Indonesia 2050, Infrastructure: Unlocking Indonesia's Potential for Future Growth Beyond 2050 (Meraxa, Ticoalu, Sielski & Harinto, 2013)

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Paper Presented for the "Indonesia 2050 Student Paper Competition", Permias Congress 2013

Text of Indonesia 2050, Infrastructure: Unlocking Indonesia's Potential for Future Growth Beyond 2050...

  • INDONESIA 2050 INFRASTRUCTURE:

    Unlocking Indonesia's Potential for Future Growth Beyond 2050

    Paper Presented for the Indonesia 2050 Student Paper Competition Permias Congress 2013 | Cover Photo Credit Kartapranata G. | Permias Congress 2013 logo Permias Nasional | Buffalo Logo Indonesian Student Association (PERMIAS) Buffalo, The State University of New York |

    ROADS

    PORTS

    RAILWAYS

    Teuku Arckyansyah Arcky Meraxa Alex Brian Ticoalu Ted Sielski Annisa Dian P. Harinto

  • Permias Congress 2013 Infrastructure: Unlocking Indonesias Meraxa, Ticoalu, Sielski, Harinto Potential For Growth Beyond 2050

    2

    Preface

    This paper is submitted by the Indonesian Student Association (PERMIAS) Buffalo, University at

    Buffalo, The State University of New York, for the 2050 Paper Competition, which is organized by the

    2013 Permias Congress.

    About the Authors

    Teuku Arckyansyah Arcky Meraxa | tameraxa@buffalo.edu

    Arcky is a Ph.D. Candidate in Economic Geography & International Business at the University at

    Buffalo, The State University of New York. Arcky is currently working in his dissertation, which

    focuses on Indonesian firm network dynamics. His project and internship experience includes

    placements at J.P. Morgan, Deutsche Bank and Bank Mandiri. He is the former President and the

    current Senior Advisor for the Indonesian Student Association (PERMIAS) Buffalo.

    Alex Brian Ticoalu | aticoalu@buffalo.edu

    Brian is a Ph.D. Candidate from the Department of Geography with Geographic Information System

    (GIS) concentration at the University at Buffalo, The State University of New York. His dissertation

    explores the utilization of social network analysis to analytically measure research interest dynamics

    among geography faculties. His work experience includes several projects on improving science

    education and promoting healthy commuting behavior in the city of Buffalo, NY. Brian also holds

    M.S. degree in Industrial System Engineering and Six Sigma Black Belt certification.

    Ted Sielski | tedsiels@buffalo.edu

    Ted is a B.A./M.A. Combined Degree Candidate in International Trade and Commerce at the

    University at Buffalo, The State University of New York. For his masters thesis, Ted examines the role of social corporate social responsibility strategies for energy firms in Indonesia. In 2012, Ted

    conducted a field study in Indonesia, while working as a summer lecturer at STKIP Surya in

    Tangerang, West Java. After graduating, Ted hopes to start a career in Indonesia.

    Annisa Dian P. Harinto | adpratiw@syr.edu

    Annisa is an M.S. Candidate in Water and Wetland Resources at The State University of New York Environmental Science and Forestry, Syracuse NY. She is currently working on her masters thesis, focusing on management policy analysis on Jakartas coastal areas. Annisa is a staff at The Indonesian Ministry of Public Works (Kementrian Pekerjaan Umum). Her responsibilities include

    strategic planning and budgeting for infrastructure projects.

    Indonesian SA (PERMIAS) Buffalo is an official student organization under the International Council

    of the University at Buffalo's Student Association.

    Web: http://Permiasbuffalo.moonfruit.com

    350 Student Union

    University at Buffalo

    Buffalo, NY 14260

  • Permias Congress 2013 Infrastructure: Unlocking Indonesias Meraxa, Ticoalu, Sielski, Harinto Potential For Growth Beyond 2050

    3

    EXECUTIVE SUMMARY

    By 2050, Indonesia economists predict Indonesia to become 7th largest economy exceeding the GDP of

    Germany and the U.K., by 2030. The nation has huge potential for future growth from its current state.

    However, the poor condition of transportation infrastructure due to chronic underinvestment and poor

    maintenance has caused many problems. Indonesia suffers from various bottlenecks in trade, commercial

    activities, and also labor mobility. These issues hinder current economic growth, and will continue to

    impact the future growth potential if they are not addressed. Road and railway networks are one of the

    most under and undeveloped among Southeast Asian countries, port infrastructure is also inadequate

    when compared to similar countries.

    As a 2050 vision, Indonesia should become a developed nation with high quality transportation

    infrastructure servicing the economy. Indonesia should have modern road, and railway networks,

    associated with world class ports to promote intra, inter-island linkages and international trades.

    It is imperative that Indonesia adopts various milestones in order to seize economic opportunity. We

    propose a four-phased approach, consisting of periods for strategic planning, implementation, re-

    evaluation and completion.

    25 30 40 41

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    IDN MYS CHN THA PHL IND

    3 3.4 3.6

    4.7 5.7

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    PHL VNM IDN THA MYS SGP

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    2009 2020 2030 2040 2050

    3.6 4.5

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    2011 2025 2050

    2011-2050, Improvement of Indonesias Quality Port Infrastructure Scoring Range: 1 (underdeveloped) 7 (most efficient by

    international standards

    2009-2050, Expansion of

    Indonesias Total Road Network Thousand (000s) Kilometers

    2012, Port Quality

    Infrastructure, Select Countries Scoring Range: 1 (underdeveloped) 7

    (most efficient by international standards)

    2009, Road Network

    Coverage (%)

  • Permias Congress 2013 Infrastructure: Unlocking Indonesias Meraxa, Ticoalu, Sielski, Harinto Potential For Growth Beyond 2050

    4

    I. INTRODUCTION

    By 2050, Indonesia has the opportunity to become one of the worlds leading economies. Indonesias economy has been growing by about 6% for the past 5 years. Indonesia has done exceedingly well in

    comparison to other member of the Association of Southeast Asian Nations (ASEAN). Indonesias recent robust growth is led by a high level of domestic consumption, which is strongly supported by an

    increasing middle class (Irawan, 2010; Oberman et al. 2012). According to economic experts, Indonesia

    will soon to be on par with the worlds leading emerging markets, also known as BRIC nations (Brazil, Russia, India, China) (Mellor & Adi, 2012). In 2030, Indonesias is expected to have US$1.8 trillion market opportunities (Oberman et al. 2012). Furthermore, middle class consumers will continue to grow,

    exceeding 140 million people by 2020 (Rastogi et al., 2013).

    2011 GDP of ASEAN 5 and BRIC Countries

    US$ Billion

    Source: The World Bank 2013

    The current infrastructure condition in Indonesia is insufficient to support its current economic growth

    (OECD, 2010). Indonesia is the largest archipelagic nation in the world, consisting of five major islands

    (Java, Sumatra, Kalimantan, Sulawesi and West Papua) and thousands of smaller islands. Indonesia

    currently has uneven development retaining to infrastructure. Most of the current development is

    concentrated in the island of Java, while other major islands remain under and undeveloped. The case is

    also similar when it comes to transportation infrastructure. Indonesia suffers from a poor and inadequate

    transportation infrastructure, which limits the accessibility of intra- and inter-island movement of people

    and goods. In addition, this leads to reduced productivity, increased costs and high numbers of delays. If

    Indonesias transportation infrastructure development remains stagnant, it is likely that the nations future economic growth will be hindered (OECD, 2010).

    In this paper we will (1) analyze Indonesias current infrastructure focusing upon ground (roads and railways) and sea transport infrastructure, (2) investigate current infrastructure issues pertaining to

    development and implementation and lastly, (3) provide recommendations to strategically improve

    Indonesias infrastructure.

    Transport infrastructure has been proven to positively increase the speed at which economic development

    occurs (Straub, 2008). Good transport infrastructure enhances productivity (Albala-Bertrand &

    Mamatzakis, 2001), increases the marginal rates of return, promotes private investment, and increase the

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    1,848 1,858

    2,477

    7,318

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    2,000

    3,000

    4,000

    5,000

    6,000

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    VNM PHL SGP MYS THA IDN IND RUS BRA CHN

  • Permias Congress 2013 Infrastructure: Unlocking Indonesias Meraxa, Ticoalu, Sielski, Harinto Potential For Growth Beyond 2050

    5

    total volume of trade (Bougheas et al, 1999). The quality and quantity of transport infrastructure is also a

    critical determinant of transportation costs (Limao & Venables, 2001). Reducing transportation costs

    between Indonesias islands is a critical process in order to provide Indonesians with inexpensive products and services. By investing in capital expenditure projects such as, physical infrastructures

    including, roads, ports, and bridges, Indonesia can improve its competitiveness as an emerging nation

    (Porter, 2006 & 2009).

    II. CURRENT CONDITION OF INDONESIAS TRANSPORT INFRASTRUCTURE

    Today, Ind