10 May 2022 (closed)
Jakarta Composite Index (6,819.79) -89.96 -1.30%
USD/IDR (14,146) -6.00 -0.04%
EUR/IDR (17,335) +57.05 +0.33%
One of the major problems which is blocking Indonesia's economic growth is the country's infrastructure. The lack of quality and quantity of Indonesia's infrastructure causes logistics costs to rise steeply and thus makes investors (particularly the foreign ones) hesitant to invest as high logistics costs imply a weakening of the country's competitiveness. The problem of Indonesia's infrastructure is both 'hard' infrastructure (roads, airports and electricity supply) and 'soft' infrastructure (social welfare and health care).
In the latest edition of the World Economic Forum global competitiveness index (GCI, 2013-2014), Indonesia ranks 61st out of 148 economies when it comes to the state of the country's infrastructure. The positive news is that Indonesia jumped 17 places from the GCI, 2012-2013 edition due to increased government planning and spending on infrastructure projects, but the negative news is that there is still much progress to be made. It is a sad fact that infrastructure development has been lacking in Southeast Asia's largest economy because if the country would possess decent infrastructure, the GDP growth rate could accelerate to 8 percent instead of 6 percent. In light of much-needed job creation and poverty eradication, this would be a good development.
The main problems that hinder infrastructure development in Indonesia are the lack of financial resources, land acquisition, bureaucracy, and a weak regulatory environment (including weak legal certainty).
Regarding the lack of financial resources, the Indonesian government intends to enhance cooperation with the private sector to overcome this issue. Through public-private partnerships (PPPs) within the Masterplan for the Acceleration and Expansion of Indonesia's Economic Development (MP3EI), it aims to develop the country's infrastructure. The MP3EI was launched in 2011 but has not resulted in many successful PPP projects yet. For the private sector infrastructure projects are usually not attractive as it entails large investments while it can take many years before investors see profits. Particularly in a riskier environment (weak legal certainty), such as Indonesia, investors will think twice before participating in such projects.
Nonetheless, the Indonesian government offers 27 infrastructure projects (with a total value of USD $47.3 billion) to the private sector. Groundbreaking of these project is hoped to be conducted in 2014.
Infrastructure Projects Offered to Private Sector:
|Project Name||Estimated Investment|
|Railroad Soekarno-Hatta Airport||USD $2.57 billion|
|Integrated Railroad Gedebage Bandung Terminal||USD $133 million|
|Revitalization Train Station Yogyakarta & Pedestrian Path Malioboro||USD $1.6 billion|
|Development Aceh City||USD $1.6 million|
|Sunda Strait Bridge & Strategic Areas||USD $25 billion|
|Toll Road Manado Bitung||USD $353 million|
|Toll Access Tanjung Priok Harbour||USD $612.5 million|
|Toll Road Balikpapan-Samarinda||USD $1.2 billion|
|Toll Road Kayu Agung-Palembang-Belitung||USD $836 million|
|Drinking Water Infrastructure Pondok Gede||USD $20 million|
|Drinking Water Infrastructure South Bali||USD $218 million|
|Waste Processing Depok and Bogor||USD $40 million|
|Waste Processing Surakarta||USD $30 million|
|Hydropower Karama South Sulawesi||USD $1.3 billion|
|International Harbour Maloy East Kalimantan||USD $1.7 billion|
|Expansion Tanjung Priok Harbour, Cilamaya, Karawang||USD $1.1 billion|
|Expansion Harbour Tanjung Sauh, Batam||USD $805.8 million|
|Bali Airport Development||USD $510 million|
|International Airport Kulon Progo||USD $500 million|
|Mining Railroad Baai island-Muara Enim||USD $3 billion|
|Monorail South Sumatra||USD $550 million|
|MRT Surabaya||USD $1.1 billion|
|Monorail Bandung||USD $2.8 billion|
|Toll Road Cisumdawu (West Java)||USD $1 billion|
|Toll Road Pasir Koja-Soreang Bandung||USD $210 million|
|Toll Road Pandaan-Malang||USD $420 million|
|Sewage Treatment Jakarta||USD $173.5 million|
|Total||USD $47.3 billion|
Source: Investor Daily