Rural Investment Climate in Indonesia

This book provides a comprehensive analysis of the constraints facing the development of rural non-farm enterprises in Indonesia. Recent years have seen a substantial effort by the Indonesian government to improve the investment climate. To date much of this effort has focused on the constraints faced by businesses at the national level. However if Indonesia is to be successful in creating jobs and reducing poverty across the archipelago this will require improving the investment climate for the 15.7 million micro and small enterprises that employ more than half of all the non-farm workers in the country. This book brings together leading Indonesian and international academics to consider seven key constraints that RNFEs face: labour regulations and practices; infrastructure; competition and marketing; knowledge transfer and technology; access to credit and financial services; local taxation and user charges; and insecurity. In each case the authors draw on the Indonesian Rural Investment Climate Survey a unique dataset of more than 2500 RNFEs to identify the size and nature of the constraints the way in which they impact upon enterprise growth and the implications for policy. In addition a key chapter estimates the strength of the linkage between agriculture and non-agricultural activities in rural areas showing that agricultural revitalization is an essential complement to the development of the non-farm economy. Understanding the rural investment climate in both slow- and fast-growing economies has taken on new urgency in the wake of the world food crisis. The rural non-farm economy often provides half or more of the income of farm families and is especially important for food-deficit rural households hard-hit by rising food prices. The Indonesian Rural Investment Climate Assessment is the gold standard for how to achieve this understanding. It is a delight to see it published and available to a wide audience. - C. Peter Timmer Visiting Professor Program on Food Security and Environment Stanford University; Non-Resident Fellow Center for Global Development