To better the institutional aspects of infrastructure development, through several steps:

o Replace goods transportation system from predominantly cartruck to train as the main mode of land transportation o Establishing world-class export supporting infrastructure and manufacturing clusters, such as: ring road, road access to port, access to warehouse, international port o Improving the ratio of electri ication to 100 and enhance further the quality of electricity in Indonesia, especially at the regional level who experience blackout in a highly frequent basis e.g. Medan, etc.

4. To better the institutional aspects of infrastructure development, through several steps:

o Improving public budget for infrastructure to a comparable level to those of other major developing countries o Encouraging and re ining Public-Private Partnership for strategic infrastructure. PPP scheme needs to have clear standardization, including con idence in private sector to participate in project inancing o Lands acquisition needs to be fully settled prior to construction; government should guarantee full compensation of any losses arising from land acquisition failure, or implement land fund that is reliable to investors. Land fund implementation consists of the following, will release risks borne by private investors: · Land revolving fund: set off land acquisition cost · Land capping: cover risk of increasing land price o Re ine government institutions as planner, coordinator, and evaluator of infrastructure projects. As an institution, the Committee for Priority Infrastructure Development Acceleration, or KPPIP Komite Percepatan Pembangunan Infrastruktur Prioritas needs to have legal power to execute as well as clear coordination and order relationship with related stakeholders, to ensure KPPIPs ef icient and effective work. 5. To have a more lexible and conducive employment regulation that support business productivity and employment creation. This includes labor policy reforms such as: o Amendment of labor law 132003 to better balance the interest of workers, employers, and the job seekers o Minimum wage should be determined through a technocratic and centralized approach by independent institution, in which heads of the regions may not politically interfere to it. o Signi icantly reducing the mandated amount of severance pay o To delay the implementation of BPJS until it is ready, legally clear, and procedurally coordinated, especially to have a clear mechanism on the Coordination of Bene it CoB between BPJS and private insurance scheme that has already been provided by the companies. 28 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA 6. To Improve workers skill and productivity, through: o Establishment of National Training Fund as an instrument to drive training done internally by industry on-the-job training in order to improve the practical skill of the workers. National training fund functions to help the funding and incentive to business sectors that seek to conduct training for their workers in order to ful ill the change in required skills. o Revitalization of vocational and skill training center BLK. In order to improve its effectiveness and to be more able to re lect market dynamics, BLK management needs to be conferred to industrialprivate sector whose funding is sourced from government. In complement to those recommendations, Indonesia also needs a more pro-active trade and investment policy as well as clear and market-friendly industrial development strategy. To be more competitive at the global level, policy makers need to consider a rather pro-active trade policy, such as free trade agreement FTA or comprehensive economic partnership agreement CEPA as it offers tariff elimination and non-tariff barriers relaxation which translates to: i cheaper input, i.e. raw material and capital goods, for domestic industry, as well as ii better market access for Indonesias export. This w i l l e v e n t u a l l y b o o s t i n d u s t r i a l development and export competitiveness in Indonesia. Moreover, since getting fresh liquiditycapital has now been harder following the monetary tightening in US, certain policy measures are needed to better attract foreign investment, especially the measures, which focus to regain investors con idence, such as investment protection, liberalization, and incentives as typically featured under the FTACEPA. Now that the global commodity boom is over, theres wider opportunity to develop manufacturing sectors, not only in labor- intensive industry, but also in downstream- higher value added products. However, government should not force private sectors to do it, through distortive tax and forcing regulation. A misplaced tax and regulation will not entail industrial development, but rather depressing further business competitiveness. Therefore, it is better for the government to do it via market-based strategy that is to use market price as a basis for industrial development. Let the market decide whether or not they want to specialize in a higher value chain. If government wants to expedite further the downstream industrial development of speci ic sector, better to use the incentive policy rather than tax. In Indonesia, there is a speci ic need to eliminate 10 value added tax VAT imposed on coffee and cocoa bean. In the market, that particular VAT doesnt stimulate downstream industry of cocoa and coffee products, but rather reduce their competitiveness in export market. Instead, we recommend the government to set up appropriate incentive both to stimulate a new market niche and encourage downstream industrial production of cocoa and coffee products. For any recommendations set out above to work, it needs a political certainty and stability. First, the disharmony between legislative and executive must be put to an end. This is very crucial for business certainty and more importantly for any reform measures to work effectively by not 29 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA having inappropriate interpellation from the House. Secondly, government must be able to capitalize the high expectation from the business sectors and translate it as a foundation to do any necessary bold m e a s u r e s t o i m p r o v e b u s i n e s s competitiveness, even though its a hard thing to do. Government must be able to sacri ice inef icient public budget earmark such as subsidy and have it allocated to other more productive sectors, such as infrastructure development, education, and healthcare. The government must keep its consistency to do necessary reform and do it as soon as possible; before the political capital begins to slower, and business con idence will not be that high anymore. 30 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA REFERENCES APINDO 2014. Economy Roadmap: The Creation of Three Million Good Jobs per Year, APINDO’s Contribution to the 2014-2019 National Leadership. Jakarta: APINDO ILO 2013. Labor and Social Trends in Indonesia 2013: Reinforcing the Role of Decent Work in Equitable growth. Jakarta: ILO Country Of ice for Indonesia IMF 2013. World Economic Outlook: Special Focus. Washington, DC: International Monetary Fund Kaplan, S. B. 2006. Do Elections Hurt Developing Economies. Connecticut: Yale University Keliat, M., A. Virgianita, S. Al Banna, A. C. Aryanto 2013. Pemetaan Pekerja Terampil Indonesia dan Liberalisasi Jasa ASEAN. Depok: ASEAN Study Center FISIP UI Laksono, R. and Situmorang R. 2014. In Facing the Indonesia-European Union Comprehensive Economic Partnership Agreement: Perspective from Indonesias Business Sector. Jakarta: APINDO Papanek, G., R. Pardede, and S. Nazara 2014. The Choice for the Next 5 years: 5 growth and 0.8 million good jobs a year or 10 growth and 3 million good jobs. Presentation at APINDO Economic Roadmap Discussion Series Porter, M. E. 1990. The Competitive Advantage of Nations. Massachusetts: Harvard Business Review Riley, G. 2012. Economic Growth. Retrieved from http:tutor2u.neteconomicsrevision- notesas-macro-economic-growth.html The Conference Board 2014. Total Economy Database, January 2014 World Bank 2010. Towards Better Jobs and Security for All. Indonesia Jobs Report. Jakarta: World Bank World Bank 2013. State of Logistics Indonesia 2013. Jakarta: World Bank Of ice Jakarta World Bank 2014. World Development Indicators. Downloaded from http:data.worldbank.org World Economic Forum 2014. Global Competitiveness Index 2014-2015. Genève: World Economic Forum 31 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA APPENDICES Appendix A. Elements of Competitiveness Abbreviation as in Figure 4 No Description Logis cs Infrastructure Logistic infrastructure roads, railways, ports, and transportations 1 ICT Infrastructure ICT Infrastructure telephone, internet, etc. 2 Taxa on Taxation system 3 Educa on System The quality of educational system 4 Universi es Linkage between University and industry 5 Entrepreneurship Support to entrepreneurship, especially start-ups 6 Skilled labor Skilled labor availability 7 Hiring and firing Flexibility in hiring and iring workers 8 Innova on Infrastructure to support innovation research institution, government support to RD, and researchers availability 9 Regula on Business regulation 10 Clusters Industrial cluster availability 11 Finance Access to Finance 12 Macro Macroeconomic policies 13 Poli cs Political stability 14 IPR Protection to intellectual property rights 15 Legal Law certainty and enforcement 16 32 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA Appendix B. Distribution of Respondents: by Size, Ownership Status, 2 digit HS Code, and Main Business Operation Area Size Type of Firms Percentage Small Enterprises less than 10 employees Medium Enterprises 10-99 Employees Large Enterprises more than 100 employees 13.34 49.53 37.14 Ownership Status Status of Ownership Percentage Fully Domes c Fully Foreign Joint Domes c-Foreign 80.19 14.15 5.66 Hs Code 2 Digit Sector Percentage Manufacturing Agriculture, Forestry, and Fishery Wholesale Trade and retail Professional Services Mining and Quarrying 55.65 18.87 16.04 1.89 1.88 Rental services, Employment, Travel Agencies and Other Business Support 1.88 Construc on Communica on Finance Insurance 0.94 Real Estate 0.94 0.94 0.94 33 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA Main Business Operation Area Appendix C. Export and Import Activities of Respondents Export Activities Number of respondents Yes No Are you expor ng? 106 40.57 59.43 Are you exporting raw materials? 104 83.65 16.35 Are you exporting semi- inishedintermediate goods? 103 90.29 9.71 Are you exporting inished inal goods? 103 53.40 46.6 Import Activities Number of respondents Yes No Are you importing? 105 61.90 38.10 Are you importing raw materials? 101 74.26 25.74 Are you importing semi- inishedintermediate goods? 102 88.24 11.76 Are you importing inished inal goods? 103 80.58 19.42 34 STRENGTHENING BUSINESS COMPETITIVENESS FOR A PROSPEROUS INDONESIA Central Java and Yogyakarta Sumatera Jabodetabek Greater Jakarta East Java West Java except Bogor, Depok, Bekasi Kalimantan Banten except Tangerang Sulawesi Bali and Nusa Tenggara Papua Maluku Kode Kuesioner J K T - 1 Indonesia Business Compe veness Survey The Employer’s Associa on of Indonesia APINDO, 2014 Welcome to Compe veness Survey, APINDO Thank you for your par cipa on in Indonesian Compe veness Survey in 2014 conducted by The Employers’ Associa on of Indonesia APINDO. In general, this survey aims to map the ability of Indonesian firms to compete in global market by iden fying many recognizable business obstacles. Prac cally, this study is expected to become an indicator of compe veness in Indonesia, comple ng other indicators in global level such as Doing Business, Global Compe veness Index, etc. In long term, this study is expected to become a systema c mechanism to monitor dynamic and development of compe veness in Indonesia. This study is financed by The European Union, through APINDO-EU ACTIVE Project. This survey takes about 20 minutes to finish and consists of 4 themes of ques on. The ques ons in ques onnaire are relevant for discussion and policy recommenda on, mainly related with compe veness and business climate improvement in Indonesia. Your answer and private data in this ques onnaire will be protected and treated as “confiden al”. You can complete this ques onnaire whenever you have spare me subject to me span and deadline, which is latest in 3 November 2014. If you have ques ons about this study and ques onnaire, you can contact the Person in Charge of this study, Riandy Laksono through the email: riandy.laksonoapindo.or.id or phone number: 021- 83780824 ext. 122 Basic Informa on 1. Firm’s name : __________________________________________________ 2. Posi on in company : __________________________________________________ 3. E-mail address : __________________________________________________ 4. Main business opera onal area, ck the suitable answer. You can choose more than 1 anwer 1 Sumatera 7 Bali andor Nusa Tenggara 2 Jabodetabek Jakarta-Bogor- Depok-Tangerang-Bekasi 8 Kalimantan 3 West Java outside Bogor, Depok, Bekasi 9 Sulawesi 4 Banten outside Tangerang 10 Maluku 5 Central Java andor Yogyakarta 11 Papua 6 East Java Kode Kuesioner J K T - 2 5. Fill 2 digit of ISIC code of your firm if it more than one, choose the mainly one:___ Look 2-digit ISIC code in this link h p:www.google.comurl?q=h p3A2F2Fapindo.or.id2Fuserfiles2Fpublikasi2Fpdf2FKBLI_p df_color.pdfsa=Dsntz=1usg=AFQjCNEGypar0jqhMTkUqJ2Y4wmxzLPd3w 6. Number of employee choose the most suitable answer: 1 Fewer than 5 7 250 – 499 2 5 – 9 8 500 – 999 3 10 – 19 9 1000 – 2499 4 20 – 49 10 2500 – 4999 5 50 – 99 11 5000 – 9999 6 100 – 249 12 10000 or more 7. Firm’s ownership status choose the most suitable answer: 1 Wholly domes cally owned 2 Wholly foreign owned 3 Foreign-domes c ownership

A. Reviewing actual condi on and projec on of Business Compe veness in