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Regulatory breakthrough key to develop new capital city
Businesspeople require regulatory certainty and simplicity in order to invest in the development of the new capital city, even more so than financial incentives, experts have said
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usinesspeople require regulatory certainty and simplicity in order to invest in the development of the new capital city, even more so than financial incentives, experts have said.
Pricewaterhouse Coopers (PwC) infrastructure finance adviser Julian Smith told The Jakarta Post that the government needed to get rid of regulatory complexity and time-consuming ministry coordination on "first-of-a-kind" projects that often resulted in infrastructure project delays.
The authority for new capital city needs to have the power to make regulations that override the regulations of individual ministries, said Smith in a phone interview, referring to waste-to-energy projects as an example of time-consuming coordination as businesses have to comply with waste, power and public-private partnership regulations.
Smith said the capital city area could be seen as a regulatory sandbox, in which if such regulation proved to be beneficial then it could be copied across the country.
“As long as the government fixes the regulatory complexity, infrastructure is attractive. The problem with first of a kind project is the government struggles to even get to the tender stage due to regulatory complexity so it needs a way to simplify [things],” he said.
President Joko “Jokowi” Widodo announced in August a plan to relocate the capital to North Penajam Paser and Kutai Kartanegara regencies in East Kalimantan in a bid to ensure economic development is evenly spread across the country after being centered on Java for decades.
It is expected that 54.4 percent of the Rp 466 trillion (US$32.73 billion) required for the plan will come from public-private partnership (PPP) schemes and will be used to fund the construction of government offices, courts, schools, hospitals, correctional facilities and related infrastructure.
Separately, University of Indonesia economist Ari Kuncoro echoed Smith’s view, saying that businesspeople would need comprehensive regulation on cooperation in state asset utilization procedures, which the government planned to use to pay for the new capital, even more than financial incentives.
“[Businesspeople] do not need incentives, only [clear] regulation will suffice,” said Ari, adding that a bill concerning the capital's relocation currently being formulated by the government should include regulation on state asset utilization to ease doing business.
According to World Bank presentation material conveyed to Jokowi earlier this month, a copy of which was obtained by the Post, regulatory uncertainty and complex bureaucratic processes made Indonesia less interesting for business than neighboring countries. It also highlighted lengthy procedures businesses must endure to operate in Indonesia as a primary reason for the lack of foreign direct investment coming into the country.
National Development Planning Agency (Bappenas) head Bambang Brodjonegoro said the new capital's construction would bring business and investment opportunities that could boost economic growth and create jobs in Kalimantan.
“The business opportunities in the planning stage are mostly for those working at consulting firms. In the construction process, everybody knows that the project will be enormous […] the daily operations will also offer big opportunities because there will be residential areas, universities and hospitals,” said the former finance minister.
Property services firm Cushman and Wakefield projected the biggest beneficiaries of the capital city's relocation would be local land owners with vast tracks of undeveloped prime land, who would enjoy huge capital gains with minimal effort on their part.
“Property developers are another major beneficiary. Due to the vast scale of development required, there will be ample opportunities for both local and foreign developers. Supporting business services such as architectural, engineering and consultancy firms will also benefit from increased demand,” it said.
Meanwhile, Smith urged the government to accurately estimate the growth of the population in the new capital so that spending on infrastructure could be matched to economic demand.
“This is also important for pure private sector investment in hotels, shopping malls, etc. Investors will be happy to invest if they know they will have customers,” the PwC infrastructure finance adviser said. (awa)
