Indonesia is preparing to make major investments to improve its
infrastructure, which has been blamed for holding back growth and reducing the
investment attractiveness of Asean’s largest economy.
President Susilo Bambang
Yudhoyono recently told parliament that the country would increase spending on
the country’s overburdened roads, airports and power plants and pare
restrictions on businesses in order to encourage investments.
Indonesia’s infrastructure is
strained on all fronts. It faces a lack of power and its ports and airports are
sadly outdated, hardly in line with the country’s status as a G20 economy.
Mr Yudhoyono’s budget proposed
lifting infrastructure spending to 194 trillion rupiah (640 billion baht) in
2013 from a target of 169 trillion rupiah this year. The funds will be used to
improve 4,431 kilometres of road, add 380km of new rail lines, build 15 new
airports and expand another 120.
Indonesia has massive economic
potential but is struggling to position itself to take advantage of Asean
integration in 2015. Reforms related to distribution and logistics networks are
the most pressing needs.
Indonesia has the highest
logistics cost in Asean, estimated at 25-30% of gross domestic product (GDP),
according to Lukman Hakim, chairman of the Indonesia Institute of Sciences.
Even in Thailand, which is also
considered to have unacceptably high logistics costs, the comparable figure is
17% of GDP.
In a country with Indonesia’s
geographical conditions, said Mr Lukman, the logistics cost should not exceed
15% of GDP.
“Indonesia’s logistics system is
not efficient as there is a price gap in logistics between eastern and western
regions,” he said. “Thus, some imported commodities are more affordable than
local commodities.”
Distribution of goods between
regions and islands is a major challenge and this means the prices of many
goods outside Java are too high.
“For example, the price of rice
in one province can be 64% higher than in other provinces. Also, the price of a
bag of cement in the territory of Papua can be about 20-fold higher than in
Java,” he said.
National logistics costs in 2010
were 1,402 trillion rupiah (about 4.6 trillion baht), or 26% of GDP. The figure
is made up of inventory carrying costs of 421 trillion rupiah, transport 841
trillion, and administrative costs totalling 140 trillion.
Armida Salsiah Alisjahbana, the
minister for National Development Planning, said proper funding for
infrastructure development would gradually encourage better connectivity.
The ratio of infrastructure
spending to GDP in 2013 is expected to reach 4% and grow to 5% in the following
year. “In terms of macro funding, we have set the infrastructure spending
target at as much as 5% of GDP in 2014, and it will increase to 7% or 8%
afterward,” she said.
With progressive infrastructure
funding and an investment ratio of 5% of GDP, the country could achieve
economic growth above 7% annually on an ongoing basis, the minister said.
In terms of soft infrastructure
improvement, Ms Armida is pushing continuous reform of the bureaucracy with
involvement from local governments, private companies and state enterprises.
She said she had already noted
more responsive management and productivity from state enterprises in charge of
ports, airports, and other means of connectivity.
The World Bank recently increased
the performance index of logistics in Indonesia, from 75 in 2010 to 59,
reflecting improved contributions of both the private sector and the
government.
It recommends two steps to
improve efficiency: reducing dwell times in port and developing “dry ports” or
inland container depots.
Henry Sandee, senior trade
economist with the World Bank, said the average dwell time of import containers
in the Jakarta International Container Terminal was still increasing, which was
not a good sign.
Over the past year, the port of
Tanjung Priok handled one million containers with an average dwell time of 6.7
days, up from 4.8 days a year earlier. Port officials have been working with
experts at the Technology Institute of Bandung to monitor dwell time changes
every three months.
“The main issue is to improve
logistics efficiency to reduce dwell time and develop a dry port. Surely this
must be supported with the good coordination,” said Mr Sandee.
The dry port is urgently needed
to handle extra demand until work is completed on the higher-capacity Kalibaru
container terminal or Tanjung Priok New Port.
“We have Cikarang Dry Port. Let’s
compare it with Lat Krabang in Bangkok, which has been optimised. Indonesia has
to do the same thing. We estimate 62% of containers will be directed to
Cikarang,” he said.
Mr Sandee said Indonesia could
learn from its neighbor. He noted the logistics cost (transport, handling,
customs and excise tariffs) between Tanjung Priok and Cikarang, a distance of
55.4km, is US$750 per container. In Malaysia between Pasir Gudang and Tanjung
Pelepas, a distance of 56.4km, the cost is only $450.
The Indonesia Chamber of Commerce
and Industry (Kadin) has set an ambitious target to reduce logistics costs by
10% in 2014 as part of preparations for the Asean Economic Community in 2015.
Indah Metekohy
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