percent of the businesspeople complained about having to pay unofficial charges to secure licenses and permits from executive agencies, saying that the additional charges amounted on average to almost 110 percent more than the official ones, meaning that they usually had to pay more than twice the official cost in real terms.
They also said that they often had to pay unofficial charges or protection money to institutions and organizations other than executive institutions, such as the local legislature, mass organizations, security officers and hoodlums. These amounted on average to 2.1 percent of their total operating costs. In the case of small and medium enterprises, the proportion of these costs was even higher at almost seven percent of their total operating costs.
According to the respondents, the time needed to secure licenses/permits averaged 177 days, far longer than the 81 days promised by most regional administrations.
Agung said that based on the survey findings, Regional Autonomy Watch had selected the municipalities of Batam (Riau Islands), Cilegon (Banten) and Padang (West Sumatra), and the regencies of Gianyar (Bali), Klungkung (Bali) and Musi Banyuasin (South Sumatra) as nominees for the general category award.
The other award categories are security, social and political affairs, labor relations, institutions, local economy and physical infrastructure.
The winners of the investment awards will be announced June 12.
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