Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized COMPARING REGULATION FOR DOMESTIC FIRMSIN20CITIES ANDWITH183ECONOMIES DOMESTIC FOR REGULATION COMPARING Indonesia 2012 Doing businessin Doing Business in Indonesia 2012 COMPARING REGULATION FOR DOMESTIC FIRMS IN 20 CITIES AND WITH 183 ECONOMIES A COPUBLICATION OF THE WORLD BANK AND THE INTERNATIONAL FINANCE CORPORATION © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, D.C. 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this olumev do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. Doing Business in Indonesia 2012 and other subnational and regional Doing Business studies can be downloaded at no charge at www. doingbusiness.org/subnational. Copies of the Doing Business global reports: Doing Business 2012: Doing Business in a More Transparent World, Doing Business 2011: Making a Difference for Entrepreneurs, Doing Business 2010: Reforming through Difficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulations may be obtained at www.doingbusiness.org. Contents 1 Executive summary 6 About Doing Business and Doing Business in Indonesia 2012 13 Starting a business 20 Dealing with construction permits 26 Registering property 31 Data notes 37 Indonesia city tables 40 Doing Business indicators List of procedures 42 Starting a business 68 Dealing with construction permits 83 Registering property 98 Acknowledgments Doing Business in Indonesia 2012 is the second reports published by the World Bank and Interna- subnational report of the Doing Business series tional Finance Corporation. The indicators in Doing in Indonesia. In 2010, quantitative indicators on Business in Indonesia 2012 are also comparable with business regulations were analyzed for 14 cities: 352 cities from 54 economies benchmarked in Balikpapan, Banda Aceh, Bandung, Denpasar, other subnational Doing Business studies. All data Jakarta, Makassar, Manado, Palangka Raya, and reports are available at http://subnational.do- Palembang, Pekanbaru, Semarang, Surabaya, ingbusiness.org and www.doingbusiness.org. Surakarta, and Yogyakarta. This year, Doing Busi- ness in Indonesia 2012 documents improvements Doing Business investigates the regulations that in the 14 cities previously measured and expands enhance business activity and those that constrain the analysis to 6 new cities across the nation: it. Regulations affecting 3 stages of the life of a Batam, Gorontalo, Jambi, Mataram, Medan, and business are measured at the subnational level in Pontianak. The selection criteria include the level Indonesia: starting a business, dealing with con- of urbanization, population, economic activity, struction permits, and registering property. These political and geographical diversity, and other indicators were selected because they cover areas factors in consultation with the State Ministry for of local jurisdiction or practice. The indicators are Administrative Reforms (Menpan), the Ministry used to identify business reforms and the extent of Home Affairs (MoHA) and the Regional Au- to which these have been effective in simplifying tonomy Watch (KPPOD). the procedures, saving time, and lowering the cost of doing business. The data in Doing Business in In- Comparisons with other economies are based donesia 2012 are current as of July 2011. on Doing Business 2012—Doing business in a more transparent world—the ninth in a series of annual 1 Overview Ambitious and fast rising—these words the development of small to medium-size Second, cities that improved their business aptly describe modern Indonesia. Amidst a domestic firms—the backbone of Indonesia’s regulations since they were last measured global economic slowdown, Indonesia was economy. This is also important for women are surpassing their peers and moving closer the third fastest growing economy among entrepreneurs in a country where 60% of to the top performers. Thanks to recent busi- the G-20 for 2009 and it continues to post medium-size firms are owned or operated by ness reforms, Semarang is now one of the strong economic growth, at a projected rate women.5 cities where it is easier to start a business and of 6.4% for 2012. Banda Aceh is now one of the cities where it Doing Business studies business regulations is easier to deal with construction permits, However, despite its strong economic per- from the perspective of a small to medium- compared to 2 years ago. Third, some ranking formance, Indonesia faces challenges that size domestic firm. Jakarta represents the changes can be attributed to the addition of stifle private-sector development. Skilled country in the annual Doing Business report, labor shortages, poor infrastructure and an which compares regulatory practices in 183 TABLE 1.1 Where is it easier to start a onerous regulatory framework are 3 major economies around the world. Yet, within business, deal with construction bottlenecks to business expansion.1 The Indonesia, local regulations and practices permits or register property? World Bank’s Enterprise Surveys show that vary from city to city. Doing Business in Ease of Indonesian firms identify an inadequately Indonesia 2010 was the first report to go Ease of dealing with Ease of starting a construction registering educated workforce and high rates of infor- beyond Jakarta, to capture these differences City business permits property mality as two of the top 10 constraints to in 13 other cities on 3 Doing Business topics: Balikpapan 7 1 12 firm investment.2 One of the key causes of starting a business, dealing with construc- Banda Aceh 5 4 12 this high rate of informality in Indonesia is tion permits and registering property. This Bandung 12 8 1 the heavy regulatory burden borne by firms. report updates the information presented in In fact, nearly 30% of firms in Indonesia 2010 and tracks the progress in implemen- Batam* 15 10 20 start operations without being formally tation of business reforms. It also expands Denpasar 9 17 12 registered.3 the analysis to cover 6 additional cities, to Gorontalo* 6 NO PRACTICE 5 provide a more comprehensive map of busi- Jakarta 8 19 1 Improving economic competitiveness by ness regulation in the country. The summary Jambi* 18 2 7 creating a more salutary business climate is results are presented here (table 1.1). Makassar 17 11 9 one of Indonesia’s national priorities for 2010 Manado 20 18 15 to 2014.4 Making it easier to do business and Across Indonesia, it is easiest to start a busi- Mataram* 10 12 4 invest also helps promote sustainable urban- ness in Yogyakarta, deal with construction ization, another of Indonesia’s key national permits in Balikpapan, and register property Medan* 19 6 7 development objectives. Business reforms in Bandung and Jakarta. It is most difficult Palangka Raya 2 14 16 can facilitate business start-ups, encourage to start a business in Manado and register Palembang 11 3 3 investments and boost employment in cities property in Batam. Dealing with construc- Pekanbaru 16 15 18 across the country. tion permits is most burdensome in Jakarta, Pontianak* 13 7 9 while no building permits for commercial Semarang 4 8 19 There is no single blueprint for how to grow warehouses have been issued in Gorontalo Surabaya 14 16 11 and prosper, yet creating an investment since 2008. climate conducive to starting and running Surakarta 3 12 17 a business, where complying with regula- When comparing the results from 2012 with Yogyakarta 1 5 6 tions brings more benefits than costs, helps. those from 2010, a few trends emerge. First, Note: The ranking on each topic is based on the simple average of the percentile rankings on its This is especially important in a country as consistent performers stay at the top. For component indicators. See Data notes for details. decentralized as Indonesia, where effective example, Yogyakarta maintained its position *Cities not benchmarked in Doing Business in and harmonious policy design and imple- among the top performers in starting a busi- Indonesia 2010 report. mentation at the local level are crucial for ness, and Bandung in registering property. Source: Doing Business database. 2 DOING BUSINESS IN INDONESIA 2012 FIGURE 1.1 Tracking Indonesia’s* progress over time in the areas measured by Doing Business 2006– provided recommendations for improve- 2012: Distance to the frontier ments across 14 cities in Indonesia. Two years later, Doing Business in Indonesia 2012 Distance to the frontier (percentage points) tracks progress over time. 0 HIGHEST PERFORMANCE GLOBALLY DB2012 The findings are encouraging: 22 business 10 DB2006 reforms at the local level have made it 20 easier to do business since 2010. For start- 30 ing a business, all 14 cities measured for the second time show improvements.