At the end of last January, the Indonesian Parliament approved a bill (“Investments in Nusantara“) giving the green light to President Joko Widodo -Jokowi-‘s plan to move Indonesia’s capital from its current location in Jakarta on the island of Java to East Kalimantan on the island of Borneo. With this plan, which has roots dating back to Presidents Kusno Sosrodihardjo -Sukarno- and Susilo Bambang Yudhoyono, Jokowi aims to address long-delayed aspirations such as resolving economic inequality, rectifying territorial imbalance, and relieving Jakarta of the burden of being the capital. It is undoubtedly a significant challenge but also a compelling opportunity for all types of investors, both domestic and foreign.
To carry out the relocation to the new capital -Nusantara-, following similar changes made by Malaysia -Putrajaya- and Myanmar -Naypyidaw- in the past, over 200,000 hectares of land have been reserved, and more than $35 billion has been budgeted for future investments in Nusantara, with the Indonesian government covering 60% and the private sector the remaining 40%. The new capital, to be built in five phases starting in 2022, will require various infrastructures such as developing public services, ports, airports, or digital networks aimed at creating a smart, green, and sustainable city that encompasses information, communication, and technology to enhance operational efficiency and effectiveness of official bodies.
With that said, what opportunities arise for foreign investors in general, and specifically for Spanish investors? As Indonesia is an archipelago of over 17,500 islands -hence the name Nusantara, “archipelago”-, the first sector to reference is necessarily maritime infrastructure, in line with Jokowi’s plans to transform Indonesia into the epicenter of maritime activity in the Indo-Pacific through the Global Maritime Fulcrum plan. This plan foresees over $6 billion in investments in Nusantara for ports to reduce current logistical costs and offers the added appeal that both ports and airports can now be 100% owned by foreign investors, instead of the previous limit of 49%.
Another sector requiring a significant injection of private capital in Indonesia is renewable energies, aiming to increase their share from 14.7% to 25% by 2025. In this regard, it is worth noting that East Kalimantan is a province where combined resources of wind energy, biofuels, solar energy, hydroelectric power, and other renewable energy sources could reach up to 20 gigawatts according to the Ministry of Energy and Mineral Resources. With the construction of a new capital from scratch, the opportunities for Spanish companies to participate in projects of this nature are evidently clear given their undeniable technical and technological capabilities and the existing potential known in some countries in the region.
Regarding the “Smart Cities” sector, it is essential to consider that Indonesia is transitioning towards a “Smart Nation” and is part of the Asean Smart Cities Network, hence its interest in making its new capital smart as well. This implies that investments in Nusantara are expected to be built based on intelligent solutions and technologies encompassing urban planning, environment, mobility and transportation; and including “Smart Energy”, “Smart Building”, “Smart Waste Management”, “Smart Healthcare”, or “Smart Infrastructure”, among other aspects related to the concept of “Smart Cities”. Similar to the two previous sectors, Spanish companies with international presence and leadership can play a significant role in this area.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
