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(Last updated: 31 Jul 2007)
Trends and opportunities
The market
This profile incorporates two sections: Transport and infrastructure; and building and construction.
1) Transport and infrastructure
In Indonesia, the transportation sector is controlled by the Department of Transportation and Telecommunication, which is subdivided into Directorates General of Sea, Air and Land Transportation.
Indonesia’s substantial infrastructure needs will inevitably drive strong growth in the longer term, but in the short term will mainly be generated from projects funded by the multi-lateral lending agencies, foreign government aid and foreign private investors.
Roads
Funding for road development, upgrading and maintenance comes from the central government with the lower levels of government receiving allocations for their road programs from the central government. Indonesia's bus fleet has depleted significantly due to increases in fleet maintenance and spare parts costs.
Funding for development of the road system is derived from three sources:
- Taxation
- Foreign development assistance, especially soft loans
- User-pay toll roads
Beyond road maintenance there is also an interest in upgrading roads through widening and improving flow and safety mechanisms through traffic lights, road markings, kerbing and drainage.
The government has stated publicly the desire for greater private sector participation in toll-road operation.
Airports
Air transportation in Indonesia, particularly the scheduled domestic air transport has shown significant growth in the last two years.
Airport facilities will be improved at 12 airports, which function as hubs and at 13 airports, which function as spokes. Runway facilities will also be improved at locations that service flights for remote areas and other airport terminal facilities will also be upgraded.
Flight safety facilities and air traffic control upgrades will include the installation and rehabilitation of communication, air navigation and electrical equipment.
Funding for airport projects is predominantly sourced through multilateral funding agencies.
Railways
Railway transportation is only available in Java and Sumatra Islands. The Indonesian Government has plans for railway development. PT Kereta Api Indonesia is the state-owned railway enterprise providing services in Indonesia (mainly Java and parts of Sumatra).
Shipping and ports
Indonesia has approximately 1300 shipping companies. Most of them are agencies of international shipping companies.
A number of ports will expand the capacities of their container terminals by optimising the use of their berths. To increase the capacity of ferrying between islands 41 new ferry links and 60 river terminals will be constructed. A further 25 ferry links and 17 river terminals will be renovated. Mapping activities will be increased to increase servicing of river systems.
To improve access to water transport in Eastern Indonesia, innovative new ships, trucks and water buses will be brought into operation. Increased use of roll-on, roll-off transport ferries, which can carry goods, vehicles and passengers, is anticipated.
Port privatisation, container port, and fishing port developments - the privatisation program is implemented through the Ministry of State Owned Enterprises. The Ministry of Maritime Affairs and Fisheries coordinates fishing port development.
Environment
There are 14 industrial sectors subject to strict implementation of wastewater pollution control in Indonesia. Recent trends towards global standards have led export-oriented companies to seek global accreditation of their products (ie. ISO14000, eco-labelling). Investment patterns demonstrate the continuing commitment of multinational companies to environment management.
The Ministry of Settlement and Regional Infrastructure and the Ministry of Marine Affairs and Fisheries are pursuing a wide spectrum of environmental management activities in urban infrastructure development and marine environment.
The infrastructure project management issues are cross-sectoral, including forestry, agriculture, mining, environment and communications. All major projects in those sectors require environmental impact assessment (locally known as AMDAL), which leads to inter-departmental coordination.
International community pressures are focused mainly on sustainable and environment-friendly developments. These urban development/infrastructure projects encapsulate water supply, solid waste management, human waste disposal, village improvement programs, urban drainage, institutional strengthening and training.
The International Monetary Fund and other international funding agencies (eg. the World Bank, Asian Development Bank) factor these issues into their funding pre-requisites.
2) Building and construction
The continuous growth of the building and construction industry is being generated by improved Indonesian macroeconomics, an increased number of infrastructure projects, and a better business climate. The projects include transportation development, infrastructure facilities for drilling activities, oil and gas, office building, and housing development.
While a wide range of building materials ranging from basic inputs, through cladding materials and paints, to structural components are available in Indonesia, the growing demand for higher quality materials and faster construction times has resulted in substantial imports of equipment and materials.
The housing sector is still likely to dominate the construction sector over the next five years and focused on affordable housing.
To meet population demands, the Indonesian Government has estimated an average annual housing requirement of 850,000 units over the next 20 years. While Real Estate Indonesia (REI), the industry association for housing contractors, and the government play an important part in home construction; together they account for only eight per cent of houses built. Individual owner/builders account for the remaining 92 per cent.
The majority of housing units built are located in Java. Since the early 1990s, land shortages in Jakarta have resulted in the development of very large satellite township projects (mini towns) on the fringes of Jakarta in rural parts of Bogor, Tangerang, and Bekasi (Jabotabek). These self-contained mini town development projects usually include a mixture of residential, office, hospital, hotel, retail and educational building construction over hundreds of hectares, and are developed over a lengthy period.
Construction of office blocks commenced in Jakarta in the 1970s and has since spread to other cities including Surabaya, Bandung, Semarang, Medan, and Ujung Pandang. Jakarta remains the centre of business activity and has a dominant share of office space.
Currently, there are 154 industrial estates throughout Indonesia being developed in stages. Only 40 per cent of the total land allocation is ready for development of industrial buildings. The existing level of idle capacity is expected to limit the demand for new construction in the manufacturing segment of the industry.
Opportunities
There are opportunities across all fields of transport/infrastructure and construction in Indonesia for Australian providers of products and services. These include:
- Airport infrastructure products and services
- Railway infrastructure products and services
- Road maintenance
- Toll-road construction (eg. sub-contracting) and operation
- Seaport development
- Engineering services
- Environment (eg. training and ISO14000 accreditation services, consulting firms, equipment and spare parts – pumps, aerators, mixers, blowers, diffusers, and wastewater treatment chemicals)
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