Indonesian President Joko Widodo is targeting almost $6 billion in projects to expand ports across the world’s biggest archipelago, where investors are deterred by logistics costs that amount to a quarter of the economy.
Mr Widodo, known as Jokowi, plans to expand five ports on the nation’s main islands, seeking to reduce shipping delays and boost trade in a country that would stretch from New York to London, Coordinating Minister for Maritime Affairs Indroyono Soesilo said in an interview this week. The government will also cut red tape that keeps yachts and cruise liners away, he said.
Improving maritime infrastructure is one of Jokowi’s main strategies to reinvigorate Southeast Asia’s No 1 economy, which is growing at the slowest pace since the global financial crisis. At his inauguration on Oct 20, Jokowi likened himself to a “captain trusted by the people” and said it was time for Indonesia to return to “Jalesveva Jayamahe,” the naval motto meaning “in the seas, we will triumph.”
“We would like to provide good logistics access from Sabang to Merauke,” Mr Soesilo said in a Nov 4 interview with Bloomberg TV Indonesia, referring to the country’s westernmost and easternmost cities.
The government needs 70 trillion rupiahs ($5.8 billion) to expand five major ports in north Sumatra, Jakarta, East Java, South Sulawesi and Papua to serve large vessels and build feeder lines for smaller ports, said Mr Soesilo, without giving a timeframe to complete the projects.
The maritime coordinating minister is a new role created by Jokowi, and Mr Soesilo still lacks his office building. He oversees the ministers of transport, tourism, energy and fisheries.
Jokowi has met investors from China, Africa and the US who want him to build ports, the minister said. China plans a $16.3 billion fund to finance infrastructure linking its markets to three continents as President Xi Jinping pushes forward with his plans to revive the centuries-old Silk Road trading route, according to officials who participated in drafting the plan.
To fund his infrastructure ambitions, the Indonesian president has identified ways to boost government revenue, including improving tax collection and reducing the country’s budget-constraining fuel subsidies.
Jokowi could fund his port projects in just one year by shaving about a quarter off the government’s planned $23 billion spendings for fuel subsidies in 2015. Finance Minister Bambang Brodjonegoro has said the subsidies will be cut in the coming weeks, though the size of the reduction has yet to be decided.
The sea makes up two-thirds of the territory of Indonesia, and Jokowi wants to use it to achieve economic growth of more than 7% in three years, the president told Bloomberg Television in an earlier interview.
“Ports and sea transportation will become key for economic growth,” Jokowi said in the September interview at Jakarta’s Tanjung Priok port, which handles two-thirds of the country’s trade and is one of the five targeted for expansion. “First of all, we’ll be able to push our goods for export. And then of course that will be supported by industrial areas.”
Foreign investors have poured almost $4 billion into Indonesian stocks this year as they expect Jokowi to replicate his success as the capital’s governor in cutting red tape and kick-starting transport infrastructure projects. Container shipper PT Samudera Indonesia’s shares have nearly tripled since the July election, while cargo transporter PT Soechi Lines plans to list on the Jakarta exchange.
The high cost of transporting shrimp from eastern Indonesia to processing centres on Java island makes them too expensive to export, while it’s cheaper to import oranges from China than ship them from Borneo to Java, according to the World Bank. Its Logistics Performance Index ranked Indonesia 53rd out of 160 countries this year, down from 43rd in 2007 and behind Thailand, Malaysia and Vietnam.
Logistics costs equate to about 24% of Indonesia’s gross domestic product, an enormous tax on the economy, according to the World Bank.
Improving ports and setting up regular container ship visits would cut dwelling times, bring industry to eastern Indonesia, and may encourage farmers to produce more, said Henry Sandee, a trade specialist at the World Bank in Jakarta.
“Trade follows the ships,” Mr Sandee said. “The basic idea is a direct link – say once a week – between the main ports.”
Questions remain over whether the ships can carry enough cargo to make these routes profitable, avoiding the need for further subsidies, Mr Sandee said.
Indonesia, looking for fund inflows as it struggles to narrow a persistent gap in its current account, plans to waive visas for more countries and expedite the entry process for boats visiting islands, such as Bali, Komodo and Borneo.
The country lags its neighbours in attracting foreign tourists due to its lack of infrastructure and the difficulty in obtaining permits. The government intends to shorten the permit process for foreign cruise ships to one day from about three weeks, Mr Soesilo said.
“We want to invite cruise ships, tourist ships, yachts to easily cruise in Indonesia,” he said.