Ambitious plans to build Indonesia brand new capital city are falling apart

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Sabtu, 11 Feb 2023 07:06 0 151 PPU

With its gleaming offices, electric buses and economically productive residents, Nusantara is the quintessential modern metropolis–smack in the middle of a vast rainforest.

At least, that’s what the government brochures depict. What they don’t show quite so clearly is where Indonesia will find US$34 billion (S$46 billion) to build a new capital city from scratch.

With just 18 months left in his final term, President Joko Widodo is still aggressively courting international investors to finance 80 per cent of a project that he hopes will elevate Indonesia’s economy, resettle millions of people from rapidly sinking Jakarta–and cement his own legacy.

The only road leading to Semoi village, in the regency of Penajam Paser Utara, in East Kalimantan Province. PHOTO: ST FILE

More than three years after Nusantara was first announced, not one foreign party–state-backed or private–has entered into a binding contract to fund the project, according to people familiar with the matter. While some potential investors have signed letters of intent, the people said, there’s no firm commitment to actual spending.

Mr Widodo is determined to see the project through, but the situation has left him impatient and worried, said the people, who declined to be named as discussions are private. When asked for comments, the president’s spokesperson referred to a speech on Dec 2, where Mr Widodo said that interest in investing in the new capital’s core area was 25 times oversubscribed. However, the speech didn’t specify whether binding contracts have been signed.

“Foreign investors are super cautious as the project is still at the initial stage,” said Dedi Dinarto, lead Indonesia analyst at strategic business advisory firm Global Counsel. Years of delays due to the Covid-19 pandemic have left potential backers hesitant to commit to the passion project of a president who will be out of office long before a new city could ever be completed.

Much of the early development work has focused on preliminaries like roads and bridges, Mr Dinarto added, and “investors may still be uncertain about how they can make profits from investing in such basic infrastructure.”

Even if construction goes smoothly, any rewards for investors will be at least as long in coming.

“Many countries are either facing recession or are already in recession because of the global economic slowdown,” said Jakarta-based David Sumual, PT Bank Central Asia’s chief economist. For the next couple of years, he pointed out, even the richest countries are likely to “prioritise their own domestic agenda.”

Indonesia must also battle its long-standing reputation as an economic underachiever.

Despite abundant supplies of coal, metals, palm oil and rubber, the Southeast Asian nation’s growth rate–averaging 4.3 per cent over the past decade–lags behind neighbours like Vietnam and the Philippines. Corruption, cronyism and a slow-moving bureaucracy have all been blamed for the nation’s repeated failure to meet its lofty targets.

The Indonesian president has ordered his Cabinet to complete existing infrastructure projects by 2024, and to prioritise permits for strategically important efforts like Nusantara.

However, critics fear the new capital faces a similar fate to the country’s Mass Rapid Transit project, which faced almost 30 years of delays due to land acquisition issues and funding constraints. A similar slate of problems means a vast hydropower project in Borneo’s jungle, launched eight years ago, is yet to see a single dam built.

And while the government always planned to pay for the first of Nusantara’s five construction phases itself, state resources have been stretched by ongoing costs like education and the fight against rising inflation. Funding for the rest, meanwhile, remains elusive.

Mr Widodo has practical reasons, as well as symbolic ones, for building a new capital.

Spread across Java island’s northwest coast, the city of Jakarta – home to more than 10.6 million people and 16.5 per cent of Indonesia’s gross domestic product as of the third quarter this year – is overcrowded, polluted and sinking so fast that one-third of it will be submerged by 2050 if left unchecked.

Moving Indonesia’s administrative center to Borneo island, about 1,200km miles further northeast, is a response to that impending crisis.

Indonesia hopes to move up to 1.9 million people to Nusantara by 2045, with some civil servants moving as early as 2024 if all goes to plan. Thinning out the crowd in Jakarta should relieve the pressure on resources and allow that city to continue to operate as the country’s business hub, according to the government.

Nusantara “is not only a symbol of our nation’s identity, but also represents our nation’s development,” Mr Widodo said in August 2019, when he announced the site of the new city. “It’s for the sake of realizing an equitable and just economy.”

It’s also intended to help propel the former Dutch colony to high-income status by 2045, the centenary of declaring its independence. By then, the government hopes Nusantara will host more than 4.8 million jobs in sectors like technology, petrochemicals and renewable energy.

For the president himself, Nusantara is a chance to make history.

“Moving the capital was an old idea since the first president, Sukarno. I am the one who is executing this,” he said in an August interview with Bloomberg. “I’m confident this is a good concept with a good return on investment,” Mr Widodo added. “I am sure many investors will come in.”

Back in January 2020, SoftBank Group Corp. founder Masayoshi Son was one of the very few early foreign investors who expressed interest in the proposal for an environmentally friendly city supported by artificial intelligence. He later joined Nusantara’s steering committee, along with Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan and former UK Prime Minister Tony Blair.

But when Covid arrived, all sorts of moonshot projects–not just Nusantara–were swept off most investors’ radars.

A handful of firms in countries including China, South Korea, Malaysia and the United Arab Emirates have signed letters of intent, one person familiar with the matter said. However, those documents aren’t binding and the firms can still back out.

None of this means the new capital won’t happen.

In January, Indonesia passed a law paving the way for relocating its seat of government to Borneo.

“There is relatively broad political support for the idea,” said Peter Mumford, Southeast Asia practice head at Eurasia Group. “The question is less whether it goes ahead or not–seems it will–but rather how fast and what the level of ambition is.”

But whatever the price, moving capitals isn’t easy. New cities like Brasilia or Naypyidaw, Myanmar often take decades to find their feet. Relocating people – who need jobs, schools and healthcare facilities at a bare minimum – is a particular challenge.

Should the president get his move right, the benefits for Indonesia–and Jokowi himself–will be significant.

But the reality of Nusantara is likely to be a long way from his near-term, high-tech vision. BLOOMBERG


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