Indonesia’s president Joko Widodo announced in August 2019 that the Indonesian government is moving its national capital from Jakarta on Java Island to another location: East Kalimantan. As such, East Kalimantan will become the new capital of Indonesia.
Once the plan is approved, the Indonesian government will use approximately US$33 billion to build a smart and green city in 2021. At least 1 million government staff will also be moved to this new site by 2024. A large portion of the investments, about 80% of the total costs, will be funded by state-owned entities with the rest funded by the government.
This move and development open up a lot of business and opportunities to Indonesia. In this article, Cekindo provides you with some insights about the move and how it will affect your business in Indonesia.
THE REASON INDONESIA MOVES ITS CAPITAL
Indonesian President Jokowi said that the move of the capital is absolutely necessary as Jakarta has become overloaded by being the centre of government, finance, business and trade. Therefore, causing the city to develop too quickly, overpopulated with 10 million people and heavily polluted.
The issues have cost Jakarta an estimated US$9 billion a year in economic losses. In addition, this crowded mega city is susceptible to natural disasters such as flooding and earthquakes.
To relieve the burden that Jakarta is carrying, the President states that moving the capital from Jakarta will help address the inequality.
LOCATION OF THE NEW CAPITAL
About 1,000km away from Jakarta is East Kalimantan, the new location in which the government will move the capital to. According to the proposed plan, the new capital will be located in the geographic center of Indonesia, between North Penajam Paser and Kutai Kartanegara.
East Kalimantan is considered the most developed area in Kalimantan compared to five other provinces because of these reasons: access to clean drinking water and developed airports in Samarinda. What is more, East Kalimantan is not exposed to severe natural disasters and environmental risks.
By moving the capital, East Kalimantan will be further developed into a smart and greener city. That means the development projects will bring in more investments and attention from other existing development agendas such as China’s Belt and Road Initiative and Japan’s Partnership for Quality Infrastructure.
IMPACTS ON BUSINESSES IN JAKARTA
Jakarta, together with the Island of Java, accounts for over half of the country’s GDP. The capital move to East Kalimantan will not stop the growth of Jakarta. As Indonesia’s biggest economic hub, Jakarta will develop continuously despite the US$33 billion capital move. For the next 10 years, the government will inject about US$40 billion in Indonesia for various urban regeneration projects.
The US$40 billion will be put into projects in Jakarta such as mass transportation development, water pipes extension and new sewage system construction. As a result of the development, sectors such as manufacturing, property and services are expected to prosper.
OPPORTUNITIES FOR FOREIGN INVESTORS
Previously, development projects in East Kalimantan were extremely scarce. Therefore, the move of capital to East Kalimantan from Jakarta creates many opportunities in soft and hard infrastructure for foreign investors. For example, toll manufacturing, urban development, environmental consulting, utilities, and any sectors relevant to building a smart city.
In addition, maritime infrastructure development in East Kalimantan such as port construction will increase industrial productivity in the eastern region of Indonesia. This eastern Indonesia covers 64% of Indonesia’s total land area.
As one of the busiest waterways in the world, Indonesia plans to build 41 new ports in line with the sea toll program, including Papua and Maluku — with the potential to create new shipping lanes and new economic hubs in eastern Indonesia. Hence, the new trade routes will be beneficial to export and import in East Kalimantan due to its abundant commodities such as gold, coal and oil.
In addition to the fossil fuels that East Kalimantan mainly relies on, the Indonesian President mentioned that the new capital will also be used for renewable energy utilisation for electricity. This will create enormous foreign investment opportunities in several sectors, for instance, solar energy, wind farms, hydroelectric dams, and biomass generators.