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

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

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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

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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

6.8

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PHL VNM IDN THA MYS SGP

470 500 600

800

1000

0

200

400

600

800

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2009 2020 2030 2040 2050

3.6 4.5

5.5

0

1

2

3

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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

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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

124 225 240 288 346

847

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2,477

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1,000

2,000

3,000

4,000

5,000

6,000

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8,000

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

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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