Bottleneck to Tapping Indonesia’s Economic & Social Potential; Infrastructure Development
Those who have visited Indonesia should be well aware of the lack of infrastructure development across the country. Those who have been in urban centers (such as the capital city of Jakarta, Bandung or Surabaya) must have had the experience of being stuck in traffic as the number of road users (mostly cars and motorcycles) outpaces available road surface.
Meanwhile, those who have been to the more remote (rural) areas of the country must have experienced frequent power outages, or, have come across seriously damaged roads that hamper the journey.
While for a tourist it can be an interesting adventure, it is a different story for those who need to face these obstacles each day. Yes, most people in Indonesia are used to having limited infrastructure development in the proximity of their homes (both in terms of quantity and quality). However, lack infrastructure across the nation is a serious matter that the country’s undermines economic and social development.
Well-developed connectivity (by land, sea, air or digital technology) is in fact crucial to nurture an efficient national economy. For example, logistics costs (which are the costs incurred when moving products) will fall when connectivity is well developed. This will make businesses more competitive, allow lower retail prices for consumers and attracts foreign investment. Hence, overall, it encourages economic growth (considering transportation costs are the largest component of logistics costs, inadequate infrastructure has a significant negative impact by raising transportation costs, hence pushing up logistics costs accordingly).
A stable and sufficient power supply is also required to encourage rapid economic growth. In case there are frequent power outages in a specific region, then industrial processes and output are disrupted. Moreover, in these times of ‘learn from home’ amid the COVID-19 pandemic, it is crucial that pupils and students have access to stable electricity and Internet.
Meanwhile, social development across Indonesia is undermined when children have difficulty traveling to schools in the more remote areas (due to the lack of roads and bridges), or, when people who need health services cannot reach the public health center (in Indonesian: Puskesmas) or hospital.
Whether it is ‘hard’ infrastructure (which involves matters such as roads, airports, and electricity) or ‘soft’ infrastructure (for example: social welfare and healthcare), Indonesia is having a hard time pushing for structural and rapid development.
It also shows in Indonesia’s ranking in the World Economic Forum (WEF)’s Global Competitiveness Report. In the latest edition (2019) Indonesia ranks 72nd in terms of infrastructure development (out of 141 countries). It is a mediocre score and also means that Indonesia lags behind most of its regional peers in terms of infrastructure development (essentially implying that businesses based in Indonesia – most likely – miss out on competitiveness compared to foreign counterparts who are based in countries higher up in the ranking).
Read the full article in our September 2020 report. You can order the report by sending an email to info@indonesia-investments.com or message to +62(0)8.788.410.6944 (incl. WhatsApp).
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