Indonesian Infrastructure: Slow but Sure Progress

As widely known, infrastructure plays a central role in the economic development of a nation. A good transportation system, for example, will drop the cost of transportation and logistics, and eventually reduce the cost of businesses overall. Consequently, this will incentivize new players to enter the market, increasing business activities, and in the end, will drop the price received by the end-users. In summary, infrastructure quality and coverage is of paramount importance in improving the welfare of a country.

However, infrastructure development in Indonesia is still behind many other countries. In Global Competitiveness Report 2017 – 2018, written by World Economic Forum (WEF), Indonesia is ranked 52ndfrom 137 countries in terms of infrastructure development. Even though this ranking is still considered as average, this is still not an excellent sign, indicating the presence of infrastructure problems in Indonesia, contributing to the inefficiency in the market.

The consequence of such problem, for example, could be reflected in the fact that logistic expense in Indonesia is the highest among ASEAN countries, ranging around 20-25% of GDP (Indonesia Logistic Forum, 2018). As a result, customers experience high price, lowering their purchasing power. It turns out, the root of this evil is the container dwell time, signaling inefficiencies in the logistic system in ports. Another problem could be seen when we compare the price of the same goods in different places that differ in their accessibility. For the same goods, places with low accessibility almost certainly have higher prices than their high accessibility counterparts, very likely due to high transportation cost. The bottom line is, bad infrastructure will make investors turn their heads away since it is bad for business.

Fortunately, current government regime seems to focus its work programs on infrastructure development. With the enaction of Presidential Decree No. 3 Year 2016 about Acceleration of Priority Infrastructure Delivery (revised by Presidential Decree No. 5 Year 2017), the Government started to fulfill their responsibility to address the infrastructure problems by officially planning National Strategic Projects (PSN), consisting 245 projects and 2 programs, financed by both state budget and private investors. As of January 2018, 26 projects have been completed at a cost of $3.4 billion. We can confidently say that it is good news and will increase the trust of investors in the future of Indonesian business atmosphere. Even though current development reveal that there are 14 projects that are unlisted from the PSN due to poor feasibility, we are still confident that overall, the PSN will dramatically enhance business climate in Indonesia. This could be backed by the fact that Indonesian ranking in Global Competitiveness Report from WEF is increasing over the years, ranked at 60th(out of 138) in 2016 and finally ranked 52nd(out of 137) in 2017. All in all, the road to better economy through better infrastructure is a long and rocky road, but a certain one nonetheless.