Infrastructure Competitiveness Indonesia: Reason for Optimism?
After seeing the World Economic Forum (WEF)'s Global Competitiveness Report 2017-2018, Indonesian construction companies gained optimism that the improved ranking of Indonesia in terms of infrastructure competitiveness will translate to more private sector involvement in the country's infrastructure sector.
In the latest Global Competitiveness Report, Indonesia ranks 52 in terms of infrastructure competitiveness, improving from 60th in the 2016 edition and 62nd in the 2015 edition. The ranking implies that the WEF detected an improvement in the state of infrastructure development in Indonesia. On the other hand the mediocre ranking also shows that Indonesia's infrastructure sector is not in optimal condition.
Errika Ferdinata, Deputy Secretary of the Indonesian Builders Association (Gapensi), said Indonesia is still being plagued by a big "infrastructure gap" that has to be overcome in order to tackle the country's high logistics costs, social problems, and to make the investment climate more attractive. Indeed there is currently a lot of infrastructure development going on in Indonesia. However, Ferdinata is concerned that the country's numerous small and medium-sized enterprises fail to benefit from this infrastructure boom.
Meanwhile, Wicaksono Adi, infrastructure observer from Universitas Indonesia, said the biggest challenge for infrastructure development in Indonesia are financial resources. Infrastructure projects are capital-intensive, while they usually do no generate big earnings for the developers in the short-term. As such, it is already difficult enough to attract private sector involvement as it is.
However, difficulties rise - in the case of Indonesia - because local regulations are confusing. The root of this problem is the decentralization process that started in the late 1990s after the ouster of president Suharto. Per district or province specific regulations may change (and/or are not orderly designed). This is particularly an obstacle for those big projects that cover multiple districts or provinces. A clear legal framework would significantly improve the ease of doing business in Indonesia.
Adi also said the quality of local human resources are relatively weak. Although there are more and more qualified Indonesian engineers these days, their quality is not ideal yet.
Infrastructure Ranking, Global Competitiveness Index 2017-2018:
Source: Global Competitiveness Report 2017-2018
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