Indonesia to Improve Infrastructure, Connectivity

Earlier this November, the Indonesian government launched the Sea Toll Road transportation program and designated 11 seaports to facilitate passenger traffic and 13 to expedite freighting. According to Global Risk Insights, the Sea Toll Road is predicted to “completely upgrade Indonesia’s port network” and is projected to decrease logistical costs by 10 to 15 percent. Lack of inter-island freighter services and inefficient operations at the ports on its 8,000 inhabited islands have represented one of Indonesia’s greatest challenges in recent decades. The prices of goods in eastern regions can be 30 times more expensive than the same goods in western regions. Logistical costs amounted to almost a quarter of the country’s $811 billion economy. Cargoes at some ports have a dwelling time of between four  to six  days, and in Semarang it can take 10 days to move containers through the container port. These inefficiencies make it cheaper to import commodities to Jakarta from China than from Borneo, which is a quarter of the distance.

The Sea Toll Road initiative reflects newly elected President Joko Widodo’s commitment to enhancing inter-island connectivity as a priority in Indonesia’s economic development. Upon his victory in the 2014 general elections, Indonesia Investments published an article outlining his “Ambitions, Strategies and Promises”  where Widodo promised to develop heavy infrastructure and untangle bureaucracies in order to achieve a target GDP growth of seven percent.

Last year, Indonesia’s economy grew only 4.7 percent, the slowest pace since 2009. This was lower than in Vietnam, Malaysia and the Philippines.

According to the World Bank, connecting “remote regions to the major economic growth poles” is crucial for raising living standards. The increased connectivity brought about by the initiative, if successful, would bring together the “commodity-rich” outer islands of Indonesia with the manufacturing centers in Java.

Already, major port operations corporations have begun to invest in improving the capacity of major feeder ports. Managing Director of Port Corporation Three Djarwo Surjanto announced that his company would invest up to $1 billion to develop ports that comply with international standards.

In addition, Widodo has confirmed that the government will spend $429 billion to upgrade infrastructure in the next five years.

However, concerns remain over the exact implementation of the plans. In particular, President Director of Maersk Line Indonesia Jakob Sorensen noted the uneven development of ports, with a disproportionate emphasis on the West over the East.

Overall, the Sea Toll Road is an encouraging move by the Widodo administration to tap the immense economic potential of the country which will bring positive spillover effects to the region.