by Richard Michael
The Infrastructure Sector Focus Group is designed to act as a forum where BritCham members with an interest in the infrastructure sector can exchange ideas, hear about the latest developments and bring their collective expertise and knowledge to bear in order to assist in the development of Indonesia’s infrastructure. The focus group is open to all with an interest in this area, which is of such vital importance if Indonesia is to achieve its ambitious plans for economic growth in the medium term. UK plc has a lot to offer in this sector, whether it be in the area of advice, engineering consultancy, construction, operational management, finance or investment.
In recent years, the focus group has been actively involved in hosting seminars on various topics of interest to BritCham members and the infrastructure sector as a whole. Of particular note is our involvement for several years now with the EU-Indonesia Business Dialogue (EIBD), whereby we have hosted the sessions dedicated to infrastructure and reported to the plenary meeting with recommendations for how much needed improvements can be made to the delivery of adequate infrastructure in Indonesia.
The importance of infrastructure and its key role in supporting general economic development has always been recognized, but there is now extra impetus under the new administration under President Joko Widodo. Over the next five years the ambition is to raise infrastructure spending from the current level of 2-3% to as much as 10-11% of GDP in order for Indonesia to remedy the infrastructure deficit that is evident in anyone’s experience of traffic conditions in Jakarta. The inadequacy of existing infrastructure means that Indonesia lags many of its regional peers with which it is competing for investment. According to the latest World Bank Indonesia Economic Quarterly, Indonesia ranks 53rd out of 160 countries in the Logistics Performance Index, placing it behind its G20 and ASEAN peers. Logistics costs remain relatively high at around 24% of GDP compared to 16% in Thailand and 13% in Malaysia.
The budget approved for 2015-2019 totals approximately US$370 billion, with the private sector expected to account for over a third of the total spend. The highlights are as follows:
Many of these sectors are open to foreign investment and there are undoubtedly opportunities for British investors, contractors and service providers.
In recent years the Government of Indonesia (GoI) has taken a number of significant steps to improve the investment climate in infrastructure, with the key measures being:
Despite the ambitious programme announced by the GoI and the recent policy measures, there do remain significant challenges and any investor should be aware of these and be prepared accordingly. For example, investment in the water sector is currently under a bit of a cloud of uncertainty following recent decisions in the Constitutional Court and Central Jakarta District Court affecting the 2004 Water Resources Law and the two privately-owned Jakarta water concessions respectively.
In the past, implementation of infrastructure plans has been poor, with many projects facing considerable delays due to:
Nevertheless, the issues are fully recognized and understood by all market participants, particularly GoI, and we can expect that some progress will be made in the next few years towards achieving the objectives even if there will continue to be delays and other hurdles faced by investors. Investors should tread carefully, but the rewards could be very attractive for those who select their projects wisely and have the patience to stay the course.