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JG/If You Build It, They Will Come: The New Promise of Infrastructure PPPs
Infrastructure is quite literally the way forward for Indonesia. Virtually every aspect of the nation’s decrepit infrastructure requires urgent attention.
It lags years behind its regional neighbors, and acts as a brake on the economy.
Infrastructure investments are what will allow Indonesia to shift gears and speed up from the 4.5 percent growth in gross domestic product it saw in 2009 to the 7 percent target set by the government by 2014.
If you build it, they will come, goes the adage. Indonesia needs to build infrastructure to compete successfully with its neighbors for foreign investment. Only then can it unleash the full potential of its economy.
Indonesian politicians and businesspeople alike have long recognized this truth and searched for ways to boost investment in the sector.
For the past decade Indonesia has pushed for public-private partnerships to build roads, ports, power plants and railways.
But with the exception of power plants, the demand for infrastructure has not created much supply.
This is now changing. At Infrastructure Asia, the government said it planned $140 billion in infrastructure investments over the next five years through PPPs.
This sounds like an exorbitant amount, but it’s not out of step with other emerging economies like India and China; in fact, it is relatively modest.
India’s government said recently it planned $1 trillion in infrastructure investment between 2012 and 2017, double the $500 billion it spent in the five years from 2007 to 2012.
In China, the numbers get even bigger. Over the next 20 years, it is expected to invest $35 trillion in infrastructure.
A better comparison for Indonesia may therefore be found farther away. In terms of speed of economic transition and commitment to infrastructure investment, Indonesia can may best be described as the Brazil of Asia.
So Indonesia faces a challenge, but I’m happy to report that the government is ready to walk the talk.
The company I represent, MEC Holdings, has been one of first foreign investors to benefit from the government’s renewed focus on infrastructure investment and commitment to PPPs.
Like many foreign investors in Indonesia, MEC Holdings has encountered its share of bureaucratic hurdles.
Where I believe our experience differs from the past is the support we have received from both central and local government officials to clear these hurdles.
Since MEC Holdings entered Indonesia in 2008, the central government has fully delivered on its commitment to unblock investment bottlenecks. This has allowed us to push ahead according to schedule.
Starting in mid-2010, MEC will build Indonesia’s first private railway corridor in East Kalimantan, linking inner Kalimantan to the coast.
More than 130 kilometers long, the railway will serve as the foundation for the development of an industrial complex that will be unique for Indonesia.
It includes the construction of an alumina smelter, a fertilizer plant, a power plant, a coal mine, a railway and a port terminal.
With total investments of about $5 billion, more than 5,000 jobs will be created at new industrial facilities in East Kalimantan when the project is completed in 2014.
The industrial cluster will encourage the development of small- and medium-size enterprises, housing, health care, schools, roads, a water utility and an electricity grid.
It connects people to employment and creates opportunities so communities can reach their full growth potential.
The integrated industrial development model matches the government’s own ambitions of utilizing Indonesia’s natural resources as the driver of industrial development and sustainable economic growth.
It’s also important to remember that industrial clusters are not new to Indonesia. For centuries, the backbone of its economy has been domestic and international trade. Indonesia’s ports were the industrial clusters of old.
They created vibrant local economies that enabled small companies to grow and thrive. It was also trade that brought the influences from Indian, Chinese and Arab cultures you find so deeply ingrained in Indonesian culture and religion today.
Infrastructure investments will lay the foundation for Indonesia’s future prosperity. MEC’s railway is one example of how the nation’s economic potential can be unleashed through infrastructure.
It serves as reminder of how Indonesia has changed its tune on public private partnerships and how, when integrated with industrial clusters, infrastructure can unlock the value of the country’s natural resources.
What was true then is true now. If you build it, they will come.
Madhu Koneru is executive vice chairman of MEC Holdings.
