Infrastructure becomes the key to investment competitiveness
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 jadi kunci daya saing investasi
16 August 2024
By Heru Febrianto
The massive infrastructure development over the past 10 years during the administration of President Joko Widodo (Jokowi) has not only focused on connectivity, but also on the basic services, food, energy, and industry sectors. This approach aims to make Indonesia more competitive compared to other countries, ultimately encouraging more investors to invest in Indonesia.
Since his inauguration as the President of Indonesia on 20 October 2014, President Jokowi has consistently focused on economic growth and infrastructure development, along with his ambitious agenda for improving health and education.
Over the last 10 years, budget allocation for infrastructure has been substantial. According to records from the Finance Ministry, in 2020, the infrastructure budget allocation reached Rp307.3 trillion. In 2021, it increased by 31.24% year-on-year (YoY) to Rp403.3 trillion.
The impact of the Covid-19 pandemic was still felt in 2022, prompting the government to reduce infrastructure expenditure by 7.6% YoY to Rp372.8 trillion. Meanwhile, in 2023, the infrastructure budget allocation rebounded by 7.2% YoY to Rp399.6 trillion. This year, at the end of his administration, President Jokowi has agreed to prepare an infrastructure expenditure of Rp423.4 trillion, reflecting a 6% YoY growth.
With this significant budget, the government has successfully completed several infrastructure projects across Indonesia. For instance, the Public Works and Housing (PUPR) Ministry has constructed 61 dams from 2014 to 2024, with 43 of them already completed to ensure water availability and national food security. Additionally, 13 more dams have been completed this year, with 5 dams remaining to be finished in early 2025.
To support connectivity and reduce logistics costs, 2,700 kilometres (km) of toll roads have been constructed from 2014 to 2024. This brings the total length of operating toll roads to 3,480 km, a significant increase from the 780 km of toll roads in operation from 1978 to 2014. Regarding national roads, 6,000 km of new roads have been built from 2015 to 2024, including trans and border roads in Papua, Kalimantan, East Nusa Tenggara (NTT), and along the southern coast of Java.
Meanwhile, the Transportation Ministry acknowledges that over the past 10 years, they have completed 25 national strategic projects (PSNs) out of the total 233 PSNs initiated in the transportation sector. The completed PSNs include seven airport projects, seven railway projects, and 11 port projects.
When attending the ‘Reflection and Notes on 10 Years of Jokowi’s Administration in the Fields of Construction, Infrastructure, and Investment’ event held by the Indonesian Builders Association (Gapensi) in Jakarta on Wednesday (31/7), President Jokowi mentioned that from the start of his administration, the government has consistently focused on infrastructure development. This includes projects for connectivity, basic services, food, energy, and industry.
“The numbers, including how many kilometres of toll roads and national roads have been built, were shown on screen. The presentation also included details on the major, medium, and small ports, as well as the new airports that have been constructed,” Jokowi stated.
The President stated that infrastructure development during his two terms of administration has improved Indonesia’s competitiveness. This is evident from Indonesia’s world competitiveness ranking, which has risen from 34 to 27.
"Our aim with these construction projects is to make Indonesia more competitive. Additionally, these infrastructure projects are built for the benefit of the people. We are in competition with other countries. If our connectivity and infrastructure are inadequate, no investor will want to enter Indonesia," the President explained.
Besides encouraging investment, the President mentioned that infrastructure development would also lower logistics costs, thereby reducing inflation. Through massive infrastructure development, the government has successfully decreased logistics costs from 24% to 14%. As a result, the prices of goods have become more affordable, which is reflected in the rate of inflation over the last several years.
"In the past, our rate of inflation reached 8%, 9%, or even 11%. Now, it has been suppressed to 3%. Last month, it even reached 2.58%. So, development has an extensive impact, not just on one aspect, but many," the President said.
IKN accelerated
As part of an effort to create new economic centres and maximise the potential of regional resources, President Jokowi's administration has embarked on the ambitious project of building Nusantara Capital City (IKN) in North Penajam Paser, East Kalimantan.
The total budget allocation for infrastructure development in the new capital city reaches Rp466.1 trillion. Of this amount, Rp252.5 trillion is expected to come through public-private partnerships (PPP). Meanwhile, Rp123.2 trillion is anticipated from the private sector, and Rp90.4 trillion is expected to be provided by the government through the State Budget (APBN).
According to the Finance Ministry's records, the total budget allocation for IKN from the State Budget (APBN) for the period 2022-2024 exceeds Rp72.5 trillion. Specifically, the allocation was Rp5.5 trillion for 2022, Rp27 trillion for 2023, and Rp40 trillion for 2024.
The government's budget allocation is being utilised to construct basic infrastructure in IKN. For example, in the first stage, this includes building flats for civil servants, houses for ministers, three toll segments in IKN, the Sepaku Semoi Dam, the Presidential Palace, and the President's office.
Meanwhile, for other supporting infrastructure, the government hopes that funding will be provided by investors. From the first phase of groundbreaking in IKN to the sixth phase in June 2024, 45 companies have committed to investing in IKN, with a total investment commitment of Rp51.35 trillion.
Numerous incentives have been prepared by the government to support these investors in the new capital city. For example, the issuance of Presidential Regulation Number 75 of 2024 on IKN Development Acceleration, which generally provides incentives for potential investors involved in developing services and facilities in IKN.
Recently, President Jokowi established the Investment Acceleration Task Force in IKN to boost investment services in IKN, East Kalimantan. The establishment of this task force is outlined in Presidential Decree Number 25 of 2024 on the Task Force for Investment Acceleration in Nusantara Capital City.
Centre of Reform on Economics (Core) Indonesia Executive Director Mohammad Faisal noted that the government's efforts to accelerate infrastructure development in IKN are still facing challenges. One of the significant issues is the acquisition of land, which has not yet been fully completed. Additionally, there is a lack of investors willing to invest in IKN.
Meanwhile, an economist from Core Indonesia, Eliza Mardian, added that a legal framework for the relocation of the government from Jakarta to Nusantara is still needed. She criticised the infrastructure development in IKN as being too rushed in an effort to coincide with the momentum of the 79th Independence Day on 17 August.
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