At present, the focus of the government is shifting toward the development of the Eastern Indonesia Region, including the Papua region (Papua and West Papua). The development of Papua and West Papua provinces is one of the priorities listed in the 2015-2019 National Medium-Term Development Plan.

The government has demonstrated its seriousness in building the infrastructure of Papua and West Papua provinces over the next five years by earmarking as many as 139 infrastructure projects (80 projects in Papua province and 59 projects in West Papua province), including the development of roads, sea ports, electrical power, railways, air transportation, energy, telecommunications and informatics.

The contribution of Papua region'€™s gross regional domestic product (GRDP) to the national economy has decreased from 2.17 percent in 2010 to 1.8 percent in 2014. In detail, the contribution of Papua province'€™s GRDP to national gross domestic product (GDP) fell while that of West Papua rose slightly. This decline was caused by the economy in the Papua region being dominated by the mining sector, which has been struck by the current fall in global commodity prices. In Papua province, the mining sector enjoys a 29 percent share of GRDP. Similarly in West Papua, mining contributes 20.7 percent to GRDP while the oil and gas processing industry has a 30.1 percent share. Meanwhile, almost all districts or towns in the Papua region have a comparative advantage in natural resource-based sectors (agriculture, plantations, fisheries and mining).

Economic growth in the Papua region is affected by movements in the prices of global commodities. As global commodity prices have declined, so too has economic growth in the province of Papua, from 14.8 percent year-on-year (yoy) in 2013 to 3.25 percent yoy in 2014. Likewise, economic growth in the province of West Papua decreased from 9.3 percent yoy in 2013 to 5.38 percent yoy in 2014. From a historical perspective, economic growth in West Papua (18 percent) was stronger than that in Papua province (5 percent) over the period from 2008-2013. The largest contribution to the economy in West Papua comes from the BP Tangguh project in Teluk Bintuni regency, while in the province of Papua that honor goes to PT Freeport in Mimika regency.

Besides mining, the economy of the Papua region is also dependent on government services. Government services drive the economy in almost all districts or towns in the Papua region. Based on GRDP by expenditure, the share of government spending toward total GRDP in the provinces of Papua and West Papua stands at approximately 31 percent and 20.3 percent respectively. This indicates that the Papua region has a high degree of dependence on funds from the state and regional budgets.

The Papua region is home to leading sectors based on natural resources as well as the general government services sector, sea and air transportation sectors. Leading sectors based on natural resources include forestry and oil and gas, especially petroleum and liquefied natural gas refining. Meanwhile, the mining and quarrying and fisheries sectors constitute base sectors in the Papua region but are growing more slowly than at the national level. The Papua region also plays host to sectors of potential that are not related to commodities. Such sectors enjoyed relatively high growth compared to that of the same sectors at the national level from 2008 to 2013, but do not yet qualify as base sectors. These include the following sectors: construction, livestock, wholesale and retail trade, hotels and restaurants, road transportation and river, lake and ferry transportation.

Although the Papua region has great potential to be developed as an investment destination, the realization of investment plans in this area is still low. From 2010 to 2014, just 15 percent of the investment plans of foreign direct investment and domestic direct investment in West Papua were realized. Meanwhile, in Papua province the figure was 47 percent. These low figures are largely attributable to the various obstacles faced by investors in investing in the Papua region.

Investment problems encountered in the Papua region include land issues, infrastructure, human resources or social culture and bureaucracy. The need for land acquisition conflicts with customary and indigenous land rights. The diversity of ethnic groups, languages and customs (there are more than 257 ethnic groups) makes it difficult to apply a uniform approach to acquiring land. Infrastructure in the Papua region, both in the form of basic infrastructure as well as available connectivity, is still inadequate, causing high logistics costs there. Moreover, the capacity of human resources in the provinces of Papua and West Papua is still low. Licensing services problems and an inept bureaucracy also serve as obstacles that tend to put off potential investors from placing their money in the Papua region.

The relatively low level of realization of investment plans in the Papua region is also linked to a lack of competitiveness in the region. Based on the 2014 to 2015 Mandiri Regional Competitiveness Index (MRCI), the province of West Papua ranks 30th and Papua province 31st out of 33 provinces. The MRCI is an index that depicts the holistic mapping of the macro-economy, human resources and employment, investment climate, infrastructure, institutions and government and financial institutions in every province in Indonesia. The index showed that the aspect in which West Papua was poorest in terms of competitiveness was investment climate, while for the province of Papua it was institutions and government. In comparison to the other provinces, in the Papua region almost all the aspects mentioned above ranked below the national average.

In conclusion, the Papua region has great potential to be developed but development in that region is lower than other regions in Indonesia. To accelerate development in the Papua region, collaboration is needed among the central government, local government, the private sector (investors) and the local indigenous people (ethnic groups).
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The writer is regional analyst at PT Bank Mandiri (Persero).

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