Indonesia’s goal to become the world’s fourth-largest economy by 2045 requires a reorientation of the vision

According to the competitiveness index survey by the International Institute for Management Development, Indonesia’s competitiveness index has risen by 10 ranks from 34 to 44. This has been remarkable growth for the country with respect to its holistic infrastructure and economic development. This ranking is based on how well countries can manage their competencies to achieve long-term value creation. This value is not solely determined by the gross domestic product (GDP) of the country but also by the quality of infrastructure, institutions and policies they provide. In a recent interview with Bloomberg, Joko Widodo, President of the Republic of Indonesia, discussed the importance of mass transit systems, appropriate investments and collaborations in improving the competitiveness of the country, its future plans and associated challenges. Excerpts…

Benefits of mass transit systems

Indonesia’s efforts to create an effective mass transit system are marked by the successful completion of its bullet train project, the first in Southeast Asia (SEA). This high speed rail (HSR) runs at a top speed of 350 km per hour. It has built the foundation of Indonesia’s progress in infrastructure development. This project has set a big milestone for the SEA region.

This development is highly important for the country in that it enables the country to compete with other countries in efficient logistics. It will also have an impact on the welfare of the people. This project was built at a high cost of up to$7 billion, with cost overruns of more than$1 billion. It is also believed that it may take many years to reach the break even point of cost recovery. However, it is important to understand that HSR projects, mass rapid transit (MRT) systems and light rail transit (LRT) systems should not be assessed based on their profitability. Instead, their benefits should be given more importance. For instance, in Jakarta and Bandung, the country loses more than IDR 100 trillion because of traffic congestion. Moreover, the transit options of HSR, MRT and LRT provide net benefits to citizens by improving the ease of living. Therefore, mass transportation is the preferred option to overcome the congestion and pollution caused by the use of private vehicles.

Potential for investments in infrastructure

Infrastructure is the foundation to boost the economic development of a country. The wide-scale construction of robust infrastructure requires the inflow of investments from various streams. In Indonesia, the construction of 16 new airports, 18 new ports, 2,040 km of toll roads and completion of 36 out of 61 dams is expected to attract more investments and provide a strong fillip to the economy. Therefore, a high benchmark was set for achieving a GDP growth rate of 6 to 7 per cent by 2023. However, many factors have hindered growth. One of these is the unfavourable global economic situation. It is being dealt with by taking step-wise actions such as improving investment licensing services. Further consistent upgradation of infrastructure will open the doors for more investments. As a result, many industries will enter and build in Indonesia, which will make it easier to achieve the desired GDP growth rate.

Upcoming development plans and collaborations

The current leadership of Indonesia has drawn up some important plans for infrastructure development. These include some medium- and long-term development plans with key targets such as the development of a new capital city, energy transition industry, downstreaming and optimisation of infrastructure.

Amongst these targets, the creation of a new capital city, Nusantara in Borneo, has been undertaken to build a strong legacy for the country. The current capital, Jakarta continues to operate as the country’s business hub; however, it is sinking at the rate of almost two inches a year. Therefore, Nusantara is being built 800 miles from Jakarta to thin out its overcrowding and relieve pressure on its resources. It is an ambitious project being built at a cost of around $34 billion. The city will be constructed as a smart and green city with a habitation of nearly 2 million residents by 2045. Eighty per cent of the funding for the construction of the city is expected to come from foreign investors.

Many other initiatives are also under way through multilateral collaborations. These include the introduction of electric vehicles (EVs) by attracting investments by Tesla. Moreover, Indonesia wants to obtain a special tax credit for EV batteries to venture into the US market. Besides, Indonesia is also pushing for a critical minerals agreement with the US to expand its export market. This is expected to be signed soon. Similarly, close ties have been built with China and the global South to make Indonesia an economic powerhouse before the end of 2024. Most of the investments in Indonesia have come from China. These investments from Beijing surged from $800 million in 2014 to over $8 billion annually in 2022. One of the projects entailing high investments is the Yogyakarta airport. It was built at a cost of more than $700 million, funded by the Chinese government under the Belt and Road Initiative (BRI) although its full capacity is yet to be utilised and the project is yet to witness a successful footfall. While large stretches of roads and highways have been built in Indonesia in the last decade, more investments for such projects are expected to be made under the BRI in the future.

Conclusion

Indonesia has created a strong international standing by chairing the ASEAN block in 2023 and hosting the G20 summit in 2022. However, a higher profile comes with greater responsibility on the world stage, which has been clouded by the stressed relationship between the US and China. Despite the openness to connect with the world, Indonesia’s downstreaming policy has attracted criticism from the world. It is being viewed as a nationalistic move aimed at stopping exports of all raw commodities. This is to create more jobs and bring investments into the country. It is expected that this will lead to per capita income reaching $25,000 by 2045.

As the world is facing global headwinds, Indonesia’s goal to become the world’s fourth-largest economy by 2045 demands a reorientation of the leadership approach. Every new leader will be required to balance their relationship with different countries despite difficult geopolitical scenarios. A strong global position would ensure continuous investment flows, thereby enhancing the quality of infrastructure and its timely completion.