Indonesia, a nation of 15,000 islands in the Indian Ocean, is in the midst of a massive sea change. Local government plans to upgrade existing ports and build a handful of new ones to address increased traffic, bureaucracy, and infrastructure issues. However, due to the scale of this plan, the public sector is encouraging the private sector and foreign investors to participate in the project.
International interests support the merits of this project, specifically the expansion of Indonesia’s ports already in existence. “This [expansion] is extremely important, not just for the connectivity of Indonesia’s islands but also to bring down logistical costs and raise competitiveness,” said Sarvesh Suri, Country Head for International Finance Corp.
For the region’s largest economy, the quality of Indonesia's ports doesn't measure up. They rank a low 53rd on the World Bank’s Logistics Performance Index. In response, Indonesian President Joko “Jokowi” Widodo said the government plans to spend the U.S. equivalent of $429 billion on infrastructure initiatives over the next five years, dubbing it the “Sea Toll Road” or “Ocean Highway."
Widodo plans to subsidize the initiatives with a portion of the nation’s fossil fuel fund. However, the government still requires over $7 billion for port infrastructure upgrades alone; a number Widodo hopes will come in the form of foreign investment.
Funds from Foreign Sources
Edimon Ginting, Deputy County Director at the Asian Development Bank in Indonesia, states, “Since the need is massive, the government will need a workable partnership with the private sector to meet the rapidly increasing trade volume.”
The government has not released any names, but entities involved include shipping lines, banks, investment funds, and private equity firms. Japanese investors are also rumored to have an interest in supporting Japanese companies operating in Indonesia.
Well Timed Funding
The proposed plan and subsequent funding interest come just in time to keep the island nation's maritime trade relevant in international commerce. Because most of Indonesia’s ports remain outdated-- some as old as 130 years-- they are unable to respond to increased traffic from globalization.
A look at PortVision’s vessel tracking service shows that port congestion is rampant in the region. Port congestion exacerbates the nation’s struggle with skyrocketing dwell time (the elapsed time between unloading a container from a vessel and leaving the port). An increase in dwell time leads to higher costs for those depending upon the ports for transportation of goods. The higher costs incurred then result in either escalating retail prices or companies taking their business elsewhere in the region.
The success of Indonesia's maritime overhaul would indeed determine the nation’s global influence in the years to come as well as provide a case study for how/ how not to upgrade ports and infrastructure to keep up with global demand.