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Indonesia’s Competitiveness Increases Thanks to the Job Creation Law

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By: Nana Gunawan *)

Based on the assessment of the Institute for Management Development (IMD) World Competitive Ranking (WCR) 2024, Indonesia’s competitiveness ranking continues to soar thanks to the Job Creation Law (UU) from 34th position to 27th position, beating England and Japan. This is good news from the Government’s efforts to increase ease of doing business and maintain a conducive investment climate.

The Government’s efforts to increase Indonesia’s competitiveness are by passing the Job Creation Law which is considered to make it easier for entrepreneurs to open new businesses compared to before, especially regarding licensing approvals, as well as an increasingly conducive investment climate which has greatly influenced the increase in Indonesia’s competitiveness ranking.

The President of the Republic of Indonesia, Joko Widodo, said that the Job Creation Law is one of the main factors in increasing Indonesia’s competitiveness. According to him, the Job Creation Law is due to the business world and national economic conditions remaining stable amidst global dynamics. Because of the Job Creation Law, Indonesia experienced an increase of eight levels regarding business legislation. Implementing the Job Creation Law in the business world category, the main factors in increasing competitiveness by six levels are labor and productivity. Meanwhile, from the economic category, inflation and economic growth were able to increase five levels.

Then, the Coordinating Minister for Economic Affairs, Airlangga Hartarto, said that Indonesia’s competitiveness in the world was getting stronger thanks to the implementation of the Job Creation Law. This is of course driven by business efficiency, government efficiency and structural reforms implemented through the Job Creation Law. So far, Indonesia has succeeded in maintaining inflation. As of July 2024, the Central Statistics Agency (BPS) reported that Indonesia’s inflation reached 2.13 percent year on year (yoy). The public can also see that Indonesia’s inflation is relatively declining, with emerging markets still at six percent.

Overall, the Government predicts that Indonesia’s economic growth projections will be much better next year. This is because the implementation of the Job Creation Law has contributed to increasing Indonesia’s competitiveness ranking globally. The Job Creation Law makes recruitment easier and resolves labor disputes, as well as higher productivity. One of them is related to the domestic economy in terms of government institutions, the Indonesian market is considered the best due to the demographic bonus and the Job Creation Law.

In more detail, Airlangga said that investment realization in Indonesia until the end of the first quarter of 2024 had reached IDR 401.5 trillion or an increase of around 22.1 percent (yoy). Meanwhile, the value of Foreign Direct Investment (PMA) has reached IDR 204.4 trillion or grew by around 15.5 percent (yoy). However, Airlangga admitted that Indonesia must also continue to focus on improving infrastructure development to create a better investment climate.

An increase in a country’s competitiveness ranking certainly has a significant effect, especially on investor attractiveness. A high competitiveness ranking will also increase a country’s reputation and positive image in the eyes of global investors who often consider this ranking in their investment decisions. That way, investors will increase their confidence in Indonesia’s economic stability and growth potential. Economic stability includes political, financial stability and product productivity. These three aspects are important indicators in assessing the level of strong competitiveness of a country.

The ratification of the Job Creation Law by the Government has improved these three indicators, thereby influencing the positive assessment of foreign investors towards Indonesia. Furthermore, the business world in Indonesia is also increasingly competitive with an increase in the employment sector and productivity. Indonesia’s economic fundamentals remain under control. The policies in the Job Creation Law open up great opportunities for entrepreneurs to absorb workers from the ever-increasing workforce. In this way, the Job Creation Law canalizes the demographic bonus through the creation of many job opportunities.

In fact, in the last few decades, countries such as China, India, Brazil, Indonesia and Turkey have experienced rapid growth and development. As a result, now Indonesia and these countries play an important role in trade, investment, innovation and geopolitics. Indonesia’s competitiveness will of course be boosted by the implementation of the Job Creation Law which can improve economic performance, the ability to attract capital, and the growth of Gross Domestic Product (GDP).

Meanwhile, the President’s Special Staff for Economic Affairs, Arif Budimanta, said that the Job Creation Law provides a legal umbrella that makes business licensing easier so that it can become an instrument in spurring national economic growth in 2024. The government even routinely holds discussions and integration of basic licensing systems in various regions to spur economic growth.

Increased competitiveness reflects a more conducive business environment, greater economic stability and more positive growth prospects. Inclusive and sustainable policies must be the main focus so that all levels of society can feel the benefits of the Job Creation Law which is able to maintain the pace of the economy so that it remains firmly rooted in stability and quality.

)* The author is an Economic Observer at the Nusa Bangsa Institute.

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