Indonesia is focusing on port development and is seeking American investment and technology to make it happen.
With its strategic geographic location close to the Strait of Malacca, one of the world’s busiest lanes for international trade, Indonesia has long yearned to carve out a larger slice of the international shipping pie; the Southeast Asian nation is now pro-actively making efforts, with a series of measures, to upgrade its anachronistic infrastructure with a view to bolstering its trade and business ties with both its regional and international trading partners.
The recent formation of the ASEAN Economic Community (AEC), emulating the European Union’s model, is also driving Indonesia’s leadership to create a viable and modern infrastructure that will, particularly, strengthen air, sea and road transportation, and give Indonesia the sharp-edged competition advantage in its bid to become a regional shipping power. Indonesia has also expressed an interest in joining the U.S. led Trans-Pacific Partnership (TPP); although this agreement has yet to be ratified by the United States – it was signed by 12 member nations early this year in Auckland, New Zealand – the possibility of becoming a future member of this large free trade zone that accounts for roughly 40 percent of global trade has spurred Indonesia’s interest to expeditiously develop modern infrastructure and facilitate transportation and distribution of goods.
Indonesian Investment Coordination Board
With this objective in mind, a high-profiled delegation led by Franky Sibarani, the chairman of the Indonesian Investment Coordination Board, (IICB), recently visited the United States in an effort to court U.S. investors and technology providers, highlighting to them the opportunities unfolding in Indonesia.
“The United States is the largest investor and most important trading partner of Indonesia. President Barack Obama has visited Indonesia twice between 2010 and 2015. U.S. companies, not including financial and petroleum sectors, have invested $8.3 billion, with commitments of $16.5 billion in pharmaceutical, chemical and other sectors. Indonesia, Southeast Asia’s largest market with a population of 255 million, accounts for 41 percent of the population of the Association of Southeast Asian Nations (ASEAN),” Sibarani said in an interview with the AJOT in New York.
Franky Sibarani – Chairman of the IICB
Indonesia, whose traditional exports have been, largely, commodities such as palm oil, cocoa, tin, rubber, etc., has diversified its exports which now include other processed and finished goods, has recognized the importance of modernizing and expanding its infrastructure; Sibarani claimed that the country has already built the major part of the 150 new seaports across the nation’s long stretch of islands, with marine tolls in operation, besides building 19 new airports. The country also added 621 new railroad miles last year.
The Indonesian Government is keen to attract foreign direct investment, and is allowing 100% FDI in logistics/cold storage facilities. Pharmaceutical production is also 100 percent open to foreign investors. Other sectors where 100 percent FDI is allowed, include e-commerce, retail, tourism industry, etc.
“One important attraction is the creation of special economic zones … we have introduced the one-stop service which will provide a single window to address all the issues concerning foreign investments. Infrastructure along with agriculture, maritime industry, tourism, special economic zones, etc. are some of the priority sectors for foreign direct investments,” Sibarani said, adding that Indonesia was “very serious” about protecting intellectual property rights (IPR).
Indonesia has set up eight SEZs concentrating, largely, for industries such as palm-oil processing, rubber, metal, tourism, etc. “We plan to have 11 SEZs which should be ready for operation by 2019,” Sibarani said.
A member of the Indonesian delegation in New York pointed out that the Japanese had offered to give a loan for a deep-sea port development in Indonesia.
Japan, he maintained, had agreed in principle to provide a $2.49 billion private loan to finance the development of Indonesia’s planned new deep-sea port project in Patimban, Subang and West Java.
The port’s development will entail a total investment of $3.09 billion, with the remainder of the investment coming from the state budget.
The Indonesian Transportation Ministry’s acting director general for sea transportation Umar Aris had recently said the Japanese government had outlined its interest in a reply to the Indonesian government’s offer to take on the largest share in the project. However, the Japanese government has agreed to the investment plan “in principle”, subject to several requirements.
The new port is supposed to begin its first phase of operations by 2019 with an initial capacity of 250,000 TEUs, rising to 7.5m TEUs by 2037, about half that of Jakarta’s Tanjung Priok Port, and helping to alleviate pressure at the country’s largest port.
Indonesia’s Bottlenecks
According to the World Bank’s Logistics Performance Index (LPI) 2016, Indonesia’s ranking has dropped ten places from the 53rd position in 2014 down to 63rd this year.
The LPI rankings are based on a worldwide survey conducted among operators on the ground (global freight forwarders and express carriers) that provides logistics feedback in nations where they operate and those with which they trade.
But to overcome existing bottlenecks at ports and in its logistics sector, the Indonesian government is pro-actively pushing for infrastructure development which would have a positive influence on improving connectivity between the country’s islands, and is also looking at various possibilities of raising funds for the purpose. For example, it has scrapped a large portion of gasoline, fuel and electricity subsidies - basically starting from the inauguration of Joko Widodo as the nation’s President in late 2014 - and redirected the available funds to the government’s record high infrastructure development budget.
No doubt, the country faces challenges, the biggest challenge being the availability of funds. It is estimated that Indonesia will need some US $450 billion to finance the government’s infrastructure development plans for the 2015-2019 period. According to experts, Indonesia will have to raise funds from the private sector, which needs to play a bigger role in the nation’s infrastructure development. Sibarani’s efforts to court U.S. private investors, thus, fit into the scheme of things.
The IICB chairman spoke of the introduction of marine tolls, which have been in operation since October 2014 when they were started by the new government. Sibarani also pointed out that ro-ro operations were moving in “full swing”. “The Surabaya to Sarong transportation service which took 11 days, will now take three and a half days with the launching of high-speed vessels introduced by a Japanese company,” he said.
There is some optimism discerned among Indonesia’s logistics players who say that there are “good indications” to show that the country is moving, albeit slowly, in the direction of progress in infrastructure development evident in setting up new toll (and non-toll) roads, new railways, and development of ports and airports, and power plants.
Logistics experts believe that, given this zeal and dedicated resolve to upgrade its infrastructure development, Indonesia’s ranking will improve significantly in the next LPI ranking (scheduled to be released in 2018).
