Like most nations, the rising giant of south-east Asia, Indonesia, needs to develop and upgrade its infrastructure. With 253 million people and growing following close to a decade of economic expansion averaging 6 per cent a year, Indonesia is on a steady path toward possibly becoming the world’s fourth largest economy by 2035-40.

Without significant infrastructure investment, this growth will be put at risk. Australia, with our skilled infrastructure investment houses and pool of capital, is uniquely placed to contribute and benefit.

Australia should be involved for three reasons: to be a good neighbour, because we have globally recognised infrastructure expertise and we have a large pool of capital to invest and secure returns. We can work alongside Indonesian government and financial institutions.

Jakarta is a metropolis that has managed to fit about 28m people into an area approximately one third smaller than metropolitan Melbourne. Greater Jakarta (sometimes known as JABODETABEK to include Jakarta, Bogor, Depok, Tangerang and Bekasi) is well known for its ‘macet’ (traffic jams). If regular gridlock isn’t enough to test the patience of residents and visitors alike, the metropolis is sometimes subject to ‘banjir’ (flooding), which can happen in the space of hours after heavy rain. Costing an estimated Rp 16 trillion ($1.6 billion) in lost productivity and GDP forgone during calendar year 2013 alone.

Jakarta’s twin problems of traffic congestion and flooding highlight the need for upgraded infrastructure. Jakarta, like the rest of Indonesia, risks becoming a victim of its own success unless its infrastructure assets can be upgraded and expanded to match its population growth.

Growing pains: The rapid urbanisation of modern Indonesia

The Big Durian, as locals sometimes affectionately call Jakarta, is not the only Indonesian metropolis facing population growth and growing pains as a result. The populations of Indonesia’s fourth, sixth, seventh and eleventh cities — Bekasi, Tangerang, Depok and Makassar — are growing by 3.4 per cent, 2.3 per cent, 4.2 per cent and 2.7 per cent a year respectively, far above the national population growth rate average of 1.49 per cent annually. Meanwhile, government infrastructure expenditure across the entire nation failed to match the concurrent rise in demand, representing just under 5 per cent of GDP, down from a peak of 9.2 per cent in 1995.

Clearly, governments at both the national, provincial and local (regency) levels simply cannot fund the construction of new roads, rails, ports, floodways and other associated investments on their own. Without investment, Indonesia’s growth will be much more constrained.

Jakarta’s MRT: an example

Jakarta is the largest city in the world without an integrated mass rapid transit system.

After decades of planning and being nearly shelved during the 1997-98 Asian Financial Crisis; construction of the capital’s MRT network finally began in January 2014, with stage one set to stretch 15.7 kilometres from the southern outskirts of Jakarta to the heart of the city. Expected to be operational in 2018, costing Rp 1.2 trillion ($1.12bn) and funded by the Japan International Cooperation Agency, it forms part of what will be a 110.8km network covering the lengths of Greater Jakarta upon completion in 2027. The MRT also represents Indonesia’s single biggest infrastructure project in decades.

 Indonesia is hungry for Australian superannuation capital and infrastructure investment

Taking into account Indonesia’s increasingly favorable demographics, relative political stability and democracy and sound macroeconomic policies, it offers infrastructure opportunities for Australia’s institutional investors. As a growing market facing a significant infrastructure deficit of Rp 52 trillion ($5.2bn), our superannuation funds are well placed both geographically and investment wise to offer the capital necessary to work with Indonesia’s government and finance houses to build our nearest neighbor into the economic powerhouse it appears set to become.

While many issues remain, with average annual GDP growth of 6 per cent a year and population growth at 1.49 per cent overall, the demand for new roads, rail, ports and floodways to serve Indonesia’s metropolises acts as a strong counterbalance to any downsides.

by John Donovan –