As many already know, Indonesia has established the new Indonesia sovereign wealth fund (SWF) known as the Indonesia Investment Authority with an initial capital of about USD 1 billion. The initial capital was sourced from their state budget. After this, the government would increase this capital to USD 5 billion. The USD5 billion would comprise USD2 billion in cash from their state budget and the remaining USD3 billion would be in the form of shares issued by their State-Owned Enterprises (SOEs) and other state assets.
With the creation of this SWF, Indonesia would be able to provide more options for investors to buy into the country. There are already many ways to invest in Indonesia right now, for example, through partnership with local partners, purchasing state securities, shares and also through online platforms. We can see that the country is really trying very hard to open up, to attract foreign investment and they are trying to achieve this by providing as many investment channels as possible.
So, after attracting these capital, where will the funds go to?
That’s the most important question.
Well, it is expected that the government would be using the capital to improve the transport infrastructure throughout the entire country. This would comprise items such as toll roads, ports and airports. Once the country recovers from the Covid19 pandemic, travelling and transportation might be able to pick up and they want to be able to leverage on the transport links to spur even more growth.
If so, we could expect the likes of Jasa Marga, Waskita Karya and Hutama Karya to be actively involved in the progress. At the moment, there are talks that the Indonesia Investment Authority might take over a certain percentage of the ownership of 4 toll roads from Waskita Karya.
The four sections are Pemalang-Batang (60%), Krian-Legundi-Bunder-Manyar (99.82%), Cimanggis-Cibitung (90%), and Waskita TransJawa Toll Road (39.50%). In fact, Waskita Karya has revealed that they could be planning to divest its ownership in up to 9 toll roads with a value of around USD786 million.
Indonesia has thousands of islands and more than 200 million people reside mainly in Java. There’s a lot of potential business opportunities to be unlocked if the central and local governments plus the private sector, are able to work together, to improve the country’s transport connectivity.
Transportation of goods and people would be so much easier. Goods and services would be able to reach parts of Indonesia that were previously inaccessible. When trade and businesses improves domestically, people would also have more alternate residential locations to choose from.
Currently, road transport is the most commonly used system. In 2020, it was estimated that Indonesia’s road system has about a total length of 550,000 kilometres. To put things into context, Finland is about 6 times smaller than Indonesia but Finland has about 10 times more islands than Indonesia.
Given Finland’s geographical complexity, Finland was still able to pull off building a total road length of about 450,000 kilometres. Based on my modelling, if Finland is about the same size as Indonesia, Finland would have built about 2 million kilometres of total road length. If my modelling holds true, this means that Indonesia currently only reached about 25% of their potential total road length.
On the flip side, this means that Indonesia still has 75% more growth potential in their total road system. At the moment, Indonesia targets to build about 2,500 km of new toll roads in the 2019–2024 period.
Certainly there’s room for more but they mustn’t overlook the sustainability aspects of these project.
Remember, Mr. Gates said in his book “How to avoid a Climate Disaster” that concrete contributed to about 6% of worldwide carbon emissions. It’s a great book, do get a copy of it. I booked mine the moment he said he planned to write that book. It reads like a basketball coach’s gameplay for basketball players and everyone has to play their part in order to pull off avoiding a climate disaster.
Read the reviews about this book here. It’s really amazing. No worries, I’m not sponsored by the guy. My views are truly my own.
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