In 2019, the World Bank issued a report that sparked deep consternation among Indonesia’s political elite. In the seismic shift in global manufacturing supply chains sparked by US-China trade tensions, Indonesia had apparently failed to grasp the opportunity. The World Bank noted at the time that of more than 30 Chinese companies that had announced plans in June to August of that year to expand overseas, none planned to do so in Indonesia. Foreign direct investment into Indonesia as a percentage of gross domestic product decreased between 2012 and 2019, compared with rises by its regional peers including Vietnam, Malaysia, the Philippines and Thailand. Most FDI to Indonesia was channelled to non-manufacturing sectors.
A frustrated president Joko Widodo sprung into action. The following year he introduced his signature “omnibus law” with sweeping changes to more than 70 labour, tax and other laws to cut red tape and make the country more appealing. Though the law received a fair amount of backlash for eroding worker rights, companies cheered the lowering of corporate tax rates, loosened labour laws and more streamlined business rules.
The omnibus law underlined Indonesia’s ambitions to become a more integral part of the international supply chain. The country has a huge domestic market with the world’s fourth largest population, is Asia’s fifth-biggest economy and has an abundance of natural resources. Yet it has long punched below its weight.