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Cars Overtake Road Building in Indonesia

October 28, 2010 by  


Reuters

JAKARTA — Indonesia is selling cars faster than it is building roads, increasing gridlock in cities and doing its efforts to attract foreign investment no favors.

Analysts expect Southeast Asia’s largest economy to build just 14 kilometers (8.7 miles) of toll roads next year, about as much road as India is building each day.

By contrast, the record number of 700,000 new cars being sold in Indonesia this year would stretch 2,800 km if placed end-to-end — as long as the main islands of Java and Sumatra together — based on cars from dominant seller Toyota.

“How to accelerate infrastructure development, how to build more toll roads … that’s something we are waiting for,” said Standard Chartered economist Fauzi Ichsan in Jakarta, a city where traffic and heavy rains can lead to four-hour commutes.

Indonesia’s investment chief Gita Wirjawan told Reuters there was no point making cars if there were no roads, and building infrastructure could not stay as just rhetoric.

The problem is not only in Jakarta. Cities such as Balikpapan in coal-rich Borneo are now full of new sports utility vehicles.

The government aims to get 800 km of toll roads built by the end of its term in 2014, though infrastructure analyst Pandu Anugrah at Bahana Securities in Jakarta sees just half of this being realized — still a sharp improvement if it happens.

The focal point is the Trans-Java toll road, which would cross the archipelago’s main volcano-studded island to aid the country’s economic growth through improving trade.

However, it was due for completion in 2009. Wrangling over land acquisition means construction on some sections may not start until 2013. The collapse this year of a new road being built to Jakarta’s main port is symbolic of efforts so far.

Inadequate transport infrastructure in the archipelago, from a lack of good roads and railways to a deadly air and shipping safety record, has long been a deterrent to attracting investors.

Now, with demand from a youthful population for consumer products booming and the government clamouring for foreign firms to use commodities from metals to cocoa to manufacture higher-value products locally, investors such as private equity firms are eyeing infrastructure as an investment opportunity.

Indonesia’s President Susilo Bambang Yudhoyono, under pressure over the slow pace of action so far, plans to increase infrastructure spending by 28% next year to $13.6 billion, to build roads, bridges and new airports.

A law to speed up land acquisition for infrastructure is also expected.

“There are three main issues that we face in the toll road industry: land acquisition, land acquisition, and land acquisition,” Frans Sunito, the chief executive of the country’s top toll builder Jasa Marga, told Reuters.

“We’re like a racing car waiting for its track to be built.”

But Finance Minister Agus Martowardojo’s main priority is not to blow his budget as he hopes for an investment grade sovereign rating next year, which would drive down his borrowing costs.
Mr. Martowardojo admits the state can only fund 35% of $140 billion of infrastructure needs in the next five years, leaving it reliant for two-thirds on public-private partnerships — a ratio many feel is not achievable given the investment risk.

“The thousands of km of planned roads are not happening because the investment is not being released,” said Malcolm Llewellyn, chairman of the British Chamber of Commerce and a long-term Indonesia resident. “Sorting out the roads is essential for us all and it will take 10 years.” – Reuters

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