This autumn, the World Bank unveiled its new Business Ready (B-Ready) index, aiming to replace the controversial Doing Business Report (DBR), which was scrapped due to data manipulation issues exposed last year. The B-Ready index promises to deliver a more comprehensive evaluation of countries' business climates by considering not only regulatory environments but also the quality of public services and data from enterprise surveys. While it tries to build on past successes recognizable to investors and policymakers, some experts have raised serious concerns about its reductionist approach, particularly how it treats labor relations under economic policies.
The B-Ready index reintroduces the contentious 'employing workers' indicator, which had been previously removed from the DBR due to international backlash over its prioritization of low regulation environments, often at the expense of worker rights. The revamped index asserts to measure whether countries uphold fundamental workers' rights—ranging from freedom of association to ensuring occupational safety—and if they provide key social protections like health insurance and unemployment benefits. Criticism from the International Trade Union Confederation (ITUC) indicates the B-Ready index might still perpetuate its predecessor’s pro-business agenda, inadvertently incentivizing countries to lower labor standards.
This situation is particularly acute in Indonesia, a country where the World Bank and IMF have lauded labor market reforms within its 2020 Omnibus Law on Job Creation. Unfortunately, the reality for Indonesian workers has been markedly different; they have fought for four years against reforms perceived as undermining their protections. A recent ruling by the Constitutional Court, which declared the law conditionally unconstitutional, starkly contrasts the technocratic praise from international financial institutions.
Under President Widodo's administration, the government has pursued policies purportedly aimed at enhancing its attractiveness to investors, employing labor flexibility measures during the COVID-19 pandemic. This has included the expansion of precarious work arrangements through the Omnibus Law, which has weakened minimum wage protections and enabled employers to mitigate wage costs. Despite Indonesia’s troubling track record of workers’ rights, such legislation aided the country’s rise to the top 10 rankings for labor policies under the B-Ready index—mirroring past criticism of the DBR for rewarding neglectful labor standards.
Further complicatng matters, Indonesia’s local content policies are positioning Apple and other tech giants at the center of investment discussions. Due to the local content requirement known as TKDN, Apple has faced barriers preventing the sale of its latest iPhone model until the company invests or sources components locally. Recently, the government declined Apple’s $100 million proposal to pave the way for iPhone 16 sales, instead upping the ask to $1 billion for local component production.
Economists are raising alarms about these policies, describing them as misguided and possibly counterproductive for attracting foreign direct investment (FDI). Bhima Yudhistira Adhinegara, executive director at the Center of Economic and Law Studies (CELIOS) notes, “They think if they scare big corporations like Apple, they will invest more... It’s very bad for the investment climate.”
The upcoming competition from Southeast Asian neighbors, particularly Vietnam, adds another layer of complexity. Where Indonesia requires 40% of smartphones and tablets to be locally manufactured, Vietnam has thrived by utilizing investment incentives and maintaining stable, attractive policies. Arianto Patunru, economist at the Australian National University, adds, “Local content requirements have not been successful in attracting FDI to Indonesia. Quite the contrary.” Apple has, over the years, built goodwill through initiatives like developing academies where local students learn software skills, and now it seeks to reorient itself to use Indonesia as its entry point to other markets.
The situation remains precarious. Indonesia’s historical approach to local content requirements does not seem sufficient for fostering competitive measures against regional players. Krisna Gupta, another Indonesian economist, asserts, “Indonesia will need to step up their game across the board.” To truly attract more tech firms and foreign investments, the government must not only encourage surface-level engagement but must also prioritize enhancing productivity, incentivizing investment, and improving infrastructure.
Notably, the recent constitutional ruling leaves Indonesia with the opportunity to honor workers' rights over aggressive ranking pursuits and investment requirements. With the right balance of policies, the country can avoid the pitfalls of superficiality and focus on creating sustainable investment frameworks. Until then, as experts warn, Indonesia's current strategies may not yield the desired long-term benefits and could in fact jeopardize the very economic growth they aim to achieve.
