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RI on track with trade, infrastructure projects
Indonesia is on track with its infrastructure projects across the country especially with the increasing involvement of the private sector, which could eventually bring in more foreign investment, according to the latest report by research and consulting firm Oxford Business Group
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ndonesia is on track with its infrastructure projects across the country especially with the increasing involvement of the private sector, which could eventually bring in more foreign investment, according to the latest report by research and consulting firm Oxford Business Group.
The report underlined the growing role of the private sector in transportation infrastructure, such as roads, seaports, airports and railways, through Public Private Partnerships (PPP), which could pave the way for global players to make a bigger contribution to those projects.
“There’s increasing coordination within the public sector itself, among the different ministries, making transitions [in PPP] more seamless,” OBG editorial manager Nathan Thadani told reporters on the sidelines of the report’s launch on Wednesday.
Construction of roads, such as the flagship Trans-Sumatra toll road, is expected to start connecting provinces in Sumatra by 2024. Meanwhile, reaching a power generation capacity of 35,000 megawatts and airport upgrades in new industrial and travel destinations are ongoing.
President Joko “Jokowi” Widodo, who was interviewed for the report, said, “This administration’s attitude toward infrastructure is very different from the previous administration’s attitude.” He said his administration took an integrated approach to ensure new projects fit in harmoniously with other planned and existing developments.
Infrastructure projects and economic deregulation packages in the past three years have moved Indonesia up in various rankings: 72nd place in the World Bank’s Ease of Doing Business index this year from 91st in 2017; investment grade from Standard & Poor’s; and positive credit ratings outlook from Fitch and Moody’s.
This is the first time Indonesia has improved its rating with every major agency since the 1997-1998 financial crisis.
Nevertheless, the country is in need of more PPPs in order to accelerate realization of the power plant projects. Out of the 35,000 MW capacity targeted by 2019, only 3 percent is in operation, while 48 percent is under construction as of November, according to the Energy and Mineral Resources Ministry.
Meanwhile, in a bid to improve trade, at least nine special economic zones (SEZ) are now under construction, some of which have been operating to boost the manufacture of export-oriented goods as well as raw materials to reduce import dependency.
The SEZs, most of which are outside the main island of Java, focus on the effort to improve petrochemical, steel and nickel processing, among other things.
Various incentives in SEZs include income tax reductions of between 20 and 100 percent for up to 25 years depending on the investment value, value-added tax exemptions on raw materials and on manufactured goods sold within the country, eligibility for a 30-year land lease and 10-year extension.
However, deregulation has lost steam over the last year, said Investment Coordinating Board (BKPM) head Thomas Lembong during the report launch.
“We’ll fully return to the economic reform agenda […] this year after it lost steam in 2017, when we saw more reregulation rather than deregulation. I think the very controversial Jakarta gubernatorial election [last year] had a lot to do with it. It blew up political and social fractures, […] there was a big distraction, the president ended up being very busy healing these fractures,” he said.
The government will also issue a revision of the negative investment list (DNI) to open up more sectors to foreign investors in the first half of this year, including tertiary education.
Indonesia aims to pocket Rp 765 trillion (US$56.3 billion) in investment this year, up by 13.1 percent year on year (yoy). In 2017, it reaped Rp 692.8 trillion.
Indonesian Chamber of Commerce and Industry deputy chairwoman for international relations Shinta Kamdani shared Thomas’ view, saying implementation was as important as good regulation.
Smooth implementation and special attention to emerging industries such as food and beverages, automotive and ship components as well as creative industries are necessary.
Faster conclusion of free trade agreements with potential markets such as the European Union is urgently needed to help the struggling textile sector today.
Despite having increased by 16.22 percent to $168.7 billion last year, Indonesia’s export figure was outsized by smaller countries such as Vietnam, Thailand and Malaysia, all of which exported more than $200 billion.
