Financing Indonesia's Infrastructure Development--Beyond Java

24 Dec, 2015, 06:03 ET from Reportlinker

NEW YORK, Dec. 24, 2015 /PRNewswire/ -- Executive Summary

Imbalance in population: The population of Indonesia is unevenly distributed. It is forecast that by 2025, Java is likely to continue to hold the largest share of the country's population.

-Sub-optimal GDP performance: Indonesia has had a steady GDP growth. However, structural weaknesses such as infrastructure bottlenecks and continued dependency on raw materials import have impeded the country from achieving stellar economic performance.

-Investment potential: Both FDI and domestic direct investment (DDI) in Indonesia registered a sizeable increase between 2010 and 2014. Value of FDI increased at a CAGR of %, whereas DDI increased at a CAGR of %. Robust investments were made in resource-rich regions such as Riau, West Kalimantan, and Papua due to investor interest in Indonesia's natural resource potential.

-Revocation of fuel subsidy: The revocation of fuel subsidy in late 2014 has provided the infrastructure sector with greater spending resources. The 2015 budget indicated a % year-on-year increase in the 'economics' function.

-Influence on logistics costs: Inadequate infrastructure framework swells logistics costs in Indonesia, making it one of the largest cost components of a company's operational cost.

-Land acquisition issues: The most important factor affecting all infrastructure projects in Indonesia is the complex land acquisition process. This has delayed the development of various infrastructure projects from toll road and railways to power plants. While the new Land Acquisition law may help alleviate the problems, resistance from the affected population persists.

-Java-centric infrastructure establishments: Java has been the recipient of a majority of Indonesia's infrastructure projects such as toll road and railway network. Despite its relatively smaller geographic area, Java accounts for % of Indonesia's current toll road network.

Importance of PPP schemes: Public private partnership (PPP) schemes are crucial to finance Indonesia's abundant infrastructure development opportunities, as the government has limited funds to finance all projects. Through various incentives such as tax holiday, the government is actively encouraging the private sector to participate in Indonesia's infrastructure development.

-MP3EI: The issue pertaining to the Masterplan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI) indicates that political discrepancies may indeed lead to a disconnected development policy across different administration.

-RPJMN: The Jokowi government's medium-term development plan, RPJMN, indicates that the main focus is on maritime development. This plan presents opportunities for investors to participate in maritime connectivity projects, primarily those supporting the maritime highway concept.

-Robust macro framework: Kalimantan is projected to register the highest urbanisation growth compared to other regions in Indonesia. Furthermore, in terms of population growth, the Indonesia Statistics Agency (BPS) forecast that Kalimantan will have the second highest growth in Indonesia, right after Maluku and Papua. However, Kalimantan ranked poorly in terms of historical GRDP growth and scored moderately in terms of investment growth.

-Stable political climate: Districts and provinces across Kalimantan are known to be among the richest in Indonesia. Despite this, the level of corruption is among the least in the country. In 2012, the average state loss per individual in Kalimantan was only Rp6.59 million, the second best among regions beyond Java.

-Infrastructure opportunities in Kalimantan: Potential infrastructure projects in Kalimantan that investors should consider include Balikpapan–Samarinda toll road, Trans-Kalimantan railway network, river and sea port development, and steam power plants.


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