Financing Indonesia’s Infrastructure Development—Beyond Java
Imbalance in population: The population of Indonesia is unevenly distributed. It is forecast that by 2025, Java is likely to continue to hold the largest share of the country’s population.
Sub-optimal GDP performance: Indonesia has had a steady GDP growth. However, structural weaknesses such as infrastructure bottlenecks and continued dependency on raw materials import have impeded the country from achieving stellar economic performance.
Investment potential: Both FDI and domestic direct investment (DDI) in Indonesia registered a sizeable increase between 2010 and 2014. Value of FDI increased at a CAGR of %, whereas DDI increased at a CAGR of %. Robust investments were made in resource-rich regions such as Riau, West Kalimantan, and Papua due to investor interest in Indonesia’s natural resource potential.
Revocation of fuel subsidy: The revocation of fuel subsidy in late 2014 has provided the infrastructure sector with greater spending resources. The 2015 budget indicated a % year-on-year increase in the ‘economics’ function.
Influence on logistics costs: Inadequate infrastructure framework swells logistics costs in Indonesia, making it one of the largest cost components of a company’s operational cost.
Land acquisition issues: The most important factor affecting all infrastructure projects in Indonesia is the complex land acquisition process. This has delayed the development of various infrastructure projects from toll road and railways to power plants. While the new Land Acquisition law may help alleviate the problems, resistance from the affected population persists.
Java-centric infrastructure establishments: Java has been the recipient of a majority of Indonesia’s infrastructure projects such as toll road and railway network. Despite its relatively smaller geographic area, Java accounts for % of Indonesia’s current toll road network.
About this report
Historically, Java has been the key hub attracting all investments in Indonesia and has been the recipient of a majority of Indonesia’s infrastructure projects. This study analyses the opportunities outside of Java and identifies attractive pockets of investment that hold a promising future for investors. Kalimantan, Bali and Nusa Tenggara, Maluku and Papua, Sulawesi, and Sumatra are the regions with significant potential. A combination of macro-economic variables, political and economic stability, and potential for growth are a few of the factors that have gone behind identifying the most attractive alternative investment destinations in Indonesia.