It could be argued that Indonesia is a symbol of both the attractiveness and potential minefields of Asian markets when it comes to infrastructure investments. No one can doubt the country’s ambition to press ahead with a programme of development that is bound to turn heads. Equally, it has enough hidden dangers to warrant investors treading carefully
The potential prize for investors is a rich one indeed, and that’s why we have the country so high in our ranking. Recent fuel subsidy cuts have given the government a greater ability to throw its weight behind its infrastructure programme. Indonesia already had an attractive regime for renewable energy – now it is turning its attention to an array of other sectors including ports, airports, roads, dams, irrigation networks, power plants and industrial parks. The investment opportunity is estimated at around $500 billion over the next five years.
Furthermore, Indonesia has been making tangible progress as it seeks to create a more investor-friendly environment. For one thing, it has sought to tighten up its land acquistion laws in order to create a more streamlined process. It has also been working with the Asian Development Bank to hone its public-private partnership (PPP) framework. Particularly vital work has been done around helping to ensure the bankability of projects and in the provision of guarantees.
But while the government has expressed its wish to see the private sector play an active role, whether the private sector takes it up on the offer to the extent desired may hinge on how significant the downsides are perceived to be (and, more to the point perhaps) whether the known risks can be satisfactorily mitigated. Among these are question marks over the judicial system, as well as doubts over whether procuring authorities have the necessary experience and expertise.