Infrastructure report Indonesia

Activity in Indonesia's construction industry has returned robustly in the second quarter of 2011, bringing real growth for the sector to 6.36% year-on-year in the first half of 2011, in line with our 2011 full-year forecast of 6.3%. However, the lack of improvement in Indonesia's business environment and the weakening global economy will continue to pose significant risks to Indonesia's infrastructure and construction sector in 2012 despite the vast opportunities on offer. Nevertheless, construction activity, driven by investment into transport and energy infrastructure, as well as industrial construction related to the country's growing mining sector, is expected to be relatively robust between 2012 and 2016, averaging 7.2% per annum. 

Key factors that will facilitate growth include: 

In July 2011, Three state-owned Chinese companies, China Building Civil Constructions, Changjiang Waterway Engineering Bureau, and China Foundation for Desertification Control, had send officials to indicate their serious intent to invest in East Java, signed a memorandum of understanding for several infrastructure projects amounting to around US$3bn. This move once again highlight the robust interest companies from stagnant domestic markets have for Indonesia. 

In August 2011, Malaysian company Markmore Labuan had signed an agreement with Prodexim, a company owned by the South Sumatran provincial government, for the construction of a toll road in South Sumatra, Indonesia. The 137km road, requiring an investment of IDR7.5trn (US$882mn), will connect Kayu Agung in Oki with Betung Banyuasin. This investment highlights foreign interest in the sector which is largely dominated by domestic companies. 

In September 2011, the Jakarta administration had finally announced that it is aborting its US$630mn monorail project, a project that had originally started in 2004. The project, which started in 2004, failed to move forward due largely to the lack of financiers. The capital city has since move towards the development of a separate urban railway system. 

Indonesia’s business environment continues to pose downside risks for investors. Although the Indonesian government is working hard to attract private investors, there is still an underlying threat of corruption and a lack of transparency in the tendering process. The biggest concern is that Indonesia appears to be regressing in its fight against corruption, with a raft of proposals - that if approved - would undermine current anti graft laws. This culminates in a score of just 56.7 out of 100 for infrastructure business environment.


Business Monitor International
Source :http://www.marketresearch.com/Business-Monitor-International-v304/Indonesia-Infrastructure-Q1-6680228/