President Susilo Bambang Yudhoyono plans to spend about US$195bn on projects to overhaul ports, reconstruct roads and build bridges, as part of his drive to overhaul a freight-transport network ranked among Asia’s worst.
The resulting construction may benefit businesses including PT Semen Gresik, Indonesia’s largest cement maker.
“Cement, steel, toll-road and construction companies should experience increased demand during the building phase,” said Kelly Chung, a Hong Kong-based fund manager at ING Investment Management, which oversees about US$445bn.
Indonesia’s 2011-25 development plan seeks IDR4012trn (US$440bn) of investment, with about IDR1786trn assigned to items such as highways, harbours and power plants. To spend the cash effectively, the government must overcome corruption so severe that it’s rated the “most problematic factor” for doing business in the country, according to executives surveyed in the World Economic Forum’s Global Competiveness Report 2011-12.
Indonesia has signed about US$39 billion of accords with Japanese and Indian investors since December, for projects including ports, mass transit systems and power plants. The government aims to add 20,000km of roads and 15,000MW of power capacity by 2014.
It also plans to spend IDR117trn on 92 port projects, including the redevelopment of the country’s 25 main ports, Deputy Transport Minister Bambang Susantono said by telephone from Jakarta this week.
The government’s goal is for gross domestic product in resource-rich Indonesia to swell to as much as US$4.5trn in 2025, an annual expansion of 7-9%. That compares with average yearly growth of 5.2% in the decade through 2010. China expanded 10.3% last year while India grew 10.1%, according to the International Monetary Fund.
Investment in infrastructure, including ports, was about 3% of GDP in 2000, below the more than 8% in 1995-96, the World Bank said in the June edition of its Indonesia Economic Quarterly. The Asian crisis in the late 1990s contributed to the fall, the lender said. The ratio rose to 4% of GDP in 2008-09, it said.
More spending relative to GDP can help Indonesia achieve expansion of as much as 8% by 2020, HSBC Holdings Plc said in a June note. Yudhoyono’s development plan also aims to reduce inflation to 3% by 2025 from 6.5% in 2011- 14 as better transport links curb costs.
Indonesia’s push to increase infrastructure investment faces obstacles. Aside from corruption, parliament has yet to mandate land sales to aid road and port development. Europe’s debt crisis is also casting a pall over the global economy.
Still, investment is climbing in absolute terms. Foreign direct investment jumped almost 173% to US$13.3bn in 2010 from a four-year low of US$4.9bn in the previous year, United Nations data show.
Fiscal stability under Yudhoyono has put Indonesia on the verge of its first investment-grade credit rating since the 1990s.
The country attracted IDR181trn of total investment in the nine months through September, a 21% increase from a year earlier, government data shows.
This month, a national logistics blueprint to improve infrastructure to and from ports, reduce transport times and uncertainty, and cut costs will be submitted to the president, Irawady said. The goal is to cut logistics expenses to 11-12% of production costs by 2015, from about 14.8%currently, he said.
“If you increase capacity on infrastructure, there will be so much more you can do,” said Su Sian Lim, a strategist at Royal Bank of Scotland Group Plc in Singapore. “Indonesia’s true growth should probably be 7-8%.”