The 2016 AmCham Singapore and US Chamber of Commerce ASEAN Business Outlook Survey reflects optimism about commercial prospects in Indonesia, but it also highlights continuing concerns about corruption. Respondents to the survey included a total of 471 AmCham member companies in all ten ASEAN countries, and this makes it possible to draw regional comparisons. Control Risks supported the statistical analysis.

The overriding message from the survey is that corruption need not be an obstacle to investment in Indonesia, but companies need to factor the costs and requirements of strict anti-bribery programmes into their calculations.

First, the good news…

Indonesia has emerged as one of the most attractive markets in ASEAN for future business expansion. Overall, 31% of respondents to the AmCham survey said their companies planned to expand into the country. While this is down from 41% in 2014, it puts Indonesia just behind Myanmar (32%) and ties it with Vietnam (31%) for second place among its South-east Asian counterparts. 

On a similar note, 47% of the Indonesia respondents said they expected to increase their total number of employees, and 84% reported they expected an increase in profits in 2016.

… and the not-so-good news

The less favourable news concerns perceptions about corruption in the business environment. When asked about their satisfaction levels with the “lack of corruption”, Indonesia-based respondents are the least satisfied in ASEAN.

"Satisfied" or "extremely satisfied" with lack of corruption in respondent's ASEAN country

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Strikingly, Indonesian responses were even poorer than those of Laos, Vietnam and Myanmar, and there has been no significant change in the last three years. By contrast, Singapore and, to a lesser extent, Brunei are in a class of their own, well ahead of all the others.

But is it quite so bad?

Concerns about high levels of business corruption are of course nothing new in Indonesia. In recent years, the Anti-Corruption Commission (KPK), the government’s lead anti-graft agency, has made considerable progress in tackling a number of high-profile cases. Currently, though, there are widespread concerns about the extent to which the KPK still has access to the resources and political support that it needs. Indonesia’s low ranking no doubt reflects these anxieties.

However, responses to a series of more specific questions were not quite so critical. When asked about the extent to which lack of fair or efficient enforcement of the law was a “serious hindrance to business”, respondents ranked Indonesia as the third most problematic country, well behind Laos and Cambodia, and roughly on a par with the Philippines.

"Serious hindrance" to business from lack of fair/efficient enforcement of the law

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Demands for bribes to secure public and private contracts

A similar pattern applies to responses to a set of questions about demands for bribes to secure public and private sector contracts.

In Indonesia, nearly a third (31.3%) of respondents said pressure to secure bribes for public sector contracts was a “serious hindrance” to business. This was well below Laos (61.5%), the Philippines (50%) and Cambodia (44.4%). All these are significant figures, given that not all companies bid for public sector contracts.

"Serious hindrance" to business from pressure to bribe public/private sector clients for contracts

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Only 18.8% of Indonesian respondents rated pressure to pay bribes in connection with private sector contracts as a serious hindrance to business. A similar pattern applies in most of the other ASEAN countries, except that the Singaporean respondents rated demands for private sector bribes as a bigger problem (17.9%) than public demands (17.1%). This assessment may reflect their view of the challenges of operating elsewhere in the region rather than in Singapore itself. 

The US Foreign Corrupt Practices Act (FCPA) focuses specifically on bribes to government officials, and this may be one reason for the emphasis on public sector bribery. However, the UK Bribery Act makes no distinction between public and private corruption. In Control Risks’ experience of working with clients in Indonesia and elsewhere in South-east Asia, there is no reason to think that private sector bribery – for example, demands for kickbacks from company purchasing officers – is any less frequent than official corruption. In our view, companies need to send a consistent message: all forms of bribery are unacceptable.

Demands for bribes for essential and routine government services

The final question concerns pressure to bribe officials for essential licences and permits, and for routine services such as applications for visas and utility connections.

"Serious hindrance" to business from pressure to bribe officials for essential/routine services

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Two points stand out in the Indonesia responses. First, 28.1% of respondents regard demands in connection with essential licences as a “serious hindrance” to business: this is almost as many as the figure (31.3%) for those who took a similar view of public sector bribery. Demands in connection with contract awards involve much larger amounts of money, but are less frequent. By contrast, demands linked to essential licences or routine services are part of day-to-day business. They may be less spectacular, but they are also harder to avoid: it is not surprising they rank as a significant hindrance.

Secondly, while these figures are ample cause for concern, Indonesia comes out much better than Laos, Cambodia, the Philippines and Vietnam, and is roughly on a par with Thailand.

In Control Risks’ view, these regional comparisons offer no grounds for complacency. It is true the FCPA excludes “facilitation payments” to speed up “routine governmental services” from its definition of the criminal offence of foreign bribery. However, the UK Bribery Act makes no such distinction, and more and more international companies—including US-based firms—forbid all kinds of bribery, regardless of the FCPA exception for facilitation payments. Demands for smaller ‘operational’ bribes to officials are therefore rising on the compliance agenda. 

We expect this to be particularly true for Indonesia. If companies are to take effective action against demands for routine bribes, they need to map out the pattern of demands and assess the impact on their business of refusal to pay. In the short term, these impacts may include significant delays. This is by no means a reason to avoid Indonesia. It is a reason to take the time to do things properly.