• posted by Anindya Oct 4th, 2013

    ANB Photo shoot bersama para anggota ABACLast week, President Susilo Bambang Yudhoyono officially launched the 12.7-km Bali Toll Road. It spans beautifully across Benoa Bay, linking Benoa, Ngurah Rai, Nusa Dua on the island resort of Bali. The Bali Toll Road construction uses environmentally friendly methods to minimize water pollution in the surrounding area. Despite all the hype generated by this new toll road, not all infrastructure development in Indonesia has been smooth sailing.

    The Bali Toll Road project suggests that Indonesia has the potential to improve its infrastructure needs in the near future. Indonesia’s active engagement in the Asia Pacific Economic Cooperation (APEC) forum can serve as a catalyst to address our infrastructure deficit which is glaring. A single taxi ride from Soekarno – Hatta International Airport to Jakarta’s CBD is sufficient evidence that we lack an inadequate transport network. This results in traffic congestion which adds significant costs to doing business. In Indonesia, the average logistics cost is 14.08% of total sales. By contrast, the figure is only 4.8% in Japan. Indonesia has made great strides in promoting infrastructure development in recent years. It has improved the environment for foreign direct investment. However, more can and should be done.

    Indonesia is not alone in its need for more infrastructures. The Asian Development Bank estimates that between 2010 and 2020, $8 trillion of investment in infrastructure is required for developing Asia to maintain its current rate of economic growth. Further, a McKinsey report released in January of this year estimates that worldwide $57 trillion of infrastructure investment will be required by 2030. This broad-based need for infrastructure investment has two important implications; first, governments are not going to be able to meet their infrastructure development needs without investment from the private sector and second, competition among countries for private sector investment will be fierce. The Indonesian government plans to increase infrastructure financing to 5.5% of GDP, but the country still needs private sector investment to meet its ambitious infrastructure development goals.

    Indonesia must create the right environment and mechanisms to attract private sector investment.

    A number of efforts are underway in APEC that Indonesia can leverage in its efforts to remain a competitive destination for private investment. These are generally focused under two areas; the development of mechanisms for public-private partnerships and the development of an investment and regulatory environment that provides certainty for investors. Another APEC characteristic that adds value to engagement is the role of the private sector in providing input to governments. This is exemplified in the two areas of focus noted above. Under its leadership of APEC this year, the Indonesian government has placed infrastructure development near the top of APEC’s agenda and is developing a long-term program that will ensure the topic remains a focus for years to come. Thanks to its efforts this year, Indonesia’s is well-placed to benefit from engagement with APEC on infrastructure.

    APEC’s work in the area of public private partnerships (PPPs) is critical to leveraging private capital for infrastructure development. In recent years Indonesia has made significant strides in developing the necessary legal structures and government capacities to develop and manage PPPs, however the development of projects remain constrained for various reasons, including issues surrounding land acquisition. PPPs present different challenges depending on the type infrastructure project, meaning there is no one-size-fits-all approach for making PPPs work. As such, governments in the region, including Indonesia, can benefit from substantive dialogue with the private sector regarding the structure, risk and viability of infrastructure projects. Through the Asia-Pacific Infrastructure Partnership, a business-led initiative supported by APEC Finance Ministers, governments in the region have the opportunity to engage in dialogues with private sector stakeholders to better understand the considerations of investors.

    Even the best PPPs cannot succeed without the underpinning of a legal and regulatory environment that provides clarity and certainty to investors. Clear land ownership laws, effective contract enforcement, dispute resolution mechanisms and measures to curb corruption are all important elements of a robust investment environment. Here, too, Indonesia can leverage its participation in APEC to enhance its competitiveness as destination for foreign capital. APEC governments are in the midst of a multiyear effort to implement the APEC Investment Facilitation Action Plan (IFAP), an initiative that aims to strengthen regional economic integration; strengthen the competitiveness and sustainability of economic growth of APEC’s member economies; and expand prosperity and employment opportunities in the APEC region. For developing economies such as Indonesia the IFAP provides an opportunity to exchange best practices as well as benefit from associated capacity building programs. For example, APEC has held programs on investor dispute avoidance which aims to provide government agencies in FDI receiving countries with the knowhow to work collaboratively with investors and with each other to resolve small problems before they become major ones.

    Indonesia’s engagement in broader APEC initiatives also benefits the government’s infrastructure development efforts. Important among these are programs aimed at strengthening and deepening integrated financial markets in Asia. The Asia Pacific Financial Forum (APFF), another business-led initiative, is working with APEC governments toward these ends with a focus on accelerating financial markets on a domestic basis; convergence of standards, regulations and practices to enhance regional integration; and development of mechanisms to support cross-border transactions. Asia is home to significant pools of institutional savings held in sovereign wealth funds (SWFs), superannuation, insurance and others funds. Through these APFF-led efforts, Indonesia and other APEC economies can work together to facilitate the investment of Asia’s capital pools in domestic and cross border long-term infrastructure projects.

    A wide range of policies must be in place to effectively and efficiently leverage private capital for infrastructure investment. In addition to getting the policies right, governments need to demonstrate a meaningful political commitment to infrastructure investment. Arguably, Indonesia has accomplished this by placing a strong focus on infrastructure development under its chairmanship of APEC this year. It is said that no good infrastructure project goes unfunded. The capital Indonesia needs to meet its infrastructure development plans is out there and the government can leverage its membership in APEC to help create the conditions that will attract it.

    Anindya Bakrie is one of the three APEC Business Advisory Council (ABAC) members from Indonesia and vice-chair of APEC CEO Summit 2013 in Bali

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