Infrastructure Upgrades Sought in Push for Diversification

July 15, 2017, The Jakarta Post

With mounting calls for economic diversification, regional leaders are highlighting the importance of reliable infrastructure in bringing to life the governements dream of developing a massive downstream industry and giving significant added value to the country’s abundant natural resouorces.

The government is of the view that such measures are part of solution to strengthen the economy, which still relies heavily in natural resources, especially in commodity-producing regions such as those in Kalimantan.

Improved Infrastructure will allow economic diversification, local leaders say. Diversification needs time to take effect.

The government has advised these regions to boost integration and to diversify their economic growth sources to avoid the adverse effects of volatile global commodity prices. However, the absence of reliable infrastructure remians a major issue duscouraging investors from pouring their money into these regions.

“We still require infrastructure first,” East Kalimantan Governor Awang Faroek Ishak told reporters in the sidelines of a coordination meeting with Bank Indonesia (BI), the govenrment and Kalimantan regional administrations in Balikpapan, East Kalimantan, om Friday.

“If East Kalimantan has solid infrastructure to support land, sea, and air [transportation], our competitiveness will improve.”

Awang said his administration, for instance, was planning to build a toll road connecting the oil-rich region of Bontang and the Maloy Batuta Trans Kalimantan (MBTK) special economic zone (KEK) in Maloy. Once the road is completed, it will slash travel time between the two points from four hours to only one and a half hours.

More electricity would also be available in the coal-rich province if coal miners were willing to construct mine-mouth power generators, Awang added.’

“We need supporting infrastructure, such as roads and bridges as well as education and health facilities, sea ports and airports to support industrial estates,” he said.

The government has included North Kalimantan’s Tanah Kuning Industrial estate in the National Strategic Projects (PSN) list as a part of its program to develop 14 prioritized industrial estates outside Java to spread economic growth.

It will also build a hydro power plant with a capacity of 6,600 megawatt (MW), which, ince in operation in 2020, will electrify Kalimantan as a whole.

The administration, Irianto added, would focus in the power plant’s construction to ensure the project runs as planned.

“With a reliable power supply, everyone will surely come [to North Kalimantan],” he said. Today is closed-door meeting, attended by BI Governor Agus Martowardojo, Coordinating Maritime Affairs Minister Luhut Pandjaitan, Transportation Minister Budi Karya Sumadi and Deputy Energy and Mineral Resources Minister Arcandra Tahar, among other high ranking officials, concluded that economic diversification erfforts should focus on three main policies, the first being to strengthen locla basic infrastructure, human resource development and bureaucratic management.

The two remaining policies, meanwhile, adress the importance of industry downstreaming and extensification as well as the development of special economic zones and industrial estates.

To improve logistics, the government’s infrastructure development plan, for example, will aim to improve connectivity through, among others, the development of five hub ports, 19 feeder ports and more than 100 sub-feeder ports, in various regions.

in Kalimantan, infrastructure development will focus on Terminal Kijing seaport in West Kalimantan, Sebatik Airport in North Kalimantan, Tjilik Riwut in Central Kalimantan and Syamsuddin Noor airport in South Kalimantan.

It will also focus on the development of Tanah Kuning Industrial estate and international sea port.

Local administrations must support such efforts by continuosly streamlining investment procedures, Luhut said.

BI’s Agus, meanwhile, highlighted that economic diversification would take some time to take effect. However, he added that developments in tourism and fishery sectors, for example, would quickly help growth.

data from the Central Statistics Agency (BPS) shows that almost 25 percent of the country’s total exports – worth US$ 14.29 billion in May – came from mining, agriculture and oil and gas sectors. The remianing 75 percent was contrubuted by the manufacturing industry.

Indonesia’s dependence on commodities has made it more vulnerable to ecnonomic shock due to plunging commodity prices – as witnessed in 2015 when Indonesia’s economy expanded at the slowest rate in six years.

The impact of such dependence has been reflected in major commodity-producing regions, like East Kalimantan, whose economy contracted by 1.21 percent in 2015, while the national economy grew by 4.88 percent.

Once realized, the diversification measures will yield up to 0.4 percent in additional growth to the country’s gross domestic product (GDP), BI executive director for monetary and economic policy, Dody Budi Waluyo stated.

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