It is odd that despite being an archipelagic nation, Indonesia does not have well-developed shipping infrastructure. In fact, it only has a handful of ports that can serve larger vessels while the vast majority are underdeveloped.
As intra-island trade increases amid economic growth in the major islands, the country will require larger ports. Thankfully, the government has recognized this and is embarking on a major initiative to expand existing ports and build new ones.
As a start, seaport operator Pelindo IV has set aside Rp 150 billion ($16 million) annually to improve the country’s ports, part of efforts to lure more investors to Indonesia. The plan is to upgrade 24 seaports in the eastern part of the country, starting with Rp 600 billion this year to improve seaports in the less-developed regions in Indonesia.
Not only will this help increase trade within the country, it will also accelerate the government’s Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) and boost economic growth in eastern Indonesia.
Under the MP3EI, Indonesia is grouped into six corridors . The master plan will lead to sustained economic growth and reduce the pressure on densely populated Java and to some extent Sumatra.
It has taken the government longer than expected to push such large scale infrastructure projects, but it’s better late than never. However, it must now push ahead and accelerate the implementation of the MP3EI to take advantage of the conducive investment climate.
With economic uncertainty in Europe intensifying and China headed for a sharp slowdown, the climate could turn for the worst very quickly. This will impact Indonesia negatively and slow down growth. By improving infrastructure and lowering the cost of doing business, the government will give domestic businesses a better chance to mitigate the impact of a possible economic slowdown.