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The Asia Foundation Releases Evaluation of Indonesia’s Business Licensing Services

Jakarta, August 14, 2007 — Report will inform government reform efforts

In the past decade, Indonesia has undergone a remarkable political transformation but has struggled to generate robust economic growth. While other countries in the region, like Vietnam and China, enjoy surging investment levels, Indonesia faces persistent poverty issues and high unemployment rates. In response, the Government of Indonesia has encouraged economic development with the implementation of nationwide One Stop Shop business licensing centers to streamline and simplify the process for new companies. Today The Asia Foundation released two new reports highlighting key opportunities to improve business licensing and establish better systems to measure licensing services in Indonesia. The reports will inform government reform efforts.

“Making Sense of Business Licensing in Indonesia: A Review of Business Licensing Policy and Survey of One Stop Shop Service Centers” is a study of the country’s complex national level licensing framework and how these policies are implemented at the district level. The second report, “Measuring One Stop Shop Performance in Indonesia,” presents a new approach to measuring the performance of One Stop Shops in order to assess how much One Stop Shops are improving licensing services for businesses.

Both reports build on the Foundation’s extensive research and technical assistance in the areas of licensing policy and One Stop Shop (OSS) establishment. OSS are government offices that process common business licenses and permits and aim to provide faster, simpler, and cheaper public services. Since 1999, the Foundation’s local partners have helped to set up or improve more than 55 One Stop Shops in Indonesia. The Foundation–which has been working in Indonesia since 1955–has also worked closely with national, provincial, and district governments on licensing policy reforms.

“Economic growth in Indonesia is stifled by a licensing bureaucracy that is complex, costly, and corrupt. Tools that measure OSS performance can help district, provincial, and national government to improve the quality and efficiency of business licensing services,” said Neil McCulloch, Director of The Asia Foundation’s Economic Reform Program.

In recent years, improving Indonesia’s business licensing policies has become a leading policy objective for local and national government agencies. Since the late 1990′s, these government-initiated centers have been opened in about 30% of the country’s 467 cities and districts while Ministry of Home Affairs Decree 24/2006 announced efforts to develop One Stop Shops in all districts in Indonesia to simplify procedures, reduce costs, and consolidate requirements for business licenses. National ministries are working to provide clearer guidance on the implementation of licensing policy to help strengthen the investment climate and drive economic growth.

These reforms have proved challenging. The Foundation’s reports show that many burdensome policies remain, and understanding and measuring the impact of improvements has been difficult. Specific findings and recommendations from the two reports include:

  • Complex licensing procedures discourage new company establishment, formalization, and expansion in Indonesia. Red tape is so pervasive that nearly 80% of the domestic private sector remains informal and unregistered. Licensing reform is therefore an area that can quickly catalyze business development.
  • Most district-level OSS centers have not reached their potential. The Asia Foundation’s study shows that many of these service centers have, so far, neither reduced license processing time nor requirements. But there is a very wide range of performance with the best OSS centers showing big improvements in service delivery.
  • Improving the performance of Indonesia’s OSS centers will require reform at both the local and national levels. Local governments need to focus less on institutional form and more on ensuring that OSS centers have the political authority they need. The national government needs to simplify licensing by making business registration the first, rather than the last, step in the general licensing process, and eliminate unnecessary or redundant licenses.
  • The Asia Foundation’s OSS Performance Index provides a comprehensive tool for monitoring improvements in OSS quality. Because measuring changes in time or costs of licensing alone do not provide a full picture, the OSS Performance Index (OPI) examines a broad range of factors that affect OSS performance in order to create a multi-dimensional picture.
  • The OPI is intended to start a discussion about performance measurement of business licensing services.  The Index is not meant to be definitive and can be adapted to fit the local environment. The OPI can be used to demonstrate the progress of OSS performance over time as well as to compare OSS performance in one region to that in another. This information can then be used to guide future institutional development efforts or create incentives for licensing service improvements.

To download the full report, please click here.

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