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Indonesia Infrastructure Report Q3 2010
Business Monitor International, May 2010, Pages: 103
Indonesia Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Indonesia's infrastructure industry.
Infrastructure was in the spotlight in Indonesia as Jakarta was host to a major regional ministerial conference hosted by the United Nations called Infrastructure Asia. In preparation for the conference and to showcase Indonesia’s endorsement of the public private partnership (PPP) model, the National Development and Planning Agency launched a prospectus of 100 projects, with an estimated value of IND440trn (US$48.8bn). The agency will tender out these projects under PPP schemes between 2010 and 2014.
The government’s endorsement in theory of the PPP model has lately produced more tangible results such as changes in legislation to make the model more flexible and easier to implement. Indonesia’s appeal as an infrastructure market lies in strong positive macro fundamentals. Indonesia is now the third largest emerging economy in Asia after China and India. According to the forecasts GDP compound annual real growth will be 5.8% between 2010 and 2015.
For the infrastructure sector, the lack of well developed infrastructure and the low base from where investments are taking place leaves much scope for growth in greenfield investments in transport, energy and utilities adding to the market’s appeal for investors. In terms of scale, measured in industry value, Indonesia is also amongst the largest markets globally. Revised and updated data from the Indonesian statistics agency reveal a much stronger picture for infrastructure than was originally thought. In 2010, we forecast that infrastructure industry value will account for 45% of total construction industry value, up from our previous more moderate forecast of 33%. Accordingly infrastructure industry value forecasts have increased.
The authors forecast infrastructure industry value in Indonesia to be IND311bn (US$34bn) in 2010 and this is forecast to rise to IND546bn (US$64bn) by 2014, representing real growth of 10.3%. The infrastructure aspect of the stimulus plan, though slow to trickle in the system (according to the government’s own admission), did in the end work wonders for the industry value over 2009, with construction industry value recording real growth of 27% over 2009. This is a direct result of heavy government spending, the effects of which will continue to be felt in 2010. The removal of the stimulus will result in much tamer growth rates in the medium term.
However, enormous challenges remain and thus Indonesia remains in the authors view one of the riskiest environments for infrastructure investments globally. Issues such as very high levels of corruption, low absorption capacity and the heavy bureaucratic edifice are pertinent obstacles to the implementation of PPPs in the country on the scale that the government is hoping for. The Project Finance and Infrastructure Business Environment ratings echo this view, with Indonesia having amongst the poorest score in the Asia Pacific region.
Therefore, because of the risks associated with Indonesia’s investment climate for infrastructure, we believe that the growth we are forecasting will be primarily driven by government investments. Expectations that the private sector will also invest in infrastructure have been taken into account in our forecasts, though they do not provide the main support system for growth. For this reason we see much upside potential for Indonesia’s infrastructure industry value, but it will be strictly predicated upon an structural amelioration of the business environment; therefore, bar dramatic changes in policy, this potential can be realised only in the long term.
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