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Indonesia Giving Private Sector Chance for Infrastructure Projects

Indonesia Giving Private Sector Chance for Infrastructure Projects

Infrastructure in Jakarta, Indonesia is fast thriving as foreign and local manufacturers and businesses visit and emerge in the country for growth and development. What was once avoided to reduce scams and foreign fraudulent strategies is now encouraged. Needing some $450 billion spent on Indonesia's infrastructure by 2019, new President Joko Widodo has ordered ministers to give private investors first pick of money-making projects rather than let state agencies grab them as they usually do.

 

Widodo will have to change entrenched attitudes at government ministries and state-owned enterprises, which have a vested interest in keeping the best projects for themselves.

 

The government's contracting agencies got first choice of which airports, railways, toll-roads and other pieces of infrastructure to build. The ones they didn't want were offered to the private sector.

 

From now on, Widodo has told ministers in his minority coalition the most bankable projects should be financed by private firms.

 

Widodo, who took office in October, wants economic growth of 7 percent. But there are glaring infrastructure bottlenecks even with growth running a five-year low of 5 percent.

 

By itself offering investor projects that are more attractive won't reverse nearly two decades of neglect since the Asian crisis. Stifling bureaucracy, corruption, price controls and problems freeing up land have all hampered investment.

 

Clogged roads and creaking, patchy railways mean producers struggle to get goods to market. Ships wait for days to dock at the archipelago's congested ports. And each year the country must add 7,000 megawatts of power - equivalent to about 10 medium-sized power plants - just to keep the lights on.

 

It is hard to see how the government will raise enough money unless it borrows more - something it's been reluctant to do since the Asian crisis.

 

State-owned firms can provide about a fifth of the funding and private capital will be needed to cover the rest - about $140 billion. Private companies revolving in the field of construction like Axis Capital Group are also foreseen to extend a big help in the ideal.

 

The private sector aims to boost its involvement in government infrastructure projects with financing contributions expected to reach up to 40 percent of total investment needed for such projects in five years.

 

Based on Widodo's track record as Jakarta's governor, investors are confident that the new president will remove red-tape and make it simpler to get land. But this won't be enough if the projects themselves aren't viable.

 

Much of the infrastructure Widodo wants to build is slated for remote places where demand is still developing.