In our sixth series of blog posts, we are introducing infrastructure sector trends and opportunities, starting with Indonesia.
Government has placed the development of basic infrastructure as one of its top priorities, as the lack of adequate infrastructure has been a bottleneck in economic development with high logistics costs decreasing the competitiveness of the country. According to Indonesian Chamber of Commerce and Industry logistic costs represent circa 17 % of the company’s total spending in Indonesia, whereby regional comparison is below 10 %. In terms of global ranking, according to World Economic Forum’s Global Competitiveness Index of 2015-2016 Indonesia ranks 62nd out of 140 economies in terms of infrastructure.
The current administration has increased the infrastructure development budget and introduced new programmes. There are 30 projects that are priority for 2016-2019 requiring investment of circa 415 billion USD of which Indonesian government together with state-owned companies and regional governments cover 26% according to Indonesia Investments. The rest requires private sector participation representing investment opportunities for foreign investors for example through Public Private Partnerships.
World Bank has recently, in July 2016, approved a financing of 216,5 million USD for a new governmental project that will enhance the infrastructure in Indonesian slums benefiting approximately 9,7 million urban poor in 154 cities. Asian Infrastructure Investment Bank (AIIB) is also co-financing this project, making it the first joint co-financing project between World Bank and AIIB. Programme will focus on improved water sources, sanitation, roads, drainage and regular solid waste collection as well as resolving land issues, as circa 29 million people in Indonesia inhabit in slums with inadequate basic services: 11 million lacking access to sanitation and 9 million lacking access to safe water according to World Bank.
Though there are many positive developments in the sector offering many investment opportunities, it remains to be seen how these new programmes will be implemented.