Infrastructure, initial capital to become an advanced country
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Infrastruktur, modal awal menjadi negara maju
16 August 2023
By: Amrozi Amenan & Tri Murti
Several parties are appreciating infrastructure development during President Joko Widodo’s administration that is aggressive and balanced. The massive infrastructure development has boosted competitiveness, maintained inflation, reduced poverty, and sustained economic growth. Besides that, it is also an effective strategy to get out of the middle-income trap so that Indonesia can progress smoothly to be an advanced country by 2045.
Coordinating Minister for Economic Affairs Airlangga Hartarto said that infrastructure that are national strategic projects (PSNs) include special economic zones (SEZs). They are one of the efforts for economic transformation, and they can also be a strategy to get out of the middle-income trap that has the potential to occur in 2038.
“We can only escape from the middle-income trap if we have a productive society. Our demographic bonus will only last for 13 more years. Not all countries can get out of the middle-income trap. The key is land, air, and maritime infrastructures. Indonesia needs healthy and smart human resources. [Human resources that are] ready to compete against artificial intelligence. That is the most important thing,” Coordinating Minister Airlangga said recently.
Public Works and Housing (PUPR) Minister Basuki Hadimuljono also affirmed that the availability of reliable infrastructure was the key to improve competitiveness and economic growth in Indonesia. According to him, there are two main roles of infrastructure. First, as production facilities and support for economic growth, such as roads, toll roads, energy, and dams. Then, as providers of basic services, such as drinking water provision, roads and bridges, housing, sanitation, and irrigation.
“Basic infrastructure is an important capital to support economic infrastructure,” Minister Basuki said.
Productivity from infrastructure development will determine the increase in the competitiveness of a nation. It is what makes South Korea, Japan, and Singapore advanced with a prosperous society.
“So, what we are doing by accelerating infrastructure development is not to be lavish, but to catch up. For example, the construction of Solo-Yogyakarta toll road, Trans-Java toll road, and Trans-Sumatra toll road,” Basuki said.
According to the World Economic Forum, he said that Indonesia in 2012 was at rank 78, but Indonesia went up to rank 51 in 2023. It can obviously help Indonesia enter the investment-worthy list of the global market.
“Our goal is to reach rank 40 on the global level. Regarding the competitiveness of our infrastructure in regional areas, alhamdulillah (Praise be to God), we are still under Malaysia and Thailand. If we do not immediately construct infrastructure, we can be surpassed by the Philippines and maybe Timor-Leste,” Basuki said.
Catching up
Hence, he said that the acceleration of infrastructure development was required for us to catch up in the infrastructure index that is the foundation of economic improvement. Not only infrastructure that are built by the PUPR Ministry, but also energy, transportation, water resources, housing, information technology, and communication infrastructures.
In other words, infrastructure that is increasingly competitive is the main key to attract investments to Indonesia. “So, if investors want to enter Indonesia, they will ask about the readiness of the infrastructure. Is there transportation, electricity, telecommunications, water, and connectivity,” he said.
Basuki said that Indonesia was currently aggressively preparing industrial estates that are fitted with basic infrastructure, such as Batang Integrated Industrial Estate (KIT) in Central Java.
“We are preparing all of the infrastructure, such as roads that are near toll roads, water [facilities], and housing for workers. Investors who come only need to bring their technology and money to invest. So, that is the model that we will develop in the future,” Basuki continued.
To guarantee water availability and food security, the PUPR Ministry is currently completing the construction of 61 dams, where 36 dams with a capacity of 1.9 million cubic metres have been completed. Indonesia has 7.3 million hectares (ha) of irrigation lands, but, until 2014, only 11% or around 900,000 ha have been supplied by dams.
“We will increase the size of the irrigation lands [that are supplied by dams] to 19%, which is more than 1.4 million ha. It means that it can increase planting intensity from 1-1.5 to 2.5 times per year,” he explained. Next, to support connectivity and reduce logistics costs, toll roads spanning 1,298 km were constructed between 2015-2019. The length of toll roads extended by 511 km between 2020-2022.
“In delivering their mangos to Jakarta, mango farmers in Probolinggo can now calculate when their mangos will arrive in Jakarta and how much it will cost. They can calculate when they need to pick [the fruits] so that they will remain fresh when they arrive at fruit shops in Jakarta. It is one of the benefits of Trans-Java toll road,” Basuki said.
Drinking water provision systems (SPAMs) with a capacity of 24,230 litres per second were built between 2015-2019, then the capacity increased by 4,117 litres per second between 2020-2022. Housing construction in the one million houses programme reached 3,800,170 units between 2015-2019, then 3,050,526 more units were added later.
Furthermore, the Coordinating Ministry for Economic Affairs is continuously coordinating with ministries and institutions as well as overseeing the construction of PSNs so that they progress on target. Coordinating Minister Airlangga said that, out of 210 PSNs, 158 PSN with an investment value of Rp1,102.7 trillion have been completed. The PUPR Ministry holds the most projects with 125 PSNs.
Housing sector
Besides that, the PUPR Ministry has completed seven projects in the housing sector. The PUPR Ministry has implemented the public-private partnership (PPP) scheme in the water provision sector on Umbulan Regional SPAM, West Semarang Regional SPAM, and Banjarbakula Regional SPAM that have a capacity of 5,750 litres per second to serve 500 thousand house connections.
Meanwhile, the Transportation Ministry that is led by Budi Karyua Sumadi has also completed several transportation PSNs. In the air sector, the Transportation Ministry has completed the construction of Yogyakarta International Airport in Kulonprogo, Komodo Airport in Labuan Bajo, and Lombok Airport in Praya.
Then, in the maritime sector, the PSNs that have been completed are Labuan Bajo Multipurpose Port, Kijing Terminal Port, Sanur Port, and Patimban Port. Next, in the railway sector, there are South Sumatra LRT, Makassar-Parepare Railway Stage 1, and YIA Airport Train.
Another task that has been carried out is the maritime highway programme that has been provided scheduled ships to reduce the price disparity of basic needs in eastern Indonesia. The load of maritime highway ships continued to increase to reach 28,991 twenty-foot equivalent units (TEUs) and 983 tonnes in 2022 from 88 TEUs and 30 tonnes in 2015.
The Transportation Ministry is also completing high-profile national strategic projects, such as Jabodebek LRT, Jakarta-Bandung High-speed Railway, Makassar New Port, and several other projects.
Meanwhile, Centre of Economics and Law Studies (Celios) Director Bhima Yudhistira revealed that the massive infrastructure development was reflected in the growth of the construction sector, which can be seen from the latest data for the second quarter of 2023. During the period, the sector grew 5.2%%, which is above the national economic average.
Infrastructure development in villages with roads and irrigation also holds a crucial role as it maintains inflation to remain stable. Another positive impact is workforce absorption even though fewer human resources are involved due to the use of sophisticated.
“Human resource absorption is still there indirectly through the local content (TKDN) requirement for cement, steel, asphalt, and other materials,” he explained.
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