Infrastructure investment will unlock Indonesia’s logistics potential—report

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Jakarta_from_35th_FloorIndonesia’s logistics and forwarding sectors stand poised for impressive growth over the next five years—if the government commits to its pledge to pour huge investments in infrastructure development, according to a new Transport Intelligence (Ti) report.

The new government needs to remove obstacles to investment in its transport and trading infrastructure to realize its enormous economic and logistics potential, according to Ti’s latest report “Indonesia Transport & Logistics 2015—A New Dawn?”

The paper said Southeast Asia’s biggest economy, which lags behind its competitors in the region in most rankings in logistics performance, could improve its position if the new government of President Joko “Jokowi” Widodo follows through on its promises to fund new transport and infrastructure investments and attract private investors and operators.

“Ti believes that if the country’s logistics performance could be improved by boosting investment, Indonesia’s low land and labor costs, huge domestic market and easy access to neighboring ASEAN markets could make it a highly attractive location for manufacturers seeking alternatives to China,” said Michael King, Ti’s head of operations in Asia. “This would have huge benefits for all sectors of the logistics and forwarding business.

“However, if the new government does not follow through on its pledges to push through business-friendly reforms, then Indonesia’s economic and trade growth is likely to underwhelm.”

Ti said that with vigorous investment in infrastructure, the total forwarding market in Indonesia could increase by a compound annual growth rate (CAGR) of 14.7% over 2013-2019. The contract logistics market could increase by 14.7% over the study period, while the combined domestic and international express market could be worth EUR9.236 billion by 2019, up from just EUR2.923 billion now.

Indonesia’s air and ocean forwarding markets could rise to 11.5% and 16.9%, respectively.

“Low hanging fruit for the new President in terms of trade facilitation and logistics performance includes customs reform, encouraging adoption of a national single window and easing the process of setting up a business in Indonesia,” said King. “Land acquisition also urgently needs examining.”

But Ti said the game changer is infrastructure development. For much of the last decade, Indonesia’s ports, railways, airports, and roads have been neglected. The privatization of transport has stalled, starving the sector of investment and leaving inefficient state-owned enterprises in monopolistic positions that further discourage private operators from entering the market.

“If ‘Jokowi’ can address these failings then domestic and international trade and logistics demand across all verticals will rapidly accelerate,” it added.

Photo: Serenity