Indonesia, a country of over 250 million people, is the largest economy in the Association of Southeast Asian Nations (ASEAN). The archipelago of over 17,000 islands is vast and complex. London is closer to Baghdad than Indonesia’s northwesternmost point near Aceh is from the southeastern tip of its border with Papua New Guinea.
Getting to grips with this culturally and economically diverse country requires in-depth analysis. In this brief report, we cover two key business and security risks to doing business in Indonesia, giving an outlook on how we expect the situation to develop.
Business Risk – Extractive Industries
Businesses in the extractive industries are at risk of the growing tide of “resource nationalism”.
At the start of 2014, Indonesia’s government announced a total ban on exporting mineral ores of bauxite, nickel and tin, and progressive taxes on export of some minerals. The aim was to force exporters to build smelters in the country. However, slow progress has been made towards this.
Risk & Security SolutionsIn 2015, construction only began on six new smelters, all small in size. This year, only one bauxite smelter, three lead-zinc smelters, and three nickel smelters are scheduled to begin operations.
Some multinationals have resorted to commercial arbitration and negotiations over implementation of the new rules. Freeport-McMoRan Inc. has appealed for leniency from the government before a US$530 million payment must be made for construction of a new copper smelter, in return for the government renewing a permit to export from its Grasberg mine in Papua. Its license expired on 28 January 2016, and the company aims to export 1 million metric tons of concentrates from its mine.
It remains an uncertain time for extractive industries in Indonesia. There has often been a gap between regulatory constraints and implementation in the country, and those involved in extractive industries will benefit from keeping up to date on developments.
Related: Indonesia: World Bank Pledges $10bn for Infrastructure, Poverty Reduction
Security Risk – Islamic State (IS)
Indonesia is at risk to threats from Islamic fundamentalist groups, particularly the Islamic State (IS).
The 14 January 2016 attacks in the heart of Jakarta’s central business district marked the worst attacks in the country since the twin hotel bombings of July 2009. The complex attack claimed by IS began at 10:45 local time when a suicide bomb detonated in the Starbucks of the Cakrawala (Skyline) Building. Two attackers then opened fire into surrounding crowds, killing one Canadian and one Indonesian citizen. Two motorcycle borne suicide attackers then opened fire on a police post and detonated explosives, killing the bomber. Other explosions were heard, and attackers were seen throwing grenades.
Police searches in the vicinity revealed one large and five small unexploded bombs. When the police announced at 14:30 that the attack was over, four attackers and three civilians had been killed, and 19 civilians wounded.
The international nature of the targets – an American-owned café and foreign civilians – illustrate that foreign nationals remain at risk in the country. The targeting of the police checkpoint is also in line with previous attacks on state apparatus.
Hundreds of Indonesians have travelled to fight with IS in Iraq and Syria, and officials estimate that there are over 1,000 supporters of the group in the country. The police believe the attack was organised by Indonesian citizen Bahrun Naim from the Syrian city Raqqa.
Indonesia has a history of internal conflict between the state and Islamist groups. Since independence in 1945, Islamist insurrections took place in Aceh, Java, and Sulawesi, ending in the 1960s. Regionalist conflicts are also no longer the threat they once were.
The national philosophy of Pancasila espoused by the state embraces five pillars, including monotheism, in order to bring together the diverse archipelago. As such, the country recognises freedom of religion, and is at odds with the ideology of the Islamic State. Unlike in other regions, IS has not taken a permanent geographical foothold in the country.
Despite this, we believe that it is highly likely that similar attacks will be carried out in Indonesia, and businesses should make contingency plans accordingly. Get in touch for a free consultation by contacting us using the form below:
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