Notes from the Field

From Indonesia: Mass Licensing Event Registers Thousands of Small Businesses

April 23, 2008

More than 12 licenses must be obtained just to start a business in Indonesia. A study by The Asia Foundation in five districts in Indonesia shows that the time needed to obtain just a business registration, trade license, and a nuisance permit (all basic business licenses), has reached 107 days, at a cost of 931,00 Rupiah ($100 USD). The World Bank’s Doing Business Survey found that the number of days required to start a business in Indonesia increased from 97 days to 105 days between 2007 and 2008.

Given these difficulties, it is no surprise that the vast majority of all businesses remain in the informal sector. Improving licensing services is a key to creating a better investment climate in Indonesia. Business owners need licensing and registration documents not only to start a business, but also to access credit and to export.

That is why a mass licensing event held on April 1, was so groundbreaking: more than 5,400 small businesses were formalized in one day, across 18 cities and districts throughout Indonesia. The event involved processing nearly 12,000 licenses in one day and was organized by The Asia Foundation as part of its technical assistance program to establish new One Stop Shop (OSS) business licensing centers throughout the country.

“Today we hoped to process 150 business registration permits and trade licenses, but because of the strong interest shown by local businesses we have already processed more than 1,000,” said R.M. Luntungan, mayor of South Minahasa District.

The event also served as an important first step toward changing the mindset of many entrepreneurs. “I was surprised to hear that there was a governemnt plan to offer full licensing services in one day,” said Hasan, who owns a small handbag manufacturing company in Cimahi. “But today they showed that my impression of a corrupt and slow government was wrong.”

Despite this significant progress, Indonesia still has one of the most burdensome business licensing systems in the region. The 18 local governments that participated in the event all recently established OSS business licensing centers, yet fewer than half of all districts in the country have established such shops, and many of those still need further reforms and service improvements. This inaugural event highlighted the service improvements that local One Stop Shops can achieve, as well as licensing reform efforts at the national level. Many of the locations taking part in the mass licensing event had bank representatives available to discuss how to access credit, as well as information on tax registration and general advice for business development.

“Getting a trade license is important for a small business’ legal identity, since they then can get bank access and other assistance. [The Mass Licensing event] is part of a comprehensive program to support local businesses,” said Dr. Mari E. Pangestu, Indonesia’s Minister of Trade.

OSS licensing services are necessary to overcome the bureaucratic licensing procedures in Indonesia, according to Frida Rustiani, a Program Officer with the Foundation’s Economic Program in Indonesia. “In many districts, licensing rules foster a culture of corruption, but One Stop Shops can rebuild trust in the government by emphasizing transparency, accountability and public service.”

Neil McCulloch is Economics Program Director for The Asia Foundation in Indonesia. He can be reached at nmcculloch@tafindo.org.

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