World Report

All-round development of infrastructure has gathered strength since the Southeast Asian crisis of the 1990s

Private investment is greatly increasing in Indonesia’s road to development

he development of Indonesia’s infrastructure is crucial to the long-term growth and prosperity of the nation. The economic crisis in the late 1990s halted progress in a number of key projects and the need to strengthen areas such as telecommunications, transport and the power sector remains.

Since 1997 a great deal of work has been done to modernise the country’s infrastructure to facilitate trade and investment, improve the welfare of the people and reduce the general cost of doing business. In the telecoms sector, growth remains positive. The award of GSM mobile licences to state firms PT Telkom and PT Indosat in 2000 was intended to help prepare for more intensive competition.

There is a move to open up formerly state-dominated sectors. Attracting foreign investment is regarded as essential by the government to raise the level of funds required for infrastructure development. Many parts of the country, particularly in the east and places such as Kalimantan – the Indonesian part of the island of Borneo – remain under-developed.

The government has recently announced an ambitious £13-billion programme driven by the private sector that is aimed at bolstering the country’s telecommunications, transport and gas pipeline sectors by 2009 and promises a major investment drive.

Tjuk Sukardiman
Director of Sea Transportation
‘Port business is very attractive for investors’

Tjuk Sukardiman, Director of Sea Transportation at the Ministry of Transportation, says the ports sector is especially ripe for investment. “Currently, the port business in Indonesia is a very attractive sector for investors. It is generating a large amount of profit particularly in relation to container activities.”

At the time of the Asian financial crisis, port traffic was rising at over 11 per cent a year, with container volumes increasing as much as 23 per cent. Despite the economic slowdown these growth rates continued. The demand for Indonesia’s maritime facilities is clear. Container cargo in the 13 major ports has risen from 87,000 teu in 1997, to 207,000 in 2002, a phenomenal increase in just five years.

Mr Sukardiman says Indonesia is looking to create a more conducive environment for investors in the maritime sector. “If we want to attract investors we have to strengthen two aspects immediately, namely the regulations and the market mechanism.”

Cucuk Suryo Suprojo
Director of Air Transportation
‘Plenty of room for expansion in the air network’

The development of private sector involvement is also a priority for other areas, such as air transport. The airline industry is experiencing dynamic changes as a result of new competition, but is still behind previous levels. In 1996, the total number of air passengers stood at 13.8 million and in 2002, the figure had fallen to 11.4 million. The number of Indonesian cities served by the aviation sector has also been affected. “The total number of cities currently served by the air transport sector time is still smaller than it was in 1996,” says Cucuk Suryo Suprojo, Director of Air Transportation at the Ministry of Transportation.

He believes this means there is plenty of room for expansion. Not only is the market ready for increased passenger numbers, but the network is also waiting to be expanded. The key to this is nurturing competition, not only between national carrier Garuda Indonesia and other local airlines, but also through the development of the private sector. Mr Suprojo describes this as a “bridge for competition” preparing Indonesian firms for the challenges of the future. “It is the road to competition with other countries’ flag carriers.”

At the same time, investment is being targeted at airport improvements. Key initiatives include the East Indonesia Airports project, the new Padang airport, the Surabaya airport development and phase two of the Bali International Airport development.