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Large scale infrastructure development has been one of the topmost priorities of the current government in Indonesia. However, the wide-spread effect of the coronavirus outbreak has weighed heavily on President Joko Widodo's plans. Due to the pandemic, construction of several infrastructure projects were disrupted in the country as the government directed its budget to fund towards the unplanned COVID relief measures.
According to ConsTrack360's Q4 2020 Global Construction Survey, construction industry in Indonesia is expected to grow by 11.0% to reach US$ 67096.3 million in 2021. Despite near-term challenges in certain construction sectors, medium to long term growth story in Indonesia remains intact. The construction industry in Indonesia is expected to grow steadily over the next four quarters. The growth momentum is expected to continue over the forecast period, recording a CAGR of 9.0% during 2021-2025. The construction output in the country is expected to reach US$ 94795.1 million by 2025.
The government spent over 90% of Rp 23.29 trillion raised from sukuk (sharia-compliant bonds) to finance infrastructure projects in 2020. Around Rp 414 trillion of funding is allocated to construction and infrastructure projects as part of the 2021 budget announced by the government. According to National Development Planning Agency (Bappenas) estimates, Indonesia will need US$429.7 billion (or 6.1% of GDP) for infrastructure development during 2020-2024. Further in January 2021, the government announced to issue sukuk of around Rp27.58 trillion (US$1.96 billion) in 2021 to fund the country’s expensive infrastructure projects and accelerate economic growth.
With the renewed interest after the coronavirus induced slowdown and facing its first recession of the century, the Indonesian government is committed to build and develop the infrastructure of the country. Both the central and regional administrations are offering lucrative benefits for investors to invest in infrastructure development projects across Indonesia. Hence, the overall outlook for the infrastructure sector remains positive in 2021.
To prevent Jakarta from flooding, the government is committed to continuing the development of National Capital Integrated Coastal Development (NCICD) in the country. The project requires a total investment of Rp 600 trillion (US$40.22 billion). But the drop in FDI investment in the last few quarters remains a concern for the government. However, in November 2020, Indonesia signed a US$750 million infrastructure and trade deal with the United States. This is expected to provide additional support for the infrastructure sector in the country.
Additionally, the government is developing the coastal barrier in the northern part of West Java, East Java provinces, Central Java, and Jakarta. The coastal barrier development project stretches over 59.1 KM and involves an investment of approximately Rp 641.5 billion.
Funded by the Japanese government - under the official development assistance loan - construction activities are completed at the Patimban seaport, which was inaugurated in December 2020. For the construction of the first phase, Indonesia took a loan of Rp 14.2 trillion (US$ 1 billion) from the Japanese government..
Construction activity of Semarang - Demak toll road, which stretches over 27 KM in Central Java is also expected to support the infrastructure sector in Indonesia. The government is also speeding up the construction activities of Moto GP support facilities. A 17.4 KM long bypass has been constructed for connecting to the Lombok International Airport.
As many 26 local and foreign companies have shown interest in the infrastructure development and operations of the Lombok International Airport. With an estimated project value of Rp 10.3 trillion (US$700 million), the overhaul of the Lombok International Airport will support the growth of the infrastructure construction sector.
In addition to this, the regional administration in Semarang is offering investors a total of five infrastructure projects. These projects are expected to involve an investment of Rp 17.13 trillion (US$1.15 billion).
The administration also promoted other infrastructure projects in the region to investors who are willing to invest in Semarang. For example, the administration is offering a light rail transit project with estimated cost of Rp 14.76 trillion; an underpass construction in Semarang costing Rp 850 billion; and a waste-to-energy plant costing Rp 1.2 trillion.
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