OPPORTUNITIES AND CHALLENGES IN INDONESIA

Of late, a growing number of foreign developers have ventured into Indonesia. Here are some updates from some research houses.

In 2018, the total construction projects market (Building and Civil projects, excluding Oil and Gas) is predicted to increase slightly by 3% compared to 2017. This compares with a rise of 3% as well for 2017 over the previous year. The total Indonesia construction market is expected to reach IDR 451,337 billion in 2018 of which 65% would be in the Civil sector and 35% in the Building sector, according to BCI Asia.

HKTDC meanwhile reports that Indonesia is one of the key beneficiaries of the Belt & Road Initiative, with China said to have invested up to US$87 billion in developing the country’s infrastructure, including some US$6 billion on the 142-km Jakarta-Bandung rail link, the country’s first high- speed rail service.

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For its part, China views Indonesia as a key partner in the BRI, largely thanks to the strong existing trade ties between the two countries and Indonesia’s strategic positioning along the BRI’s proposed maritime routes.

On the other hand, BMI Risk Summary as of Q2 2018 lists the following:
1. POLITICAL RISK
Indonesia’s long-term political outlook is hampered by weak government spending, high levels of poverty and a heterogeneous society.
2. ECONOMIC RISK
Indonesia’s short-term economic risk is constrained by an inefficient tax system and reliance on resource revenue.
3. OPERATIONAL RISK

Persistent underinvestment in infrastructure and pervasive corruption remain crucial obstacles to improving the operational risk outlook, and these issues must be addressed if Indonesia is to succeed in attracting much-needed foreign investment. Indonesia’s labour market is beset by challenges including strict regulations as well as poor educational attainment impact.

“In terms of land ownership, foreigners cannot effectively own land in Indonesia in both urban and rural settings. They can obtain formal rights to use the land for a certain period for purposes such as mineral expropriation, agriculture, building and commercial purposes by forming a legal entity (company) incorporated according to Indonesian law and domiciled in Indonesia. Businesses can purchase apartments and office space in Indonesia valid for a period of time, if various stringent stipulations are complied with. It still remains a difficult and time onerous process,” says the HKTDC report, quoting from various sources.

Despite the challenges, ITE Build & Interiors forecasts the following by 2030:

a. It will be become the 7th largest economy in the world
b. 71% of population will be in cities producing 81% of GDP
c. 113 million skilled workers needed
d. US$1.8 trillion market opportunity in consumer services, agricultural, resources and education.

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