Indonesia is good at attracting international trade with its relatively competitive tariff barriers, but our border controls and distribution channels create major obstacles, a report says.
The Enabling Trade Index in the 2008 Global Trade Report published Wednesday by the World Economic Forum compares 118 countries' openness and international trade capabilities.
Overall, Indonesia ranked 47th among the 118 countries. Hong Kong topped the list, followed by Singapore, Sweden, Norway and Canada. Malaysia ranked 29th, China 48, Thailand 52 and Vietnam 91.
The index sums up countries' market access, border administration, transport and communications infrastructure, and business environments.
Indonesia's trade has been well supported by regulatory openness and a competitive business environment, but has been stalled by poor infrastructure and difficult processes at its borders.
The country's trade policies allow relatively open market access for foreign goods. Indonesia has low non-tariff barriers and moderate tariff barriers. It is cheap to import, although goods may be held up with customs and domestic transport problems, meaning there are more procedural steps to clear along the way.
In terms of trade policies, Indonesia was ranked in the top 22 countries, ahead of Britain, Australia, Italy, Singapore, and Malaysia.
The index also showed a very good regulatory environment including the ease of hiring foreign labor, ease of foreign ownership, and regulations encouraging foreign investment. Indonesia was ranked 34th in this category.
On top of that, Indonesia has competitive liners connectivity, perhaps due to its location, competitive shipping costs and logistics companies.
However, as soon as the goods arrive in Indonesia, they are welcomed with inefficient customs administration, irregular payments and corruption at the border.
According to the Indonesian Chamber of Commerce and Industry (Kadin), exporters and importers must set aside between 5 and 15 percent in additional costs to cover bureaucracy at the customs office.
The challenges bubble up as distribution is held up by low quality roads, ports and airports -- all of which are ranked among the bottom 20.
As of March, Jakarta's traffic management center recorded 120 sites where roads were damaged in Jakarta, causing traffic congestion and putting road users at risk.
In infrastructure, Indonesia scored much lower than Malaysia, China, Thailand and India, although it was comparable to Vietnam. Indonesia came in at 74th in transport and communications infrastructure, and 63rd in the border administration section.
"Transportation costs have often been more important than trade barriers in inhibiting trade. These costs are not simply a factor of distance, but also the quality of the infrastructure," the report says.
Of Indonesia's 350,000 km of roads, around 6 percent (21,000 km) are damaged, the Public Works Ministry reported last month. This was an improvement from 10 percent in 2005. (mri)
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