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The power of three Together, governments, entrepreneurs and corporations can spur growth across the G20

The EY G20 Entrepreneurship Barometer 2013

Indonesia at a glance

Indonesia has a fast-growing economy, and both its large consumer market and its significant natural resources create strong opportunities for entrepreneurs. But to exploit these, local entrepreneurs still have challenges to overcome on most of the five pillars of entrepreneurship measured in the EY G20 Entrepreneurship Barometer 2013. Nevertheless, there are clear signs of progress in many areas.

Low levels of research and development (R&D) spending and weak results on other research-related indicators suggest that Indonesia lacks a vibrant innovation scene. However, the reality is that the majority of the country’s entrepreneurs tend to operate in sectors — from retail, food and beverage, and hospitality to fishing, agriculture and mining—that don’t require much technological innovation. The Indonesian economy is heavily reliant on these entrepreneurial businesses, which accounted for 57% of GDP in 2012.1 Also, given the obvious logistical challenges faced across the archipelago’s thousands of islands, there is also an inherent difficulty for entrepreneurs in building sizeable national enterprises, which adds to the dominance of entrepreneurial businesses in the economy.

Furthermore, the education system is one of the specific difficulties faced in creating more mature entrepreneurial ventures. Even among the G20’s rapid-growth economies, Indonesia is weak on education. Its performance here is impacted

by low enrollment rates in secondary and tertiary education, although improvements have been noted here by The World Bank and the International Monetary Fund.2 Nevertheless, in absolute terms, the country still has a vast number of graduates entering the job market.

Indonesia performs relatively well on tax and regulation overall, not least thanks to its low-tax regime, but inevitably there is still room for improvement from cutting start-up procedures through to the costs of firing workers.

Overall, Indonesian entrepreneurs face future challenges in maintaining the country’s current rapid-growth. But the survey suggests that entrepreneurs in Indonesia are the most optimistic in the G20 about the progress that their country is making, particularly in terms of the regulatory environment, access to funding and the availability of coordinated support. All this bodes well for entrepreneurs.

Mildred TanGovernment & Public Sector Leader, ASEAN, EY

Jongki WidjajaStrategic Growth Market Representative, Indonesia, EY

Many challenges exist, but there is progress and confidence too

Key facts

Overall Barometer ranking Quartile 4

Population 242 million

GNI per capita (PPP) US$4,810

GDP growth 6.2%

Exports as % GDP 26.3%Source: The World Bank, 2012

1 D Bellefleur, Z Murad and P Tangkau, A Snapshot of Indonesian Entrepreneurship and Micro, Small and Medium Sized Enterprise Development (United States Agency International Development, 2012).

2 “Country Report: Indonesia,” The World Bank website, data.worldbank.org, accessed 18 June 2013.

2 | The power of three The power of three | 3

Weaknesses• Innovation is held back by poor education levels and by

very low spending on R&D.

• Setting up a large business can be a long and costly process, while the high cost of laying off workers discourages expansion.

Opportunities• Strong economic growth and a huge population mean

Indonesia offers entrepreneurs a large domestic market, especially for low-end consumer goods.

• Concerted reform could greatly improve the entrepreneurial environment, particularly the regulatory framework and infrastructure network.

Threats• The influence of politicians with vested interests appears

to be growing, and the pace of reform has already suffered as a result.

• A strong reformist candidate has yet to emerge for elections in 2014, raising the possibility of backsliding on earlier improvements to the business environment thereafter.

Strengths• Entrepreneurs report strong improvement in the

regulatory environment over the past three years.

• Venture capital for innovative, risky projects can be raised more easily than in most G20 economies.

• Total tax rates and indirect taxes are relatively low.

SWOT analysis

Targeting one of the world’s biggest consumer marketsIndonesia has one of the largest and most rapidly expanding groups of newly middle class consumers, which offers significant opportunities for local entrepreneurs. But in order to sidestep the regulations involved in setting up and managing a company in Indonesia, many businesses opt to remain in the informal sector. The good news is that the Government has been making strides in cutting red tape, and continued reforms here could set off a wave of entrepreneurship.

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Time spent on tax issues

2005 2006 2007 2008 2009 2010 2011 2012

Momentum scores for regulation

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Top five funding instruments

Bank loans

Public aid/government funding

Business angels

Family and friends

Venture capital

Entrepreneurship conferences and seminars

Coaching programs for entrepreneurs

Vocational education in the school curriculum

Dedicated entrepreneurship chairs in universitiesand business schools

Government programs supporting entrepreneurship

Mentoring

Specific programs at universities/business schools

Informal networks

Corporate engagement with local schools

Corporate engagement with start-up businesses

Training period at school

Extent to which education and training programs are improving

Greatly improved

Somewhat improved

Neither improved, nor deteriorated

Somewhat deteriorated

Greatly deteriorated

Don’t know or not applicable

0% 20% 40% 60% 80% 100%


Informal networks



Mentoring






Government programs supportingentrepreneurship

% of respondents citing improvement in acces to education

79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%

How is business failure perceived in your country?

Single initiative to improve taxation

33%

G20 average5.5

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G20 average347

*annotate as 2010-2012 average

Source: World Bank

hour

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Government start-up/other programs,including grants

Industry-specific training programs

Small business lending schemes

Loan guarantees

Entrepreneurial workshops

Sponsored industry/entrepreneur forums andnetworking programs

Educators

Support tailored to female entrepreneurs

Small business administration support

Government-sponsored university incubators

Government tailores dupport

21%

18%

11%

11%

8%

11%

6%

5%

3%

3%

A learning opportunity, 44%

A barrier for future business projects, 16%

Don’t know or no opinion, 13%

An outcome that has no impact on future business projects, 11%

An outcome of running a business without the appropriate skills, 10%

A career failure, 6%

Simplification of tax rules and regulations regarding calculation

of tax liability, 53%

Reduction of corporate income tax burden, 21%

Development of a government agency to assist new businesses in complying with tax filing requirements, 13%

Reduction of personal income tax burden, 10%

Reduction of indirect tax rates, 3%

0 1 2 3 4 5 6 7

IndonesiaRapid-growth G20 economies average

Educatio

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Equal weight scores

Time to start a business

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*annotate 2010-2012 average

G20 average22

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Indonesia’s pillar scores compared to rapid-growth G20 economies average

Source: EY G20 Entrepreneurship Barometer 2013


What to watch for

Is the reform process stalling?Taken at an aggregate level, Indonesia’s regulatory environment appears to mark the country out as a below-average performer. But this result glosses over the major improvements that have been seen over the last decade. The time taken to start a business, for example, has fallen dramatically, and entrepreneurs are reporting that it has become easier to raise finance. There has also been a far-reaching clampdown on corruption.

These improvements have been part of a broader shift in the state’s approach to business since the end of the Suharto era, when the regulatory environment and financial system made it difficult for new entrepreneurial entrants to compete.

However, the reform process is far from complete, and there are signs that it has already started to stall. One of the most pro-reform cabinet ministers was forced out of government in 2010, and it appears that this was because of her willingness to take on vested interests.3 Furthermore, following impressive improvements in regulatory areas, such as the time taken to deal with tax issues, this process has slowed in recent years. Looking ahead to the 2014 election, there is a lack of strongly reform-oriented candidates among those who have declared their interest in standing.

All this highlights the risk that recent progress on improving the business environment for entrepreneurs could therefore slow or stall. The hope is that a strong reformist candidate will emerge during 2013. Given the obvious potential that the country’s burgeoning consumer base holds for local entrepreneurs, if a reformist candidate does not emerge, this would be a significant missed opportunity for Indonesia.


2005 2006 2007 2008 2009 2010 2011 2012


Chin

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Bank loans


Business angels

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Venture capital






Mentoring


Informal networks





Greatly improved

Somewhat improved





0% 20% 40% 60% 80% 100%


Informal networks



Mentoring








79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700


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G20 average347


Source: World Bank

hour

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Loan guarantees



Educators





21%

18%

11%

11%

8%

11%

6%

5%

3%

3%













0 1 2 3 4 5 6 7


Educatio

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training

Tax an

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Entrepreneursh

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Access

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Coordinated support

Equal weight scores


Aust

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Source: The World Bank

Indonesia spent along with Saudia Arabia an average of only 0.1% of GDP on R&D spending. The lowest in the G20 (2007–09 average)

47 daysIndonesia took an average of 168 days to start a business in 2004; in 2012 it took just


2005 2006 2007 2008 2009 2010 2011 2012


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Bank loans


Business angels

Family and friends

Venture capital






Mentoring


Informal networks





Greatly improved

Somewhat improved





0% 20% 40% 60% 80% 100%


Informal networks



Mentoring








79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700


Saud

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G20 average347


Source: World Bank

hour

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Loan guarantees



Educators





21%

18%

11%

11%

8%

11%

6%

5%

3%

3%













0 1 2 3 4 5 6 7


Educatio

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training

Tax an

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Access

to funding

Coordinated support

Equal weight scores


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140

Preferred single initiative to improve taxation


3 “Sri Mulyani and RI Politics,” The Jakarta Post website, thejakartapost.com, accessed 21 June 2013.


How the government is helping

Creating New Entrepreneurs Program

One of the objectives of Indonesia’s Central Bank is to encourage entrepreneurship. The new program will be run through seven branches of the bank and will include selecting candidates, providing an entrepreneurship training program, and helping to provide seed capital and mentoring during the start-up process.

Launch date: 2012Most relevant pillar: education and training

Kredit Usaha Rakyat (KUR)

The Government guarantees 70% of loans made under the KUR program, with the bank bearing the risk for the remaining 30%. For applications up to IDR5m (US$500) no physical collateral is needed, and for larger loans the collateral requirements are lower than for regular commercial loans. The Government expects KUR lending to reach IDR37 trillion (US$2.9b) in 2013.

Launch date: 2007Most relevant pillar: access to funding

One-stop shops

The idea behind this network of 445 local government offices is to consolidate and simplify the process of applying for permits and licenses. The program has been successful, streamlining business licensing by integrating the authority to issue licenses, commonly located in various disparate government offices, into one government department.

Launch date: 2006Most relevant pillars: tax and regulation, coordinated support

Key insight: listening and learning Nadya Saib, Founder and CEO, Wangsa Jelita, Indonesia

Wangsa Jelita is a social enterprise that produces natural beauty products and works to set up fair-trade agreements with local communities. Founder and CEO Nadya Saib highlights Indonesia’s changing entrepreneurial culture.

“Indonesian culture is very conservative. People don’t want to fail and see a failed business as a stigma. When I started my business, everyone thought the idea was reckless. I graduated from a good university, and it would have been easy for me to get a job at a multinational company. It was risky to start out on my own — especially because I didn’t have a formal business background. But I do think the entrepreneurship culture has improved over the past three or four years.

“Now there are so many initiatives to support an entrepreneur, which makes it easier for young people to start their own businesses. I think there is a lot the government can do to

help to support entrepreneurship. It would be useful to have more programs that bring young and successful entrepreneurs together so they can learn from one another.

“One of the best things to happen to me was attending seminars where successful entrepreneurs were invited to speak. One of those speakers is now my best friend and a hugely important supporter of my business. When I have a problem, I can ask her and benefit from her experience.

“I would say that the Government needs to listen to entrepreneurs more to find out what their needs are. They recently conducted group discussions about reducing regulations for entrepreneurs. That’s a very good start, and they need to do more. They need to listen more to young entrepreneurs who are working to build their businesses.”


Access to fundingPillar ranking: 10

An increasingly positive funding environment

Access to funding is one of Indonesia’s strongest pillars overall. But important weaknesses remain. Local capital markets lack depth and liquidity, for example. The ratio of private sector credit to GDP is the third lowest in the G20, while the scale of merger and acquisition (M&A) deals is also relatively low.

However, the World Economic Forum found that it was easier for companies with risky but viable projects to raise venture capital (VC) in Indonesia than in most G20 countries. This could reflect the increasing global optimism over Indonesia’s economic prospects. Similarly, firms have had unusual success with initial public offerings (IPOs), highlighting the strengthening conditions for access to finance in the country.

Indonesia’s entrepreneurs were upbeat about financing. They reported improving access to all forms of finance, ranging from public financing and microfinance to private equity, VC and bank loans. Overall, based on positive sentiment about improvements here, the country performs well in terms of its access to seed funding. The success of programs such as the KUR and revolving fund loans schemes back up the entrepreneurs’ claims, but, as with other pillars, such improvements obviously start from a low base, and there is plenty of room for continued gains.

It’s also important to keep in mind the fact that the rising use of non-bank funding partly reflects shortcomings in the formal banking sector. This remains a key gap: local entrepreneurs pointed to bank loans as the number one funding instrument that could help to improve the long-term growth of entrepreneurship in the country.

Aldi Haryopratomo, the CEO and Co-founder of RUMA, a company that helps companies accept and make payments via mobile phones and tablets adds that Indonesian businesses should also be brave enough to look further afield for financing. “If you are an ambitious company with a proven business model, you can raise money internationally,” he says, noting that his company raised funding in Silicon Valley for its venture.

Access to funding Indonesia G20 average Period

IPO market activity

IPO amount invested (% of GDP)

0.28 0.22 2009-11 average

Access to credit

Domestic credit to private sector (% of GDP)

27.8 99.0 2008-10 average

Venture capital availability (Scale of 1=impossible to 7=very easy)

3.7 3.0 2009-11 average

M&A deal value (% of GDP)

1.6 3.4 2010-12 average

Sources: The World Bank, Dealogic, IMF, World Economic Forum

56%of entrepreneurs in Indonesia claim that access to funding as difficult


2005 2006 2007 2008 2009 2010 2011 2012


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0% 20% 40% 60% 80% 100%


Informal networks



Mentoring








79%

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61%

61%

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60%

55%

52%

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47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700

Time spent on tax issuesSa

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a

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G20 average347


Source: World Bank

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21%

18%

11%

11%

8%

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6%

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0 1 2 3 4 5 6 7


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Top five access to funding instruments aiding entrepreneurship


Indonesia finds their domestic credit to the private sector as a percent of GDP was 27.8%, under a third of the G20 average of 99.0% (2008–10 average)


Entrepreneurship culturePillar ranking: 19

A conservative culture but a supportive one

The Barometer found that the entrepreneurship culture is weak in Indonesia. However, this is primarily due to its poor performance on innovation-related metrics, rather than any lack of entrepreneurial spirit. This largely reflects the country’s current early stage of development, where productivity gains are usually made by adopting technologies and methods from more mature economies, rather than through home-grown innovation. As the country continues to develop and move up the value chain, this will need to change.

Despite this R&D-related weakness, many entrepreneurs from Indonesia believe that culturally, at least, their country is supportive of entrepreneurship. For example, in 2011, a consumer survey by the BBC, based on people’s attitudes toward setting up their own businesses, rated Indonesia as the number one country for entrepreneurship.4 The simple reality is that for many Indonesians, especially in poorer social classes, entrepreneurship is often the most realistic alternative to formal employment, given that a lack of educational qualifications often acts as a barrier to entry to the jobs market. Furthermore, entrepreneurs are typically held in high regard in local society.

Nevertheless, there is still room for improvement. One key factor that inhibits entrepreneurship is the high cost of insolvency. Only three other countries have higher insolvency costs than Indonesia, and the financial implications of insolvency are a deterrent to establishing a business. Importantly, culturally there is a strong

recognition that a business failure is simply a learning opportunity, which is a clear cultural strength in the country.

However, attitudes toward self-made wealth and entrepreneurship as a career were slightly less positive than in the G20’s other rapid-growth countries, according to the survey. For example, RUMA’s Aldi Haryopratomo says risk aversion remains a challenge. “Indonesian culture is very conservative, and people don’t want to take risks. Young, talented people often assume they should work for large companies rather than try to build a business and succeed for themselves,” he says.

Entrepreneurship culture

Indonesia G20 average Period

R&D spending (% of GDP) 0.1 1.6 2007-09 average

Scientific and technical journal articles (per 10,000 people)

0.0 3.3 2007-09 average

Cost of resolving insolvency (% of estate)

18.0 11.8 2010-12 average


44%of local entrepreneurs surveyed see business failure as a learning opportunity, which is the highest in the G20


2005 2006 2007 2008 2009 2010 2011 2012


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Mentoring


Informal networks





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Somewhat improved





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Informal networks



Mentoring








79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700


Saud

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Sout

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500

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1500

2000

2500

3000

G20 average347


Source: World Bank

hour

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Loan guarantees



Educators





21%

18%

11%

11%

8%

11%

6%

5%

3%

3%













0 1 2 3 4 5 6 7


Educatio

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training

Tax an

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Entrepreneursh

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Access

to funding

Coordinated support

Equal weight scores


Aust

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Entrepreneurs’ view of how business failure is perceived

Source: EY G20 Entrepreneurship Barometer 2013Indonesia’s cost of resolving insolvency at 18.0% of estate is over 50% higher than the G20 average (2010–12 average)

4 “Entrepreneurs face global challenges,” BBC News website, bbc.co.uk/news, accessed 14 June 2013.


Tax and regulationPillar ranking: 12

Moving in the right direction

Indonesia has a low-tax environment. The country’s indirect tax rate and total tax rate are among the lowest in the G20, providing a major boost to the business environment and to entrepreneurs overall. As a result, local entrepreneurs’ perceptions of trends in tax incentives are also more favorable than in most G20 economies.

That said, the bureaucracy involved in paying taxes is quite high. Only six other countries in the G20 require companies to spend longer on their tax issues each year. This point is echoed by Aldi Haryopratomo of RUMA. “The Indonesian tax system is confusing,” he says. “Entrepreneurs often don’t know how much tax they owe and so how profitable their business is. Even small businesses need to use very good accountants to work out what taxes to pay. The Government has made some progress, but a lot more needs to be done.” Entrepreneurs surveyed in Indonesia report that simplification of tax rules was, by far, the key aspect of the tax system that they would like to see improved.

When Indonesia’s entrepreneurs were asked which initiative they thought would most improve the regulatory system, establishing a direct line of communication with the Government to express concerns about regulations was the most popular by some margin. There would be plenty to discuss. For example, the time taken to start a business is more than double the G20 average in Indonesia, while the cost of firing a worker is a big deterrent to starting and expanding a business.

On the positive side, exporters in Indonesia face far fewer bureaucratic barriers than their counterparts in other G20 rapid-growth markets, helping deliver a strong overall performance on export support in our rankings. There is also notable optimism that the regulatory environment is improving. In the survey, respondents were more likely than the G20 average to report that regulation and government support are improving. Data from The World Bank supports the view that conditions are on the rise. For example, the average time taken to start a business has fallen from 168 days in 2004 to 47 days in 2012. In general, Indonesia’s regulation and tax environment is moving in the right direction.

Tax and regulation Indonesia G20 average Period

Ease of starting a business

Start-up procedures (number) 9.3 7.6 2010-12 average

Time to start a business (days) 48 22 2010-12 average

Cost to start a business (% of income per capita) 24.0 9.4 2010-12 average

Paid-in minimum capital to start a business (% of income per capita) 47.2 17.9 2010-12 average

Business regulations

Time spent on tax issues (hours) 264 347 2010-12 average

Labor market rigidity

Cost of firing (weeks of wages) 108 50 2007-09 average

Labor and tax contributions (% of commercial profits) 10.6 24.0 2012

Taxation

Total tax rate (taxes and mandatory contributions borne by the business expressed as a share of commercial profit)

34.5 49.7 2012

Indirect tax rate (taxes collected by the company and remitted to the tax authorities) 10.0 14.2 2012Source: The World Bank

The cost of firing a worker in Indonesia at 108 weeks’ wages is one of the highest in the G20 and double the G20 average of 50 weeks (2007–09 average)

Time taken to start a business


2005 2006 2007 2008 2009 2010 2011 2012


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Bank loans


Business angels

Family and friends

Venture capital






Mentoring


Informal networks





Greatly improved

Somewhat improved





0% 20% 40% 60% 80% 100%


Informal networks



Mentoring








79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700


Saud

i Ara

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Braz

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Arge

ntin

aUS

Fran

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Cana

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Aust

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Mex

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Chin

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Japa

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Italy

Indo

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Russ

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Indi

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500

1000

1500

2000

2500

3000

G20 average347


Source: World Bank

hour

s

Hou

rs




Loan guarantees



Educators





21%

18%

11%

11%

8%

11%

6%

5%

3%

3%













0 1 2 3 4 5 6 7


Educatio

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training

Tax an

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Entrepreneursh

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cultu

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Access

to funding

Coordinated support

Equal weight scores


Aust

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Turk

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Italy

Cana

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G20 average22

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40

60

80

100

120

140

Source: The World Bank, 2010–12 average


Education and trainingPillar ranking: 19

Growing numbers of graduates, but quality needs to be improved

Although enrollment in secondary and tertiary education in Indonesia is rising, it is growing from a very low base by G20 standards. And there are question marks over standards as well. There are more than 1,000 tertiary education institutions, but research by the Boston Consulting Group suggests that there is a big gulf between the leading universities and the rest.5

On the positive side, the impact of the educational shortcomings in Indonesia may be smaller than in other countries, because most entrepreneurs operate in low and mid-tech sectors. Also, in terms of sheer numbers of graduates Indonesia’s demographics work in its favor, and the Government has been reforming the education sector in preparation for growth. Thanks in part to the country’s growing middle class, which means that more people can afford further formal education; the British Council has estimated that 2.6 million Indonesians will enter tertiary education over the next decade, and that by 2035 it will be in the global top 10 countries for tertiary enrollments.6 All this will no doubt boost the supply of educated graduates to bolster entrepreneurial ventures, even if the overall enrolment proportion remains relatively low.

One other weakness is that public spending on the state education system is low and has been stagnant in recent years. In part this reflects the fact that government spending is low in general, given the budget constraints faced. Private education makes up for some of this, although other rapid-growth countries such as China and India spend a greater proportion of GDP on private education.7

Nevertheless, entrepreneurs surveyed in Indonesia believe that formal and informal education for entrepreneurs is improving. They were the most positive of all countries in the G20 on improvements to entrepreneurial education within formal channels, such as vocational education in school curriculums, or specific entrepreneurial programs at university. They also ranked strongly on informal channels such as mentoring and corporate engagement with start-ups. This highlights the strongly positive sentiment on the ground, although clearly the country is building from a low base.

Education and training Indonesia G20 average Period

Public spending on education (% of GDP) 3.1 4.8 2008-10 average

Secondary school enrollment (total enrollment expressed as a percentage of the population of official secondary education age)

74.1 95.0 2008-10 average

Tertiary enrollment (total enrollment expressed as a percentage of the total population of the five-year age group following on from secondary school leaving)

21.9 53.5 2008-10 average



2005 2006 2007 2008 2009 2010 2011 2012


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1

2

3

4

5

6

7

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Bank loans


Business angels

Family and friends

Venture capital






Mentoring


Informal networks





Greatly improved

Somewhat improved





0% 20% 40% 60% 80% 100%


Informal networks



Mentoring








79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700


Saud

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Braz

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Arge

ntin

aUS

Fran

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Cana

daUK

Aust

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Mex

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Chin

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Japa

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Italy

Indo

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Russ

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Indi

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Sout

h Ko

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Turk

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Germ

anyEU

Sout

h Af

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0

500

1000

1500

2000

2500

3000

G20 average347


Source: World Bank

hour

s

Hou

rs




Loan guarantees



Educators





21%

18%

11%

11%

8%

11%

6%

5%

3%

3%













0 1 2 3 4 5 6 7


Educatio

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training

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to funding

Coordinated support

Equal weight scores


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120

140

Proportion of entrepreneurs citing improvement in areas of education


Indonesia finds that at 21.9% its tertiary enrollment ratio is the second lowest out of the G20 nations, and under half the G20 average of 53.5% (2008–10 average); however, 2.6 million Indonesians will enter tertiary education in the next 10 years

5 “Indonesia’s got talent problem,” Financial Times website, blogs.ft.com, accessed 15 June 2013.

6 “New 2035 entolment forecasts place east asia and the pacific in the lead,” ICEF Monitor website, monitor.icef.com, accessed 18 June 2013.

7 “Domestic credit to private sector (% of GDP),” The World Bank website, data.worldbank.org, accessed 26 June 2013.

Time taken to start a business


The Government needs to back up its ambitions with actionLike many other rapid-growth G20 nations, Indonesia performs well overall in coordinated support. It is important to note that this is a measure of the improvements entrepreneurs have seen over the past three years, not a snapshot of the current level of support in Indonesia compared with other G20 countries. The fact that Indonesia’s entrepreneurial conditions start from a low base means even modest improvements are significant.

The Government has said that Indonesia needs at least four million entrepreneurs (around 2% of the population) to support the country’s economic development.8 However, it is notable that improvements in support for entrepreneurs appear to be driven by the private rather than public sector. Only 28% of respondents agreed that access to government start-up programs had improved over the past three years.

The area of support that appears to be growing most quickly is entrepreneurship workshops and associations, suggesting that entrepreneurs are looking to each other as a significant source of support. Looking to the future, entrepreneurs are strongly in favor of improvements in both business incubators and mentoring programs, which they believe would make the biggest difference to the overall support provided to entrepreneurs.

Coordinated supportPillar ranking: 4

48%of entrepreneurs in Indonesia think improvements to business incubators should be prioritized


2005 2006 2007 2008 2009 2010 2011 2012


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Bank loans


Business angels

Family and friends

Venture capital






Mentoring


Informal networks





Greatly improved

Somewhat improved





0% 20% 40% 60% 80% 100%


Informal networks



Mentoring








79%

68%

61%

61%

60%

60%

55%

52%

50%

47%

44%

50%

48%

27%

24%

24%



33%

G20 average5.5

0100200300400500600700


Saud

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Braz

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Arge

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Fran

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Cana

daUK

Aust

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Mex

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Chin

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Japa

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Germ

anyEU

Sout

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0

500

1000

1500

2000

2500

3000

G20 average347


Source: World Bank

hour

s

Hou

rs




Loan guarantees



Educators





21%

18%

11%

11%

8%

11%

6%

5%

3%

3%













0 1 2 3 4 5 6 7


Educatio

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training

Tax an

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Entrepreneursh

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Access

to funding

Coordinated support

Equal weight scores


Aust

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20

40

60

80

100

120

140

Entrepreneurs’ view as to which factors of Government-tailored support are most effective


4 millionentrepreneurs are needed to support developments in Indonesia. This is nearly 2% of the population.

According to the Government,

8 “Indonesia Minister: We Need Four Million Entrepreneurs,” Forbes website, forbes.com, accessed 29 June 2013.


Rankings table

Ranking Access to funding

Score Entrepreneurship culture

Score Tax and regulation

Score Education and training

Score Coordinated support

Score

1 United States 7.12 United States 7.67 Saudi Arabia 6.40 France 6.58 Russia 6.23

2 United Kingdom 6.86 South Korea 7.53 Canada 6.34 Australia 6.53 Mexico 5.89

3 China 6.75 Canada 7.45 South Korea 6.34 United States 6.50 Brazil 5.87

4 Canada 6.62 Japan 7.28 United Kingdom 6.19 South Korea 6.40 Indonesia 5.84

5 Australia 6.48 Australia 7.18 South Africa 6.10 EU 6.25 India 5.76

6 South Africa 5.95 United Kingdom 7.00 Japan 6.07 United Kingdom 5.98 China 5.75

7 Japan 5.81 Germany 6.88 Germany 5.84 Germany 5.89 Turkey 5.66

8 South Korea 5.75 EU 6.07 Australia 5.75 Argentina 5.85 South Africa 5.65

9 Brazil 5.67 France 5.68 Russia 5.65 Canada 5.81 Argentina 5.64

10 Indonesia 5.53 Russia 5.05 EU 5.48 Brazil 5.78 Germany 5.53

11 India 5.48 India 4.95 Turkey 5.45 South Africa 5.67 France 5.41

12 EU 5.41 Brazil 4.88 Indonesia 5.38 Saudi Arabia 5.66 Saudi Arabia 5.39

13 Saudi Arabia 5.25 Italy 4.67 United States 5.33 Italy 5.47 EU 5.37

14 Germany 5.23 South Africa 4.33 Mexico 5.21 Russia 5.46 South Korea 5.36

15 Russia 5.04 Turkey 4.30 France 5.12 Mexico 5.32 Australia 5.31

16 France 4.74 Argentina 4.06 China 5.07 Japan 4.72 Canada 5.29

17 Turkey 4.57 Mexico 3.96 Brazil 4.83 Turkey 4.39 United Kingdom 5.19

18 Mexico 4.42 China 3.88 Italy 4.76 China 4.35 Japan 5.04

19 Italy 4.03 Indonesia 3.80 India 4.39 Indonesia 3.88 Italy 4.97

20 Argentina 3.27 Saudi Arabia 3.38 Argentina 4.31 India 3.49 United States 4.85

About the EY Entrepreneurship Barometer modelThe EY G20 Entrepreneurship Barometer 2013 introduces a model for scoring countries across the five pillars of entrepreneurship.9 The purpose of this model is to help identify areas of relative strength by country and where opportunities for improvement lie.

The model is composed of qualitative information (from our survey of more than 1,500 entrepreneurs) and quantitative data based upon entrepreneurial conditions across the G20 economies. For each pillar, excluding coordinated support, this information is

weighted 50-50 between qualitative and quantitative inputs. For coordinated support, given a lack of quantitative indicators, this is based solely upon the survey responses.

The advantage of integrating both the survey results and quantitative data is the ability to provide an assessment of the current level and the trends in a G20 entrepreneurial ecosystem based upon local sentiment. To this end, official statistics (for example, on the average time taken to start a business or the tax burden) provide a baseline for each member country.

Survey information is an important complement to the baseline picture these statistics provide. Entrepreneurs’ feedback on the pace of improvement or deterioration in conditions in their country’s entrepreneurship ecosystem is incorporated in the model alongside the hard statistics.

Full details of the Barometer’s methodology can be found on page 66 in the main EY G20 Entrepreneurship Barometer 2013 report.

9 Note: As per the G20 membership, this list comprises 19 individual countries and also the European Union (EU), as an additional member. Our rankings show the performance of each country, along with an aggregate performance for the 27 EU Member States.


About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

About EY’s Strategic Growth Markets NetworkEY’s worldwide Strategic Growth Markets Network is dedicated to serving the changing needs of high-growth companies. For more than 30 years, we’ve helped many of the world’s most dynamic and ambitious companies grow into market leaders. Whether working with international mid-cap companies or early-stage venture-backed businesses, our professionals draw upon their extensive experience, insight and global resources to help your business succeed. ey.com/sgm

© 2013 EYGM Limited.All Rights Reserved.

EYG no. CY0576

ED 0715

This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

The opinions of third parties set out in this publication are not necessarily the opinions of the global EY organization or its member firms. Moreover, they should be viewed in the context of the time they were expressed.

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Contacts

Jongki WidjajaStrategic Growth Market Representative, Indonesia, EY+62 21 5289 [email protected]

Mildred TanGovernment & Public Sector Leader, ASEAN, EY+65 6309 [email protected]

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