In just the first quarter, almost US$6.5 billion flowed into Indonesia - 14 per cent higher than in 2014, according to the Indonesia Investment Coordinating Board.
Quasi-public lenders like the World Bank, the Asian Development Bank (ADB), and the up and coming Asian Infrastructure Investment Bank (AIIB), are lining up to plow billions into the country’s infrastructure projects.
Add to that the US$23 billion freed up by the cut in fuel subsidies and Indonesia is primed for some major development.
The World Bank has pledged up to US$12 billion in new loans over the next four years for basic infrastructure like roads and seaports. The ADB and the AIIB are also eyeing Indonesia.
“Besides government funding, we have to be doing it with the private sector as well as the state-owned enterprises that operate on the infrastructure, like ports, like airports, like railways and roads,” said Indonesian Deputy Minister of Infrastructure and Regional Planning Luky Eko Wuryanto.
The funding could not have come at a better time, especially for Indonesia’s seaports which are buckling under the weight of heavy traffic, antiquated infrastructure and layers of bureaucracy.
Two-thirds the country’s trade passes through the berths at Tanjung Priok, Indonesia’s largest port, which is part of the reason why it has one of the longest dwell times of 5.5 days - almost twice as long as it would take in Malaysia, and five times longer than Singapore.
The dwell time is how long it takes for containers to be offloaded from ships to when the ship actually leaves the port.
“If there’s congestion in this place, it’s not because of the port. It’s because of the seven government agencies that can’t clear up the documents in order to make the goods get out on time,” said Richard Joost, president director of Pelindo II.
SHACKLES OF BUREAUCRACY
Bureaucracy is the battle cry of most business leaders and a major deterrent to foreign investors. The country ranks a lowly 114 out of 189 on the World Bank’s Ease of Doing Business scale.
“All the producers, the manufacturers, can’t make productions on time because they can’t be sure when the goods are going to be out of the port,” said Joost.
That, along with poor roads and spotty connectivity among Indonesia’s 17,000 islands, makes Indonesian goods more expensive. According to the World Bank, logistics costs amount to 24 per cent of GDP – an enormous tax on the country’s economic growth. If Indonesia could cut its logistics costs by just a third, it could save up to US$80 billion a year.
That money could be funnelled back into the economy, which in turn could attract more FDI. That money is essential because Indonesia needs US$450 billion for infrastructure projects over the next four years but the government can only cover 30 per cent of that.
“As long as the government can really show their commitment in pushing this development in infrastructure like pushing the land clearance, like trying to really streamline the regulation or the hurdle in the local government, things like that, I think it will be seen positively by the private sectors,” said Mandiri Sekuritas senior economist Aldian Taloputra.
“Then they have more confidence to start their investment in the country.”
That could go a long way in boosting the country’s growth, which is now growing at its slowest pace in six years.
“We believe that infrastructure now is the real story,” said Budi Hikmat, director of Bahana TCW Investment Management. “Infrastructure has been a false hope in the past 10 years. Now the key is in the budget after the parliament approved the budget. There is a real hope.”
“Indonesia fundamentals are still very much there,” added Lianna Plaut, country director of Global Business Guide Indonesia. “However, should the infrastructure not be put in place to take advantage of those fundamentals, then they will lose out on their opportunity in the next couple of decades to really reach their potential as an investment destination.”
The influx of investment dollars could be a turning point for Indonesia. The challenge now is making sure that money flows into the right projects, and that those projects are completed on time and on budget.
If that happens, many of the barriers holding back the Indonesian economy - and its many businesses - could be knocked down, giving them a real shot at reaching their full potential.