Rent-seeking hinders investment effectiveness in driving economic growth
Bisnis.com, JAKARTA — Teuku Rifky, a researcher at the University of Indonesia’s Faculty of Economics and Business Economic and Social Research Institute (LPEM FEB UI), said that rent-seeking practices are hindering investment effectiveness in driving national economic growth.
Rifky stated that investment in Indonesia is no longer the main driver of economic growth as it was in previous periods. Investment growth is now lagging behind the national economic growth rate.
‘Investment has become a brake on economic growth due to inefficiencies and other factors,’ he said at the Bisnis Indonesia Forum at Bisnis Indonesia’s office on Monday, 25 May 2026.
According to him, one source of inefficiency is the high incidence of bribery demands and rent-seeking activities in business processes and licensing.
Referring to a World Bank survey he presented, Indonesia’s bribery incidents are higher than other developing countries such as Vietnam, India, Malaysia, and Thailand. Rent-seeking is increasingly targeting large and productive companies.
However, Rifky added that these companies significantly contribute to job creation and technology transfer. He cited construction permits as an example, where around 60% of large companies reported being asked for bribes.
‘For smaller firms, it’s just 16%,’ he said.
Exporting firms also face more bribery demands than non-exporters, which he believes is one reason Indonesia is struggling to boost productivity and economic competitiveness.
‘This is likely one reason why we are finding it increasingly difficult to develop,’ Rifky stressed.
He added that rent-seeking is not a new issue and is not unique to Indonesia. Other developing nations such as Vietnam, India, Malaysia, and Brazil also face similar challenges.
However, there are fundamental differences between Indonesia and Vietnam in this practice, particularly regarding business certainty. ‘In Vietnam, when you pay rent or a bribe, the permit is guaranteed. In Indonesia, even if you pay at the central level, it may not go smoothly at the local level, not to mention other parties demanding payments,’ Rifky explained.
According to him, this uncertainty is the main obstacle for businesses and investment in Indonesia. Rifky also noted the high levels of foreign direct investment (FDI) during the New Order era despite corruption.
He believes one reason was the more centralised corruption pattern, which provided certainty for investors. ‘So their business permits were secure. But that is not the situation we face in Indonesia today,’ he added.
Furthermore, Rifky stated that studies show Vietnam’s rent-seeking primarily targets domestic investment rather than foreign direct investment (FDI). He noted that Vietnam’s government and interest groups tend to protect foreign investments as they are seen as job creators and technology providers.
In this context, he argued that deregulation remains crucial to improving the national investment climate. However, such efforts must be accompanied by governance reforms and a reduction in rent-seeking to restore investment as a driver of economic growth.