Executive Summary
Indonesia’s construction industry achieved lower-than-expected growth rates in the first quarter of 2011, prompting us to downwardly revise our full-year real growth forecasts for the sector to 6.3% in 2011 (previously 7.4%). We believe that this weaker growth is due to the rising cost of inputs and the fact there has been no resolution with regard to problems with regulatory issues in the construction sector. While the rate of inflation is likely to ease in the second half of this year, regulatory issues are unlikely to be resolved quickly, and this could have ramifications for the growth potential in the construction sector over the long term. Nevertheless, construction activity, driven by investment into transport and energy infrastructure, as well as industrial construction related to the country's growing mining sector, is expected to be relatively robust between 2012 and 2015, averaging 7.3% per annum.
Reference
Indonesia Infrastructure Report Q4 2011, © Business Monitor International Ltd.
Monday, August 22, 2011
Sunday, August 07, 2011
Indonesia Infrastructure Report Q3 2011
EXCEUTIVE SUMMARY
BMI View: Indonesia’s construction industry has been experiencing exceptionally high levels of inflation over recent years; however, despite this trend real growth has been high, averaging 7.6% per year between 2003 and 2010. Although these high levels of inflation are expected to continue over the forecast period (2010-2015), the construction industry is still anticipated to post high real growth, reflecting the high levels of anticipated activity. This is being driven by investment into transport and energy infrastructure, as well as industrial construction related to the country's growing mining sector. In 2011 we are forecasting construction industry growth of 7.4%, and between 2011 and 2015 we are forecasting growth to average 8.1% per year.
Key factors that will facilitate growth include:
�� The Indonesian government is looking at issuing Islamic bonds to meet its financing needs. In January 2011, Bloomberg reported that the finance ministry had proposed to the Indonesian shari'a board – Majelis Ulama Indonesia – that revenues from new road and rail projects (due to be built over the next three years) should be used to repay Islamic bonds.
�� In December 2010, Japan signed a Memorandum of Cooperation (MoC) with Indonesia for the development of around US$24bn worth of infrastructure projects in the Jakarta Metropolitan Priority Area (MPA). However, the recent devastation wrought by the Tohoku Pacific earthquake that hit Japan on March 11 2011 has raised significant uncertainty about the future destination of Japanese investment and the project could now be delayed.
�� In March 2011, the Indonesian government announced that it may offer 16 infrastructure projects worth US$32bn to investors in April 2011. These 16 projects are to be offered under a public private partnership (PPP) framework and would focus on a wide variety of infrastructure developments; ie toll roads, bridges, railways, seaports, power plants, water treatment facilities and cruise terminals. However, only five of the 16 projects are currently ready for investment.
Indonesia’s business environment remains a downside risk for investors. Although the Indonesian government is working hard to attract private investors, there is still an underlying threat of corruption and a lack of transparency in infrastructure tenders. The biggest concern is that Indonesia appears to be regressing in its fight against corruption, with a raft of proposals – that if approved – would undermine current anti graft laws. This culminates in a score of just 55.6 out of 100 for infrastructure business environment.
Reference
Indonesia Infrastructure Report Q3 2011
BMI View: Indonesia’s construction industry has been experiencing exceptionally high levels of inflation over recent years; however, despite this trend real growth has been high, averaging 7.6% per year between 2003 and 2010. Although these high levels of inflation are expected to continue over the forecast period (2010-2015), the construction industry is still anticipated to post high real growth, reflecting the high levels of anticipated activity. This is being driven by investment into transport and energy infrastructure, as well as industrial construction related to the country's growing mining sector. In 2011 we are forecasting construction industry growth of 7.4%, and between 2011 and 2015 we are forecasting growth to average 8.1% per year.
Key factors that will facilitate growth include:
�� The Indonesian government is looking at issuing Islamic bonds to meet its financing needs. In January 2011, Bloomberg reported that the finance ministry had proposed to the Indonesian shari'a board – Majelis Ulama Indonesia – that revenues from new road and rail projects (due to be built over the next three years) should be used to repay Islamic bonds.
�� In December 2010, Japan signed a Memorandum of Cooperation (MoC) with Indonesia for the development of around US$24bn worth of infrastructure projects in the Jakarta Metropolitan Priority Area (MPA). However, the recent devastation wrought by the Tohoku Pacific earthquake that hit Japan on March 11 2011 has raised significant uncertainty about the future destination of Japanese investment and the project could now be delayed.
�� In March 2011, the Indonesian government announced that it may offer 16 infrastructure projects worth US$32bn to investors in April 2011. These 16 projects are to be offered under a public private partnership (PPP) framework and would focus on a wide variety of infrastructure developments; ie toll roads, bridges, railways, seaports, power plants, water treatment facilities and cruise terminals. However, only five of the 16 projects are currently ready for investment.
Indonesia’s business environment remains a downside risk for investors. Although the Indonesian government is working hard to attract private investors, there is still an underlying threat of corruption and a lack of transparency in infrastructure tenders. The biggest concern is that Indonesia appears to be regressing in its fight against corruption, with a raft of proposals – that if approved – would undermine current anti graft laws. This culminates in a score of just 55.6 out of 100 for infrastructure business environment.
Reference
Indonesia Infrastructure Report Q3 2011
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