How does Indonesia's plan capital city to attract foreign investors?

Luhut Binsar Panjaitan said he was surprised to see that many foreign countries were interested in executing projects in the country's new capital city

Indonesia's President Joko Widodo has invited all countries around the globe to invest in the country's new capital city in East Kalimantan, hoping that foreign investors will contribute positively to the development of the upcoming capital.

In his speech in the Abu Dhabi Sustainability Week (ADSW) on Monday(January 13), the incumbent leader invited all countries to bring their best technology, innovation, and wisdom, as CNNIndonesia reported.

The former Solo mayor added investment in the new capital city would attract foreign investors as Indonesia wants the city to be built based on the latest technology. Also, he wanted the new capital to be a hub for innovation and creativity, but still be an eco-friendly place.

Which countries are interested in developing projects?

Jakarta, Indonesia capital Pixabay

In November 2019, Coordinating Minister for Maritime and Investment, Luhut Binsar Panjaitan said he was surprised and excited to see that many foreign countries were interested in executing projects in the new capital city in East Kalimantan.

He cited Japan, Hong Kong and the United Arab Emirates (UAE) are among countries expressing interest in investing in Indonesia's planned government centre.

"Yes, from Japan. Not only that, but the UAE crown prince also expressed interest here. And the president has agreed," Panjaitan said in his office in November 2019 as Kompas reported.

Indonesia and the UAE signed 11 business deals covering sectors such as energy, oil and gas, port, telecommunication, petrochemical, and research worth $ 22.89 billion.

The cost of the new capital's development

Jokowi estimated the cost of the country's new capital city would not be more than Rp 100 trillion taken from the State Budget (APBN). Data from the National Development Planning Agency (Bappenas), the cost reached Rp 466 trillion, 19.2 percent of which is from the government's pocket.

Most of the development projects will involve both private and state firms. The scheme can be a direct investment either from private companies or state-owned enterprises. Also, there are government-state-own enterprise cooperation schemes (KPBU) or public-private partnerships.

The Jokowi administration is also focusing on developing infrastructure across the archipelago. Many investors and experts believe that the development of good infrastructure in the new capital city will help to boost economic growth in East Kalimantan.

"The infrastructure spend on the new capital will definitely excite many foreign consultants and engineers alike," said Alan Cheong, executive director of research and consultancy at Savills Singapore as SCMP quoted. "As this project appears to have a firm starting date, it is more palpable than some other mega initiatives.

Jokowi said the reason to relocate the capital from Jakarta to Penajam Paser Utara and half the Kutai Kartanegara Regency is to ease the burden of the current capital, Jakarta and the island of Java (which is home to 60 percent of Indonesia's population).

The Role of Foreign Investors

According to economist from the Institute for Development of Economics and Finance (INDEF) Nailul Huda, that local investors should be prioritized given their low risk, adding that foreign investment in the new capital is acceptable as long as it benefits Indonesia.

"I worry that if there is a foreign investment and the state cannot repay its debt, of course, overseas investors will control the development. Therefore, the government must pay attention to risk management," Huda told Sindonews.

Another expert Bhima Yudistira Adinegara said that countries in the Middle East would likely join to invest if they have shared perception in the economy. "For example, our Islamic-based (syaria) economy, whether it is in line with the vision in the Middle east. I think, countries in the Middle East can use the syaria economy development as its bargaining value," Adinegara told Sindonews.