Infrastructure development: Benefits still unevenly distributed
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 - Pembangunan infrastruktur: Manfaat yang belum merata
12 August 2024
By Rahmad Fauzan, Anitana W. Puspa, and Maria Elena
The massive infrastructure development under President Joko Widodo's administration has successfully boosted Indonesia's competitiveness. However, its impact on the real sector remains limited.
Referring to the data from IMD’s World Competitiveness Ranking, Indonesia’s competitiveness rank increased from 43 in 2018 to 27 in 2024.
Several factors contributing to the improved ranking include enhanced bureaucracy efficiency, increased business efficiency, and better infrastructure.
This significant increase is well-founded, as the infrastructure budget rose substantially from Rp157.4 trillion in 2014 to Rp423.4 trillion in 2024.
Unfortunately, business players across various sectors have noted that the government's infrastructure policy over the past 10 years has been imbalanced, with a predominant focus on land development.
In reality, business activities rely not only on toll roads but also on sea routes, which have received insufficient attention. This imbalance is why the impact of infrastructure development on the real sector has been limited.
Indonesian Logistics Association (ALI) President Director Mahendra Rianto reckons that toll road development in the last 10 years has yet to significantly benefit business players.
He noted that the impact of infrastructure development has been more beneficial for private vehicles, as the tariffs are quite costly for logistics vehicles.
These high tariffs make logistics costs less competitive. Ideally, operational costs should account for only 20% of the total logistics expenses.
“To reduce logistics costs, the tariffs for logistics vehicles should be lower than that for private vehicles. However, the current situation is the opposite,” he stated.
Mahendra added that the cheapest and most efficient logistics routes were by sea. Unfortunately, the new maritime highway program only provides subsidies to designated state-owned enterprises (SOEs).
National Shipowners’ Association (INSA) Chairperson Carmelita Hartoto stated that, in the context of the macroeconomy, infrastructure development has benefited certain business players.
According to her, it will take a long time for infrastructure development to effectively lower logistics costs.
“Infrastructure development will increase the competitiveness of national logistics,” she stated.
Indonesian Filament Yarn Producers Association (APSyFI) Chairperson Redma Gita Wirawasta pointed out that President Joko Widodo has given insufficient attention to national port infrastructure over the past 10 years.
Unlike land infrastructure, the current state of port infrastructure cannot optimally support activities in the textile industry.
Port facilities
This is evident from the lack of improvements in port facilities, which prevents a reduction in operational costs for textile businesses. As a result, this condition negatively impacts export activities in the industry.
“Ports have yet to see significant improvements, leading to stagnant or rising costs. As a result, exports have not seen much progress, especially since ports are closed on certain days,” he said.
Although port activities are typically associated with the downstream sector of the textile industry, Redma noted that they have a significant impact on the performance of the upstream sector as well.
When the domestic market is flooded with imported goods, the utilisation rate of the upstream sector is at risk of being reduced.
Redma added that the port infrastructure has not been optimal in supporting import processes.
The infrastructure includes scanners that can detect only 10% of the total textiles imported into the country.
He believed that the government's response to the situation was still inadequate.
Redma compared the condition of ports in Indonesia to those in neighboring countries like Malaysia, Vietnam, and Singapore, where all imported goods go through an AI scanning process, making them far more efficient.
Indonesian Export Company Association (GPEI) Secretary General Toto Dirgantoro agrees that over the past decade, the government has primarily focused on developing toll roads and national strategic projects (PSNs).
However, he believes that the development has not yet adequately considered the needs of the broader public, including micro, small, and medium enterprises (MSMEs).
As a result, the focus on toll road development, without providing alternative routes, unintentionally hinders the economy of communities not served by these toll roads.
“In addition to toll roads, there should be national roads that benefit people without requiring them to use toll roads,” he stated.
Meanwhile, economists reckon that the government has yet to prepare a scenario to maximise the effectiveness of infrastructure development.
Centre of Reform on Economics (Core) Indonesia Executive Director Mohammad Faisal said that, currently, infrastructure development was still focused on the physical side without support from economic development planning.
He believes that infrastructure development can have a greater short-term economic impact if it is supported by the development of economic centres in the developed regions.
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