Indonesia elections: Widodo will need to reunite the country after its most divisive election yet

Incumbent Indonesian President Joko Widodo is poised to win the elections but how might his policy evolution affect businesses in Indonesia?
MAY 16, 2019 - 4:45 PM

Businesses willing to align their commercial interests with the development goals of incumbent Indonesian President Joko Widodo, who is poised to win a second term, and that are perceived to be sensitive to local issues, particularly Islamic ones, are likely to receive better support for their operations and mitigate a range of political, security and operational risks.

Achmad Sukarsono, senior analyst and Control Risks’ lead analyst for Indonesia noted that Mr Widodo will have to placate some pro-Prabowo Muslims and likely concede to soft demands from the Islamic community, as he attempts to reunite the nation and heal the wounds from the most divisive election in Indonesia's democratic history. 

Specifically, businesses can expect more policies that promote wealth distribution, provide welfare and create jobs for Muslims in the coming years. Mr Widodo is also likely to prioritise infrastructure projects that visibly benefit Muslims, many of whom have expressed discontent with construction projects that involved the flattening of Muslim-inhabited slums. 

Lastly, Mr Widodo is expected to increase his efforts to align the country’s economy with Muslim principles, such as through the advancement of sharia finance, enforcement of Halal labelling on consumable products and restrictions on the sale of alcohol.

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Given Mr Widodo's inability to run for a third term, the incumbent president will be keen to leave a visible legacy and prioritise physical infrastructure development over cleansing the country's bureaucracy in the next four-year term, noted Mr Sukarsono. This emphasis on infrastructure will lead to incentives for businesses, particularly those who are willing to align their commercial interests with his development zones, i.e. invest in building ports, generators and factories outside Java island, especially in designated remote special economic zones. 

"However, these opportunities will have their own share of risks especially in more rural parts of the country, where institutional and integrity risks present more challenges for businesses.

"To address these challenges, businesses should engage with local stakeholders judiciously, and have realistic expectations on project progress and eventual returns," he said.

While this shift to more Muslim-friendly policymaking will likely bring regulatory teething problems, disrupt business operations and result in execution hiccups, these reforms could elevate Indonesia to the position of the new global hub of the sharia-based economy. 

Companies that are able to adapt to this policy evolution will be rewarded with access to one of the world's largest Muslim markets, he said.