Indonesia Pestel Analysis

1. Introduction:

Indonesia is one of the largest countries in South-east Asia, between the Indian Ocean and the Pacific Ocean, which contain mainly mountainous and covered with rain forests, swamps and consists over 13000 islands. Jakarta is the capital of Indonesia. Indonesia declared its independence on 17th August 1945 from Japan but Netherlands agreed to transfer sovereignty in 1949. Susilo Bambang is the President and Muhammad Yusuf Kalla is the Vice-President of Indonesia. Bahasa is the official language in Indonesia which modified form of Malay but the most widely spoken language is Javanese. 88% of Indonesians population is Muslim. It has a very large trading environment, with several countries ranging in products from gas to textiles. 22% of its population live below poverty line. (CIA- the World Fact book)

2. PESTEL Analysis:

Political and Legal factors:

Indonesia is considered as Republic country. It declared its independence on 17th August 1945 from Japan so 17th August is the national holiday. Indonesia¶s legal rules and regulations are based on Roman-Dutch law. Their constitution has abrogated by Federal Constitution in 1949 and Provisional Constitution abrogated in 1950 which restored on 5 July 1959.

Political stability: In Indonesia after every five year election is being contested for president and vice president post by direct vote of the citizenry. Last time it was held on 8 July 2009 (next to be held in July 2014). Susilo Bambang has elected as president and Muhammad Yusuf Kalla is the Vice-President. Similarly, Cabinet also appointed by the president. So for next 5 years there are more chances of stability of the government.

Labour laws: Indonesia has one of the largest labour forces in the world which make it stand on

5th rank. So, to protect the labour rights the government has made a law called Labour laws Article 28D (2). According to this law 7-hour workdays and 40-hour workweeks, with one 30- minute rest period for each 4 hours of work is legal in Indonesia. One day of rest weekly also mandatory in Indonesia. In April 1992, the Government of Indonesia signed a Memorandum of Understanding with the International Labour Organization under the International Program for

the Elimination of Child Labour (IPEC) where the minimum working age is 14 years. (Labour &

Social Protection in Indonesia, 2009)

Labour force - by occupation:

Agriculture: 42.1%

Industry: 18.6%

Services: 39.3%

Company law: The Indonesian Company Law of 1995 is the most important framework for the

current legislation on corporate governance in Indonesia. Under the Company Law, a company is a separate legal entity in which Directors and Commissioners represent the company. Every company must register their Memorandum of Act under this Company Law. (Incorporation of company Law in Indonesia)

Prime lending rate: If we talk about their commercial Bank prime lending interest rate it is

quiet decent which is 6.41% and their Central bank discount rate is 10.83% . (CIA, 2009)

Environmental law: Indonesia Environmental Agency states Decree Laws. For instance,

Municipal Noise Reduction Plan (MNRP) has noise limit such areas in housing occupancy,

hospitals, schools, and religious buildings (Inter Noise , 2007).

Business or individual tax system: Tax system has various rules and categories for example on

first 25,000,000 income rate of tax is 10% then on next 25,000,000 it is 15% and on next 50,000,000 it is 30%. In the same way Income Tax on interest from Indonesian banks is fixed at a final 15% for both companies and individuals.

Economical factor:

Indonesia is considered as a developing country. Due to the government policies and treasure of national resources, their GDP growth has been increasing rapidly from last few years. They spend 23.5% of their GDP to develop their nation. According to last announced budget they had revenues $92.62 billion and expenditures $98.88 billion in 2008. They have hub of natural resources such as in Oil production, it has 23rd rank, in natural gas production and in export it is on 8th position.

GDP: Indonesia has made significant economic advances through last years. Indonesia's debt-to-

GDP ratio in recent years has declined because of increasingly robust GDP growth which was 6.1% ($915.9 billion) in 2008 compare to 5.5% ($811.1 billion) in 2006 and compression to the world they are on 54th position in GDP growth. 14.4% of GDP earning from agriculture, 37.5% from service sector and the major part 48.1% comes from industry. (The World Bank, 2009)

Per capita income: If we talk about per capita income, it was $3,500 in 2006 which was

increase up to $3900 in 2008 and comparison to the world it is on the 157th rank in per capita

income.A. Average Family Income ± 33 (Gina index)

B. Distribution of Wealth

1. Income Class

Bottom 10% of population represents 4% of wealth

Top 10% of population represents 27% of wealth

Exchange rate:

Indonesian rupiah (IDR) per US dollar - 9,698.9 (2008) compare to 9,159.3 (2006)

Indonesian rupiah (IDR) per Indian rupee- 205.97

FDI: FDI is one of the most important factors for every country. It plays a vital role in Indonesia

growth rate. It is a developing country so they have good inflow of FDI. It was $67.3 billion in

2008 compare to $58.96 billion in 2007 and they are on 45th position in FDI stock.

Inflation rates: Inflation rate is still high but it has come down after a high of 20.7% in 1999. It

was 9.9% in 2008 compare to 6.3% in 2006. The major reason behind it is economic downturn.

Import: Due to change in population,