Indonesian construction sector to expand 5% in 2H11

Indonesian construction sector to expand 5% in 2H11
Published: 02 September 2011

The Indonesian Construction Association (AKI) is upbeat that the construction sector will grow more than five per cent and contribute more than 10 per cent to the economy in the second half of this year.

AKI chairman Sudarto said that the growth would be driven mainly by construction projects in the private sector, such as apartments and malls, which would comprise around 65 per cent of the total construction projects in the country.

“The growth in the private sector will be good, but we cannot estimate adequately growth in government projects, as the realisation of government spending during the first semester of this year is still low.”

He added that the growth would be largely generated by construction projects in Java, which constitute 70 per cent of the overall project tally.

“The government really needs to give incentives, such as tax holidays and allowances, to boost investment in regions beyond Java and accelerate expansion of the construction sector there,” he said.

According to Sudarto, amid the current stable political conditions and stellar economic performance, the construction sector will contribute more than 10 per cent to the country’s
 economy during the second half of this month.

During the first and second quarters of this year, the construction sector including infrastructure, commercial buildings and property grew by 5.3 per cent and 7.4 per cent
 from the same period last year, bringing an overall 6.4 per cent growth during the first quarter.

With a total value of IDR357.6trn (US$41.84bn), the sector contributed around 10 per cent to the total GDP of IDR3549.3trn during the first half of this year in Southeast Asia’s largest economy.

Last year, the construction sector expanded by seven per cent from 2009, during which it was highly affected by a global economic downturn, with a 10.3 percent share in the country’s total GDP of IDR6422.9trn.

In line with AKI’s estimation, the Indonesian Cement Association (ASI) projected that domestic cement consumption would be higher in the second half of this year, driven by the 
realisation of property and infrastructure projects in the private sector.

“We recently revised our estimation of cement consumption increase to 10 per cent from six per cent, bringing
the overall annual cement consumption of this year to 44Mt,” ASI chairman Urip Timuryono said.

According to Urip, large projects in Java, such as the construction of property, commercial buildings, and delayed infrastructure, including toll roads and airports, will largely push up overall cement consumption during the second quarter.

The Indonesian Cement Association has warned that the national cement capacity, which currently is 54Mt, should be increased to meet swiftly rising consumption – totaling 46Mt – otherwise there could be a shortage in case one or two plants go down either for periodical maintenance or unexpected technical problems.

All the largest cement groups — Semen Gresik, Indocement and Holcim — have quickly tapped this positive development by expanding their installed capacity in anticipation of the
rising consumption. China’s Anhui Conch has also announced it plans to build capacity in Indonesia.

The problem, though, is distribution. How will all of these additional millions of tons of goods be distributed across Java, which accounts for more than 55 per cent of national
 steel and cement consumption, if new road construction work remains at its current snail’s pace.

Traffic gridlock is already a daily sight in Jakarta and its surrounding towns, with long lines of trailers hauling container boxes in and out of the Jakarta port of Tanjung Priok slowing down freeway traffic to a halt.

Unfortunately, the indications so far are not so encouraging with regard to the construction of new toll roads in Java, where more than 20 freeway projects have stalled for years due
to problems in land acquisition.

Worse still, the bill designed to cut down the red tape in land acquisition for public interests will likely not be enacted this year.

Even if this bill is approved later this year, its full-fledged implementation will start only six months later at the soonest, taking into account the time needed for issuing regulations on technical details. If the cement and steel plant expansions come on-stream in 2012 and 2013, as scheduled, and the freeway networks do not see signification expansion, we will be in for total gridlock on the highways.

Source: The Jakarta Post