Today, Indonesian President Joko Widodo will lay the first stone for the groundbreaking ceremony of the 2,700 km Trans-Sumatra toll road project, linking Lampung to Aceh on the resource-rich island of Sumatra (Indonesia’s second-largest island in terms of geographic size). The toll road, which is one of the key priority infrastructure projects for the Indonesian government, is estimated to require a total of IDR 300 trillion (USD $23.1 billion) of investment. Ten years after parts of the toll road were first tendered, construction can finally commence.

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General Electric (GE), one of the largest American multinational conglomerates, has already started to show its commitment to invest in Indonesia. Over the course of three years, the company will invest USD $300 million in Southeast Asia's largest economy. CEO of General Electric Indonesia, Handry Satriago, stated that - although the year 2013 was a year full of challenges - the company managed to record revenues worth about USD $1 billion and aims to reach double-digit growth in 2014.

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The controversial Batang power plant in Central Java is expected to be completed in 2020 now all land acquisition disputes have been resolved. This USD $4.2 billion power plant experienced a long delay as about a dozen of local farmers were reluctant to sell their land to the developers of the project. In February 2016 Indonesia's Supreme Court ruled in favor of the project developers. Indonesian President Joko Widodo is a supporter of this project.

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Approaching the end of 2016 it is interesting to take a look whether the Indonesian government achieved its target in terms of infrastructure development. In this column we zoom in on toll road construction. Before 2016 started the central government - under the leadership of President Joko Widodo - targeted to see the construction of 136 kilometers of new toll roads this year. However, two weeks before the end of 2016 only 44 kilometers of new toll roads have been developed this year, achieving only 32 percent of the target.

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Infrastructure is the artery of the economy. Blocked arteries are life threatening. Similarly, when there is a lack of adequate infrastructure within the economy (whether in terms of quality or quantity) the economy will run in a highly inefficient manner due to high logistics costs, uncompetitive businesses (as the costs of doing business rise significantly), as well as social injustice when, for example, it is difficult for part of the population to reach healthcare facilities, or, for children to reach a school.

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It is estimated that Indonesia will need some USD $450 billion in funds to finance the government's infrastructure development plans for the 2015-2019 period. However, through the state budgets the government can only deliver USD $230 billion, or roughly 50 percent of required funds. The remainder should originate from the private sector (30 percent of total funds) and state-controlled enterprises (20 percent). However, is it likely that the private sector (both foreign and domestic) is to come up with USD $141 billion for investment in infrastructure up to 2019?

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With the Indonesian government showing its commitment to push for infrastructure development, the property sector of Indonesia is expected to get a boost as infrastructure development opens access to new areas. For example, Indonesia's first high-speed train project that is to connect Jakarta and Bandung (in West Java) is expected to give rise to new economic centers and cities along the 142 kilometers-long railway. Moreover, existing property in the proximity of a new infrastructure project should lead to significantly rising property prices.

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Bank Negara Indonesia (BNI), one of the leading banks in Indonesia, is expected to maintain rising net profit figures in the years ahead due to its decision to focus on (corporate) credit disbursement for domestic infrastructure development projects. In fact, according to RHB OSK Securities, BNI may become the state-controlled bank that benefits most from the government decision to raise its infrastructure budget to IDR 313.5 trillion (approx. USD $24 billion) in the 2016 State Budget. Last year, growth of credit disbursed by BNI to infrastructure projects climbed 116.2 percent (y/y). This year infrastructure credit may grow by another 19 percent.

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Public spending on infrastructure development in Indonesia is not optimal. Sofyan Djalil, Indonesia's National Development Planning Minister as well as Head of the National Development Planning Agency (Bappenas), says immature and non-integrated planning between ministries and other government agencies as well as between the central and regional governments cause inefficient and non-optimal infrastructure spending. Non-optimal infrastructure development implies that Indonesia's overall economic growth as well as social development cannot achieve its full potential.

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After having grown rapidly in the years 2010-2013, infrastructure development in Indonesia lost its momentum in 2014. This was due to limited available government funds, uncertainty caused by the legislative and presidential elections, and the nation's slowing economic growth. After Joko Widodo became Indonesia's seventh president in October 2014, it was expected that infrastructure development would revive. However, it didn't. But Widodo made one important move by seriously reducing energy subsidies, hence making more funds available for infrastructure development.

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Government-led infrastructure development is regarded by most analysts and policymakers as the key to overcome Indonesia’s slowing economic growth as infrastructure development will cause a multiplier effect in the economy (triggering growth in other industries such as cement and property while job availability grows accordingly). In the second quarter of 2015, Indonesia’s gross domestic product (GDP) growth slowed to 4.67 percent (y/y), a six-year low.

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The Finance Ministry of Indonesia announced that it plans to inject USD 1.63 billion into state-owned financing company Sarana Multi Infrastruktur and to transform this company into an infrastructure bank in a move to boost infrastructure development across Southeast Asia’s largest economy. The central government needs private capital to fund its massive infrastructure program for the next five years as it can only account for 30 percent of required investment. For the remainder it relies on private capital and state-owned enterprises.

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