Saturday, October 28, 2006

Indonesia Country Report

The Indonesian government is moving away from a centralized system of decision-making in favor of decision-making at the regional level.

The construction industry has played an important role in terms of the economic, social and cultural development of Indonesia, but has declined significantly as a percentage of the national GDP following the Asian currency crisis began in 1997. Employment by the construction sector has also dropped following the Asian currency crisis.

The Indonesian government has taken several steps to revitalize the construction industry. The government enacted Construction Service Law No. 18 in 1999 and Government Procurement Policy No. 80 in 2003 in an attempt to increase the competitiveness of the Indonesian construction industry both domestically and abroad. The Indonesian government also created the Construction Service Development Board (CSDB) in order to boost competitiveness in the construction sector, taking its cue from CIDB Malaysia. The CSDB conducts research, provides skills training, and regulates licensing within the construction industry. It also provides protection for workers in the construction industry and for foreign construction firms.

The Indonesian construction industry continues to suffer from a shortage of capital and skilled workers. In addition, foreign-owned firms control the Indonesian construction market. In spite of these obstacles, several Indonesian firms have successfully bid on road and hotel projects in ASEAN member nations. Indonesian firms are also involved in developing new construction technology.

Many Indonesian construction firms are faced with a significant gap in capital funds and technology when compared with foreign-owned construction firms. However, domestic construction firms are actively looking for opportunities to collaborate with foreign business partners in order to better position themselves for the future.

Indonesia holds great potential as a construction market. The regions of Sumatra, Kalimantan, Sulawesi, and Papua have been identified as prime targets for future construction investment due to a lack of existing infrastructure. In 2003, the potential market for construction in Indonesia was estimated at 156 trillion rupiah.

The Indonesian government is interested in promoting harmonization of construction skills throughout Asia and Australia. Furthermore, it is actively seeking to collaborate on exchange projects with construction service companies and professional associations. Other areas of focus include joint training programs and apprenticeships with foreign construction service companies and industry organizations. (Summary, 9th Asia Construct)

Macro Economic Review

Indonesia has a stable economy which is expected to achieve 4.2% economic growth in 2004 and 6% growth in 2005. Increased investments are anticipated due to the low interest rates of recent years. The economy is likely to experience a rapid recovery, fitting right in with the global economy.

Construction projects—excluding roads, bridges, railway tracks, airports, seaports, and bus terminals—had been reduced since the 1997 economic crisis, but went on the upswing from 1999 to 2004. In 2003, construction projects were up 15% over the previous year. Under the new regime, expanded efforts toward infrastructural and public housing development are expected to boost the construction industry and employment. The latent construction market for 2004 was valued at about 30 trillion rupees (about \405 billion), reflecting a growth rate of 6%. Human resources are being cultivated for the development of the construction industry. The Construction Law and National Building Code ensure the maintenance of Indonesia’s technological standards as well as the quality of its structures.
The adoption of policies to expand and develop the construction industry by the central and local governments can improve the productivity of the developing construction industry and contribute to their economic growth. In 1999, the government established the National Construction Services Development Board (CSDB) and began working to develop the industrial sector through industry-government partnerships. The new regime of Susilo Bambang Yudhoyono is still adhering to the policies of the previous administration and working in collaboration with the CSDB to improve the construction industry to equip it to drive the country’s economic growth. The government and CSDB hope to establish organizations that are needed by companies, engineers, and skilled workers with regard to human resource development, technological innovation, and capital cooperation. These activities are expected to ensure a level of capacity building that will allow Indonesia to compete in global economic structures like the ASEAN Framework Agreement on Services (AFAS), the ASEAN Free Trade Area (AFTA), the World Trade Organization (WTO), the General Agreement on Trade in Services (GATS), and the Asia-Pacific Economic Cooperation Conference (APEC). (Summary, 10 th Asia Construct)