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Indonesia To Build New Capital City - Opportunities For Foreign Investors

On January 18, 2022, Indonesia’s Parliament passed the Capital City Bill into law meaning the construction of the country’s new capital can begin, ahead of the planned relocation from Jakarta starting in early 2024 to East Kalimantan province.

Indonesia’s new capital, which was first announced in 2019, is estimated to cost over US$35 billion to construct. The government has also just announced the name ‘Nusantara’ meaning archipelago – to be the new capital’s name. It is meant to underline Indonesia’s official national motto of Bhinneka Tunggal Ika (Unity in Diversity).

The government will transform the new capital into a low-carbon superhub that will support healthcare and technology sectors as well as promote sustainable growth beyond the island of Java.

But the new capital needs major investment for its development and this presents ample opportunities for foreign businesses. From the US$35 billion required for construction, the government will fund just under 60 percent, with the remainder to come from the private sector. President Joko Widodo has assembled a team of political and business heavyweights as part of the new capital’s steering committee. These include Abu Dhabi Crown Prince Muhammad bin Zayed Al Nahyan, SoftBank CEO Masayoshi Son, and former British Prime Minister Tony Blair.

What opportunities are there for foreign investors?

The new capital, Nusantara, will sit on a 632,850-acre site, roughly four times larger than Jakarta, and as such, this ambitious project presents opportunities for investors from a wide range of industries.

The sheer scale of the development is hard to imagine. More than 200,000 hectares of inland forest, or roughly three times the size of New York City, will be transformed into Indonesia’s new administrative center.

Nusantara will require soft and hard infrastructure, such as for the development of urban utilities, toll manufacturing, seaports and airports, and network and communications, among others. This will be achieved gradually, starting from the presidential palace, the central government headquarters, housing districts for government workers, and the headquarters for the military and police personnel.

Smart city development

Nusantara aims to be a ‘smart city’, which encompasses information, communication, and technology to improve operational efficiencies and provide a better quality of government services.

The government plans to utilize the internet of things (IoT) to deliver connected solutions to the public from monitoring traffic flows to energy conservation. Some 75 percent of the planned site of the capital city will be green open space, of which 65 percent is protected area and 10 percent is for food production.

Softbank has offered up to US$40 billion in investments and expertise in artificial intelligence and advanced technologies.

Maritime infrastructure

When he first entered office in 2014, Widodo announced plans to turn Indonesia into the epicenter of Indo-Pacific maritime activity through the Global Maritime Fulcrum (GMF) master plan.

The plan involved investing more than US$6 billion to expand ports in the world’s largest archipelago and reduce logistic costs for investors. The government also hopes this would encourage the establishment of industrial production outside of Java, particularly towards the eastern regions of the country where large industrial activity remains low. And yet, Indonesia’s eastern regions cover 64 percent of the country.

The flagship sea toll program

The sea toll program is the government’s flagship project under the GMF with the aim of reducing the price disparity of basic goods between the main islands in Indonesia and the smaller isolated islands, especially those in the east.

Since its inception in 2016, the number of transit ports has increased from 31 to 114 in 2021 and the number of vessels from six to 32. Sea cargo has also increased from less than 100,000 tons to more than 350,000 tons.

Under Indonesia’s positive investment list, airports and seaports are now open to 100 percent foreign ownership, from the previous 49 percent. In addition, airport-related services and seaport facilities are also now open to 100 percent foreign ownership.

Renewable energy

Indonesia needs enormous private capital to achieve its renewable energy mix of 25 percent by 2025; it currently stands at 14.7 percent.

With the new capital being built from scratch, there is plenty of potential to develop new renewable projects. This is despite the provinces of Kalimantan being renowned for their coal, gold, oil, timber, and palm oil exports.

East Kalimantan province does possess huge potential for clean energy with research from the Ministry of Energy and Mineral Resources showing that the combined sources of wind power, biofuels, solar power, hydropower, and other renewable energy sources can reach 20 GW. Solar power comprises 65 percent of this total while hydroelectric power, 26 percent. Another potential renewable energy source in the province is in the form of geothermal energy.

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