IKN becomes a new economic centre
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 - IKN jadi pusat ekonomi baru
4 October 2024
By Thomas Harefa and Heru Febrianto
Jakarta, ID – One of the milestones of President Joko Widodo's (Jokowi) administration is the realisation of Nusantara Capital City (IKN) in North Penajam Paser, East Kalimantan. IKN is expected to become a new economic centre, supporting the growth of the industrial sector, technology, and innovations.
The government's decision to establish IKN is also proof of its commitment to Indonesia-centric development, aimed at supporting the equalisation of national connectivity. IKN serves as a showcase of Indonesia's transformation in the economic and social sectors. Therefore, the development of IKN requires support from all parties.
As of August 2024, investment in IKN development has reached Rp56.2 trillion, excluding the budget from the State Budget (APBN).
The government's commitment to developing IKN is also evident from the budget allocation for IKN development in 2025, which amounts to Rp15 trillion.
A total of 55 investors have conducted groundbreaking activities, with 6 investors in the education sector, 3 in the health sector, and 10 in the retail and logistics sector. Additionally, there are 8 investors in the hotel sector, 14 in the office and banking sector, 9 in the housing and green area sector, and 3 in the media and technology sector.
"The government's decision to develop IKN demonstrates President Jokowi's commitment to equalising infrastructure development, which is expected to be continued by the administration of Prabowo Subianto," stated Universitas Indonesia Faculty of Economics and Business Professor Telisa Aulia Falianty in an exclusive interview with ID TV recently.
According to her, despite priority infrastructure developments in Java, such as the high-speed railway, the government aims to develop infrastructure in parallel in eastern and central Indonesia, in accordance with the Nawacita and Asthacita principles. This approach is understandable, given that the economic growth centre is currently located in Java, particularly in Greater Jakarta.
Meanwhile, Bank Permata Head Economist Josua Pardede explained that IKN plays a strategic role in Indonesia’s future economy. According to him, the relocation of the capital city from Jakarta to IKN in East Kalimantan is intended to accelerate economic development, making it more inclusive and balanced, especially in eastern Indonesia, which has been historically underserved.
Josua highlighted several important aspects that will position IKN as a key player in Indonesia’s economy. These include serving as a new economic centre to support the growth of the industrial sector, technology, and innovations. Various infrastructure projects will be developed through the Public-Private Partnership (PPP) scheme, involving the private sector in areas such as housing, clean water, energy, technology, and social infrastructure.
Additionally, Josua explained that IKN is designed as a sustainable city, implementing the smart city concept that aims to reduce carbon emissions, optimise the use of natural resources, and prioritise energy efficiency. Smart technologies will be integrated during its development to enhance energy
efficiency, improve the comfort of residents, and promote environmental sustainability. IKN offers various incentives for investors, including tax reductions, ease of obtaining business permits, and other fiscal facilities.
“This is expected to attract significant investments in strategic sectors, such as renewable energy, transportation infrastructure, and clean water. Lastly, the capital city relocation aims to promote the equalisation of development between western and eastern Indonesia, thereby reducing economic and social disparities among regions,” he told Investor Daily on Thursday (3/10/2024).
Overall, according to Josua, IKN's future role will be as a centre for economic growth, technological innovation, and environmental sustainability. This is expected to drive national development towards greater equity and sustainability.
Meanwhile, to attract as much investment as possible to IKN, Josua suggests that the government must prepare policies that support ease of business, fiscal incentives, and transparent land management. Policies that can be implemented by the government include simplifying the process of obtaining business permits and land rights in IKN.
Businesses are provided with ease of obtaining permits in various strategic sectors. Additionally, one of the mechanisms that can be used to attract investment is the PPP scheme, which involves collaboration between the government and the private sector in infrastructure provision, including housing, energy, social facilities, and information technology.
The government is also providing fiscal incentives to attract investment in IKN, including reductions in value-added tax (VAT) and import excise for strategic goods. These incentives are effective until 2045, particularly for the infrastructure sector, which includes power plants, airports, and ports.
“To increase investor interest, the government can offer guarantees on land rights with a maximum period of 80 years for the right to build (HGB) and 95 years for the right to cultivate (HGU). Additionally, there can be exemptions from the building and land acquisition tax (BPHTB) for certain periods, making it very attractive for long-term investors. By combining ease of business, tax incentives, clear land management, and a focus on eco-friendly infrastructure, the government can attract more investment to IKN,” Josua explained.
Meanwhile, an economist from Universitas Paramadina, Wijayanto Samirin, stated that given the state's less-than-healthy fiscal condition and the unfavourable economic situation, IKN should not actually be a priority.
“If it is forced, IKN could burden our economy, as a significant portion of the APBN would need to be invested in operational costs and subsidies or incentives for civil servants and residents to stay in IKN. Additionally, there is the potential for bureaucratic inefficiency in the early years of the relocation,” he said to Investor Daily on Thursday (3/10/2024).
According to him, to optimise its impact on the economy, IKN development is not a suitable strategy. It would be more beneficial to the economy if the Rp480 trillion were used to develop 30-40 cities across Indonesia to make them more competitive and drive economic growth, including cities in Kalimantan. Cities such as Palangkaraya, Pontianak, and Banjarmasin have regional state budgets of around Rp1-2 trillion, with approximately 90% spent on routine operational costs. Without support from the central government, these cities cannot be showcased as modern cities. Currently, there are dozens of tier 1 and tier 2 cities in Indonesia that share the same fate as these three cities.
To attract investors, he believes the government must restore IKN's credibility by revising the plan to be more concrete and realistic.
