INDONESIA 2050

INFRASTRUCTURE:
Unlocking Indonesia's Potential for Future Growth Beyond 2050

ROADS

RAILWAYS

PORTS

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

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 |

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

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 Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

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.

2009, Road Network Coverage (%)

120 100 80 60 40 20 0 IDN MYS CHN THA PHL IND 25 30 40 41 67 112

2012, Port Quality Infrastructure, Select Countries

Scoring Range: 1 (underdeveloped) 7 (most efficient by international standards)

8 6 4 2 0 3 3.4 3.6 5.7 4.7

6.8

PHL VNM IDN THA MYS SGP

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.

2009-2050, Expansion of Indonesias Total Road Network

Thousand (000s) Kilometers 1200 1000 800 600 400 200 0 2009 2020 2030 2040 2050

2011-2050, Improvement of Indonesias Quality Port Infrastructure

Scoring Range: 1 (underdeveloped) 7 (most efficient by international standards 7

1000 800 470 500 600

6 5 4 3 2 1 0 2011 2025

5.5 3.6 4.5

2050

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, reevaluation and completion.

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

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
8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 VNM PHL SGP MYS THA IDN IND RUS BRA CHN 847 124 225 240 288 346 1,848 1,858 2,477 7,318

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 4

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

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, Indonesias transport infrastructure condition is relatively limited and it deters optimal economic growth (OECD, 2012). After the 1998 Asian Financial Crisis, Indonesia has been under-investing in infrastructure. Thus, the overall quality and quantity of transport infrastructure is inadequate, when compared to the current level economic of growth. Indonesia is lacking in many areas in roads, railways and sea transport infrastructure. According to the World Economic Forums (WEF) Global Competitiveness Report (Schwab, 2011), Indonesias transport infrastructure is deficient in comparison to other countries in Southeast Asia. Indonesia currently ranks 76th out of 140 nations in the report. Moreover, the WEF placed infrastructure as the 3rd most problematic factor for doing business in the Indonesia. Ground Transport Infrastructure: Roads Ground transportation infrastructure is important to facilitate the movement of goods, services and passengers from and within geographical locations (Kaplan et al., 2004). Indonesias road infrastructure quality and capacity is one of the lowest in the region. Indonesia has a landmass of about 1.9 million square kilometers, which about half of Indias. However, current road network coverage is severely limited (Hui et al., 2011). Indonesias roads are mostly concentrated in the Island of Java. Other islands such as Sumatra, Kalimantan, and Sulawesi still have limited road coverage. Indonesias total road network coverage stands at 25% in 2009. This figure is marginally lower than other ASEAN members such as Malaysia (30%), Thailand (67%) and the Philippines (67%). Furthermore, there is only 690 kilometers of highways, compared to the total 473,000 kilometers total road network length. Highways represent a mere 0.15% of the total road network. 2009 Road Infrastructure Indicators, Select Countries
Road Coverage (%) Roads ('000 km) Land Area ('000 km)

India Philippines Thailand China Malaysia Indonesia

112 67 41 40 30 25

3320 202 212 3860 100 473

2973 300 517 9570 329 1905

Source: Standard Chartered Research 2011

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

Indonesias road network also suffers from inadequate maintenance. Only 51% of Indonesias roads are rated medium or good condition (OECD, 2010; Sri Hartati et al., 2012). The quantity and quality of Indonesias road infrastructure causes various bottlenecks. Traffic jams are prevalent in urban areas and industrial districts which causes delays in commercial activities. Ground Transport Infrastructure: Railway Indonesias railway system is one of the oldest modes of transportation which dates back to the countrys colonial history. Indonesias railway system has been declining in regards to development and utilization for the past 10 years. In 2003, there were 5,324 kilometers of railways in Indonesia. But by 2009, there were only about 4,500 kilometers of active railways. Many railroad networks in the country are no longer operational (World Bank, 2013; Ministry of Transportation, 2012) Indonesias current railway system mainly serves passenger transportation (Hidayat & Arjadi, 2009). Java is the only region that has comprehensive railway integration. Most major cities and provincial areas from West Java to East Java are well connected though an intermodal transportation system. Nonetheless, railway networks in Sumatra are still partially integrated. In Sumatra, railway systems are only available in North Sumatra, West Sumatra and South Sumatra. Unfortunately, these networks only connect cities within each of the province. They do not serve as inter-provincial transport. Meanwhile railroad networks in Kalimantan, Sulawesi and Papua, are non-existent. 1998-2009 Rail Network, Select Countries
Kilometers/Km
6000 5000 4000 3000 2000 1000 0 KOR IDN MYS THA VNM

1998 2009

Source: Ministry of Transportation 2012, The World Bank 2012 The Indonesia Infrastructure Initiative (IndII, 2010a & 2010b) considers that the surging economic and population growth in many areas within Indonesia would require expansions in its railway system. However, the condition of Indonesias railway is insufficient to satisfy current needs of Indonesias growth. When compared to regional peers, Thailand and Korea seem to have been expanding their railway networks extensively in the past decades. Indonesia, on the other hand, shows a decline.

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

Sea Transport Infrastructure: Ports Being an archipelagic nation, ports play important role in connecting the thousands of islands available in Indonesia. Currently, there are over 1,700 ports in Indonesia, which are divided by 111 commercial ports, 1000 special purposes ports, and 600 non-commercial ports. However, Indonesias port infrastructure in general still lacks quality and capacity (OECD, 2010). The quality of Indonesias port infrastructure is one of the lowest when compared to similar regional peers. The WEFs Quality of Port Infrastructure (QPI) is an assessment of a nations port facilities, based on business executives interviews. The QPI is based on scores ranging from 1 (underdeveloped) to 7 (most efficient by international standards). Indonesias QPI stands at 3.6, it is much lower than Thailand and Malaysia, while is only marginally higher than Vietnam and Philippines. The issue of low port infrastructure quality is prevalent across the nation. For example, the Jakarta Container Terminal is one of the best performing terminals in the country, yet it is still ranked as one of the poorest performing ports in Southeast Asia (Ray, 2008). 2011, Quality Port Infrastructure, ASEAN 5 plus Singapore
Scoring Range: 1 (underdeveloped) 7 (most efficient by international standards)

2011 Liner Shipping Connectivity Index, ASEAN 5 plus Singapore

Maximum Value in 2004 = 100

Singapore Malaysia Thailand Indonesia Vietnam Philippines

6.8 5.7 4.7 3.6 3.4 3

Singapore Malaysia Vietnam Thailand Indonesia Philippines

105.02 90.96 49.71 36.7 25.91 18.56 Source: The World Bank 2013

Additionally, the Liner Shipping Connectivity Index (LSCI) measures how connected countries are to the global shipping network. The measurement is based on five components of the maritime sector: number of ships, container-carrying capacity, maximum vessel size, number of services, and number of companies that deploy container ships in a countrys ports. In terms of LSCI, Indonesia is ranked 4th among the ASEAN 5 members. Malaysia ranks highest, while the Philippine is the lowest. However, Vietnam seems to offer the most compelling case within the past few years. Vietnam has improved from 12.8 in 2004 (the lowest among ASEAN 5), and is now scored at 49.71 (the 2nd highest among ASEAN 5 members).

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

III.

INDONESIA 2050: A VISION

Indonesia is expected to become one of the worlds leading economies in 2050. By 2030, economists assert that Indonesia will become a top-10 economy in the world, surpassing the GDP of Germany and the United Kingdom (Oberman et al., 2012; Rastogi et. al. 2013). To ensure Indonesias positive development, it is imperative for Indonesia to envision advanced and improved transport infrastructure by 2050. Indonesias Ground Transport Infrastructure by 2050: Roads By 2050, Indonesia should have a modern and integrated road network across the nation. The improved networks should enhance intra and inter-island connections, support commercial activities and passenger movements. For example, provinces, urban areas, industrial zones and regional hubs should be connected by high-quality highways and road networks, where bottlenecks are virtually non-existence. Indonesias road network coverage should increase to at least 65% in 2050. This means that Indonesias total road network length will reach to over 1 million km, about three times longer the current state. The quality of Indonesias infrastructure should be improved as well. By 2050, 90% of Indonesias roads quality should be rated as good. Expansion of Indonesias Total Road Network, 2009-2050
Thousand (000s) Kilometers 1200 1000 800 600 400 200 0 2009 2020 2030 2040 2050

1000 800 600 470 500

Indonesias Ground Transport Infrastructure by 2050: Railways Indonesias railroad networks should be integrated broadly among the major Islands. By 2050, we expect to see developments of trains across the nation. Java currently has the most comprehensive railway system. Thus, we envision that more trains will run in Sumatra, Borneo, and Sulawesi in future. It is projected that Indonesias population will be highly urbanized in the future as 71% of the population will be living in urban areas by 2030 (Oberman et al., 2012). A good railway system will serve as a means for interprovincial transport, as well as passenger service within metropolitan regions. Indonesia should also have a high speed railway connection for passengers and rapid transit systems for metro access. Most developed economies such as Japan, France and Germany have extensive high-speed rail systems which link major cities. For future development, Indonesia should consider building high-speed railways from Jakarta to Surabaya or from Medan to Palembang.

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

In regards to freight trains, Indonesia should have a connected railway system which caters to growing industrial centers, urban areas and mining sites, connecting shipping hubs between airports, seaports and other areas in the region. For example, freight train networks should form linkages between MP3EIs proposed industrial districts. Specialized commodities train would serve to connect mining areas in with shipping terminals in Kalimantan and Sumatra. Properly developed freight railways are one of the most effective means of transporting bulk goods from one place to another due to their economies of scale, low fuel consumption and speed. Indonesias Sea Transport by 2050: Ports In future, Indonesias port infrastructure should be world class. Each major region should have suitable ports to service domestic and international needs. We expect Indonesias inter-island and international connection to become highly integrated. Therefore, the country will be better connected into global commodity chains and production networks Currently Indonesias Quality of Port Infrastructure score is 3.6. We expect major improvements and upgrades in the next 30 years which should increase our ratings to beyond 5.5. As a maritime nation, Indonesias port infrastructure quality should surpass its regional peers. Improvement of Indonesias Quality Port Infrastructure, 2011-2050
Scoring Range: 1 (underdeveloped) 7 (most efficient by international standards) 7 6 5 4 3 2 1 0 2011 2025 2050

5.5 4.5 3.6

By 2050, Indonesia should have improvements in its port and shipping regulatory framework. Perhaps one area which can be refined is the cabotage law. Lifting cabotage law means that foreign shippers can ship goods domestically in Indonesia. Although it may affect the local shipping firms in its initial induction, in the future, lifting cabotage law should decrease the cost of shipping as competition drives price down (OECD, 2010). We believe that this method will allow local shippers to become more competitive. Funding Options for Transport Infrastructure Improvement Programs Developing Indonesias infrastructure would be difficult as it requires substantial amount of financing. Budget allocation for infrastructure development is currently less than 15% of the annual government expenditure. At this particular stage of development, infrastructure budget has to compete with other crucial expenditures such as education, oil subsidy, and interest payment. However, we cannot ignore the fact that a rapid transport infrastructure development is integral for Indonesias future economic sustainability. 9

Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

In the short term, Public-Private Partnership (PPP) is one viable option, to fund immediate development projects which have not received proper budget allocations from the government (OECD, 2010). Indonesia should consider in promoting better PPP initiatives by effectively coordinating investment programs between government bodies such as BKPM, Ministry of Public Works, Ministry of Transportation and potential domestic and overseas investors. In the medium term, Indonesia should slowly increase infrastructure development funds through its national budget (APBN), while maintaining high levels of PPP across existing infrastructure development programs. Finally, in the long run, Indonesia should have robust infrastructure budgets allocations, funded by excess government receipts from the growing economy.

IV.

PROPOSED MILESTONES

To achieve sustainable economic growth it is important that Indonesia plans its infrastructure development properly. This can be achieved by implementing a four-phased approach: The first phase will start from the present until 2020. This phase will focus upon strategic planning and the preparation for rapid implementation. The second phase, which will begin after 2020 until 2030, is the implementation period where Indonesia will rapidly increase its infrastructure development. During this phase, the majority of the suggested infrastructure projects will be in the various stages of completion or reaching maturity. Between 2030 and 2040 will be the third phase, which will consist of a re-evaluation and readjustment period based on then technological advancement and economic improvements in Indonesia. The fourth phase will focus on the completion of Indonesias advancement as a developed nation, along with the completion many flagship transportation projects by 2050.

The following set of tables shall conceptualize our proposed the milestones, which entails key actions and accomplishments that should be completed within the respective phases.

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Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

Proposed Milestone for Ground Transport Infrastructure: Road

Current to 2020
Develop a general strategic planning for road network improvements along with individual plan for each major island all the way to the year 2050 Commence road network improvement and expansion between critical industrial linkages in Java and Sumatra Improve and build new highways to ease congestion between major metropolitan areas Generate plan to further improve regulatory framework. Develop a continuous maintenance and road network improvement program Establish a robust and tangible plan to improve road network in Indonesia Improved road network and expanded the toll road network in Java and Sumatra, thus removing bottlenecks between major industrial areas Completion of a sustainable highway network which ease the congestion between the major metropolitan areas Improved regulations to promote better coordination between the central, regional, and municipal governments 60% of road network quality should be rated as good or better

T2020-2013
Expansion of overall road network, and construction of extensive highway network in Java and Sumatra Initiate the expansion of road network in Kalimantan, Sulawesi and West Papua Link major cities and industrial hubs (As per MP3EI) Target the completion of Selat Sunda (Java-Sumatra) bridge Continuously maintain good road condition across Indonesia

2030-2040 Reevaluation Period

Expansion of overall road network, and construction of extensive highway network in Kalimantan, Sulawesi and West Papua Initiate road network improvement projects in Indonesias minor islands Re-evaluate and adjust the road network expansion projects by anticipating new major population and economic centers across Indonesia in order to achieve competitive advantages against regional peers Continuously maintain good road condition across Indonesia

2040-2050 Maturity Period

Expansion of overall road network, and construction highway to cover all areas which cover lacking areas Target completion of exhaustive highway network which connects all Indonesias major cities and economic corridors Continuously maintain good road condition across Indonesia

Key Actions

Accomplishments

Achieve 600,000 km of total road network and fully integrated road network in Java and Sumatra with more highways Better road network integrations in Kalimantan, Sulawesi and West Papua, accompanied by concrete and further expansion plan Realization of road linkages based on MP3EI Completion of Java-Sumatra Bridge 70% of road network quality should be rated as good or better

Achieve 800,000 km of total road network and fully integrated road network in Kalimantan, Sulawesi and West Papua with more highways Improved road network coverage in the minor islands with higher priority Improved road network integration according to demographic transitions among major population and economic centers across Indonesia 80% of road network quality should be rated as good or better

Achieve over 1 million km of total road network which connect majority of all cities across Indonesia Completion of an exhaustive highway networks across Indonesia 90% of road network quality should be rated as good or better

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Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

Proposed Milestone for Ground Transport Infrastructure: Rail

Current to 2020
Strategically plan and initiate railway improvements in major areas based on economic and passenger needs in Java and Sumatra Generate plan to promote railway as alternative freight transport Identify and plan upon key population and production areas in Sumatra to be connected by railway network Plan and develop program to continuously improve and maintain the overall railway network quality Start initiatives to upgrade railway operation using advance train control system (ATCS) Enhance connectivity and increased railway passenger in Java and Sumatra economic corridors More efficient freights transportation cost due to economic of scale Establish concrete plan to expand railway network in Sumatra Achieve better train operation efficiency from increased quality and reliability Achieve better train scheduling and safety by using modern train control system

T2020-2013
Plan and initiate project to construct high-speed railway system to connect major cities in Java Target the completion of Selat Sunda (Java-Sumatra) bridge Target completion of rapid transit system within major urban areas in Java (Jakarta, Bandung, Surabaya) Initiate expansion of larger capacity railway network in Sumatra with focus upon commodity freights production areas and ports Strategically plan specialized railways system connecting major cities, ports and industry/commodity specific regions Faster and cheaper connectivity between major cities in Java Major efficiency improvement on freight transport between Java and Sumatra Completion of a sustainable rapid transit system, easing the congestion between the major metropolitan areas Creation of new economic corridors in Sumatra which focus on areas competitive advantage Develop railway system with air/sea freight terminal in Java and Sumatra, along with intermodal railway connections

2030-2040 Reevaluation Period

Re-evaluate railway improvement program by adjusting to current population and economic condition to ensure that railway quality is met while continued expansion is maintained Plan and initiate project to construct to railway system based which specialized upon economic and population needs in Kalimantan and Sulawesi. Plan and target completion of rapid transit system to remaining major cities in Indonesia based on anticipated major population center.

2040-2050 Maturity Period

Expansion of overall railway network to cover all major cities within major island across Indonesia Target completion of exhaustive high capacity railway system connecting all major cities, productions areas, and economic corridors across Indonesia.

Key Actions

Accomplishments

Improved overall railway network and achieve competitive advantage against regional peers, Specialized railways in Borneo and Sulawesi which specialized on local industry and commodities Completion of rapid transportation system in major population with higher priorities

Fully integrated railway system, which links industrial clusters and major cities. Development of high-speed railway system in Java-Railway, Light Rapid Transit - for major cities in Indonesia to improve competitiveness

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Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

Proposed Milestone for Sea Transport Infrastructure

Current to 2020
Commence project on already identified major ports to improve capacity, container ship size, and decreased turnover time Strategically plan and identify ports specific potential for industrial specialization Generate strategy and initiate projects to improve the connectivity between major ports and inland transportation services Consider deregulatory measures to increase competition of domestic shipping.

T2020-2013
Identify sets of key ports across Indonesia which will focus upon serving international markets (hub and spoke models) and start improvement projects. Link major cities and industrial hubs (As per MP3EI) thus establishing economic corridors across Indonesia Consider deregulatory measures to lift cabotage law Continue to improve overall port infrastructure metrics and continue initiatives to improve upon ports specialization.

2030-2040 Reevaluation Period

Assess if deregulatory measures have been successful Re-evaluate and adjust the sea port improvement initiatives by anticipating major industrial hubs across Indonesia to achieve competitive advantages against regional peers Continue to improve overall port infrastructure metrics

2040-2050 Maturity Period

Complete project on improving ports across Indonesia which are focused on local industry. Continue to improve overall port infrastructure metrics

Key Actions

Accomplishments

Increased capacity on existing international freight ports (Tj. Priok, Surabaya, Medan) Achieve a concrete plan to improve specific ports based on potential for industrial specialization More efficient transportation of goods to and from ports Improved competitive advantage bringing down overall shipping cost between domestic ports

Improved sets on new key ports which focus upon international shipping Completion of fully functional economic corridors as per MP3EI Greater domestic competition a further reduced in domestic shipping cost Improve Quality of Port Infrastructure (QPI) to 3.5 (on par with other SEA countries), and improve Liner Shipping Connectivity Index (LSCI) to at least 35

Either continuation with deregulatory policies or consider new strategies to further improved shipping efficiency Further development on port specialization based on the economic climate. Improve QPI to at least 4.5, and improve LSCI to at least 55

Achieved comprehensive sea transportation network across Indonesia. Improve QPI to at least 5.5, and improve LSCI to at least 80

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Permias Congress 2013

Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

Meraxa, Ticoalu, Sielski, Harinto

V.

CONCLUSION

In order for Indonesia to become one of the worlds economic powerhouses by 2050, comprehensive infrastructure improvements will be necessary. Currently, Indonesia under invests in its road, railways and ports; all of which are critical to robust economic growth. Our findings conclude that numerous flaws exist in Indonesias current infrastructure plans. Indonesia usually ranks among the lowest for most categories compared to Southeast Asian peers. Economic stagnation will occur in future given Indonesia continues to ignore the necessity to improve its infrastructure, Indonesias road network lacks comprehensive connectivity between major metropolitan areas, while cities suffer from severe bottlenecks and congestion. In addition, the overall road quality is rather poor, due to a lack of maintenance. Expanding the current road network in terms of capacity and total overall length is imperative. Similar to roads, the railway network also lacks connectivity between nodes of production and consumption. Railways are also important for the transportation of freight as they are highly efficient due to economies of scale. Furthermore, being primarily an island nation, maritime transport is the key to the economy success. However chronic underinvestment in ports has led to inefficiencies such as high shipping costs and increased delays for loading and unloading. In this project we have proposed numerous challenges which Indonesia will have to overcome. However we assert that it is possible for Indonesia as a country to achieve the goals outlined if it recognizes the urgent need for infrastructure reform. Although the proposals may seem demanding, other nations have already accomplished and exceeded similar milestones. To achieve these goals, Indonesia has more than thirty years, which is more than an ample amount of time to reform its current infrastructure through strategic planning and dedication. The result of enhancing infrastructure will provide Indonesia with a robust economic growth, while also providing a foundation for increased market dominance in Southeast Asia by 2050.

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Infrastructure: Unlocking Indonesias Potential For Growth Beyond 2050

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10. Kaplan, D. H., J. O. Wheeler, and S. R. Holloway. 2004. Urban Geography. John Wiley & Sons. 11. Limao, Nuno, and Anthony J. Venables. 2001. Infrastructure, Geographical Disadvantage, Transport Costs, and Trade. The World Bank Economic Review 15 (3): 451479. 12. Mellor, William, and Femi Adi. 2012. Indonesia Chases China As Middle-Class Consumption Soars. Bloomberg. http://www.bloomberg.com/news/2012-05-01/indonesia-chases-china-as-middle-classconsumption-soars.html 13. Oberman, Raoul, Richard Dobbs, Arief Budiman, Fraser Thomson, and Morten Rosse. 2012. The Archipelago Economy: Unleashing Indonesias Potential. McKinsey Global Institute. 14. OECD. 2010. OECD Economic Surveys: Indonesia. OECD Publishing. http://dx.doi.org/10.1787/9789264000000-en. 15. Porter, Michael E. 1998. Competitive Advantage of Nations. Free Press. 16. Porter, Michael E. 2006. Raising Indonesias Competitiveness. Harvard Business School. 17. Porter, Michael E. 2009. Improving Indonesias Competitiveness. Harvard Business School. Presentation to President Susilo Bambang Yudhoyono. 18. Ray, D. (2008), Indonesian Port Sector Reform and the 2008 Shipping Law, SENADA (Indonesia Competitiveness Development) Project, USAID, Jakarta 19. Rastogi, Vaishali, Eddy Tamboto, Dean Tong, and Tunne Sinburimsit. 2013. Asias Next Big Opportunity - Indonesias Rising Middle-Class and Affluent Consumers. Boston Consulting Group. 20. Schwab, Klaus. 2011. The Global Competitiveness Report 2011-2012. Geneva: World Economic Forum. 21. Sri Hartati, Enny, Ahmad Erani Yustika, Abdul Manap Pulungan, Eko Listiyanto, Ahmad Heri Firdaus, Imaduddin Abdullah, and Abra Puspa Ghanni Talattov. 2012. Efektivitas Fiskal, Percepatan Infrastruktur, Dan Intermediasi Perbankan. Kajian Tengah Tahun. INDEF. 22. The World Bank. 2013. World Development Indicators. http://data.worldbank.org.

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