Sector Report

Indonesia paves the way for construction boom

by Sarina Lesmina / Sep 15, 2016


It has been two years since President Jokowi reformed the country’s fiscal budget with substantial cuts to fuel subsidies and aggressive infrastructure buildout. Of his three stated priorities – tollroads, seaports and powerplants – tollroads have been cruising in the fast lane and show the most headway. From 2014, 190km of new tollroads were inaugurated (up 23% vs a 4% Cagr in 2001-14). Funding remains the largest roadblock due to the substantial capital requirements for infrastructure financing and we continue to wait for the necessary private-sector involvement.

The Trans-Java tollroad network has doubled in two years and, after 30 years in the making, the mega-project is set for completion in 2019. With stalled projects restarted and faster land clearing, the national tollroad network is expected to double in five years. Seaport capacity rose 18% in the past two years. However, the power sector is still in need of an overhaul and encouragingly there has been a recent shake-up of some infra-related ministers.

The Jokowi administration aims to spend 10% of GDP over five years on infrastructure. Until the government is able to attract private-sector money, the state budget and local bank funding will be stretched. Declines in cost of capital and falling risk premiums should spur investment. The recent negative-investment-list revision liberated foreign ownership in quite a few infra sectors and the new Investment Board head is also encouraging.

Progress is promising and economy is improving gradually. The latest cabinet line-up shows that President Jokowi is paving the way for reform acceleration. In the longer run, the whole economy will feel a multiplier impact and while the journey is long, we are on the right path to prosperity.