Indonesia is missing out on the China exodus

As more companies look to move production out of China to avoid US tariffs, they are choosing Southeast neighbours Vietnam, Cambodia and Thailand rather than Indonesia.

While Indonesia is the biggest economy in the region and has one of the biggest labour pools in the world, it is not proving attractive to Chinese companies.

“Businesses are moving out of China but are not coming to Indonesia because Indonesia’s neighbours are more welcoming,” the World Bank said recently.

The main reason is Indonesia’s strict employment laws, particularly when it comes to hiring and firing staff. Severance pay is among the most generous in the world.

The regulatory landscape is also burdensome. Some imports needed for manufacturing require a letter from the Ministry of Industry that can take up to six months to obtain.

Infrastructure is another challenge for Indonesia, which is a vast archipelago of more than 17,000 islands. While President Joko Widodo has agreed to invest in new roads, airports and seaports to better connect the country, this will take time.

But it’s not all doom and gloom, as Indonesia’s fast-growing e-commerce sector is already a major source of jobs. Plus it already has five unicorns including the ride-hailing and delivery app Gojek, the travel site Traveloka and online market place Bukalapak.