CONVENTIONAL wisdom says Indonesia is a difficult market for businesses to operate in. Apart from all the red tape and corruption, the country suffers from significant infrastructure deficiencies. But how serious are these problems? And for who?

An international poll commissioned by the BBC earlier this year suggests that those who disparage Indonesia in this way might need to be a little more careful about how they frame their criticisms.

Thanks to detailed studies carried out by respected institutions such as the International Finance Corporation (IFC), a division of the World Bank, there is plenty of evidence to show that Indonesia falls short on many of the criteria widely regarded as essential for business to function effectively. The IFC’s latest report on the ease of doing business shows that Indonesia ranks a miserable 129th out of 183 countries. Last year, it was 126th.

The reason for the downgrade, says the IFC, was the increasing difficulty businessmen experienced obtaining reliable electricity supplies, getting access to credit, protecting their investments and enforcing contracts. Singapore, by contrast, retained its position as the friendliest place to do business, followed by Hong Kong and New Zealand. Comparing Indonesia with other South-east Asian countries was also depressing. Thailand was ranked a creditable 17th, while Malaysia was 18th. Only long-suffering Philippines was placed below Indonesia (136th).

Thus it came as a real surprise earlier this year when a survey commissioned by the BBC suggested that Indonesia was one of the best countries in the world to start a business. The results were based on 24,000 interviews conducted by international survey firm Globescan in 24 countries.

Respondents were asked whether innovation was highly valued in their country; whether it was hard for people like them to start a business; whether people who do were highly valued; and whether people with good ideas could usually put them into practice.

Taken together to form a single index, Indonesia came out on top, even beating advanced countries such as the United States, Canada and Australia.

How can these seemingly contradictory findings be resolved?

Perhaps the first point to note is that while the IFC measures practical outcomes, the BBC survey focused on opinions. And the opinions sought were those of ordinary individuals, most of whom had little opportunity to make informed international comparisons. Contracted pollster firm Globescan said 1,000 respondents over the age of 18 were randomly selected for face-to-face interviews in July and August last year. The interviews were conducted in Bandung, Jakarta, Makassar, Medan and Surabaya, cities representing 27 per cent of Indonesia’s total adult population.

With the Indonesian economy continuing to grow strongly despite the global economic downturn in recent years, it makes sense to suggest that Indonesians might have a more optimistic outlook than their counterparts in many Western nations. Interestingly, Nigeria also performed surprisingly well. Like Indonesia, the latter country has been growing strongly in recent years despite high levels of corruption.

But perhaps a more useful way of interpreting the results of the BBC survey is to see them as reflecting wide differences in the way businessmen at various levels of Indonesian society interact with officialdom.

There are at least three levels to consider.

At the top are the large foreign and domestic investors. Because these companies control investments worth tens or even hundreds of millions of dollars, they have direct access to senior policymakers who can generally be relied upon to resolve most bureaucratic impediments.

Next come the small and medium enterprises. These are the companies most likely to suffer from the sort of bureaucratic problems identified in the IFC rankings. Speaking to me “off the record” at a business conference in Singapore early last year (at which high-level Indonesian officials trumpeted the administrative reforms they were introducing), several small businessmen expressed great scepticism. Nothing done at the top, they believed, would have much impact on Indonesian bureaucrats determined to squeeze money from mid-level operators.

The third category consists of the hawkers, becak drivers and ojek boys commonly seen on the streets of the nation’s major cities. These small- time entrepreneurs – generally working-class Indonesians – are not entirely free of problems. Harassment by street thugs and raids by police can make life difficult but, overall, these groups do not deal with the sort of issues faced by their more prosperous counterparts. The BBC survey, I believe, tapped into this level, revealing a previously unsuspected degree of optimism.

Criticising Indonesia for the sort of deficiencies highlighted in IFC reports is fine provided you keep in mind exactly who it is that suffers from them. For the vast majority of small-time entrepreneurs in Indonesia, however, such deficiencies are simply not relevant.

Copyright Singapore Press Holdings, 2011