Talking Trade blog
Trade bottlenecks: A review of one day in the Jakarta post
Published 13 March 2015
I was in Jakarta, Indonesia last weekend and picked up the Jakarta Post from Saturday, March 7. I was struck by the sheer number of articles highlighting issues around trade—or with strong trade implications. Nearly all highlighted bottlenecks that impede economic growth and development in Indonesia.
The first page notes, “RI Faces Major Infrastructure Project Delays.” As any visitor to Jakarta knows, infrastructure in Indonesia has been unable to keep up with the demands of a growing population.
The Public Works and Housing Minister is supposed to open significant new construction contracts by March. But because of the number and size of the contracts, the ministry has announced that less than half of the proposed projects will meet the deadlines for tender announcements.
Over the next five years, the government expects to complete 1,000 km of new toll roads and 2,650 km of main roads. By comparison, the total length of road in China increased from 3.7 million kilometers in 2008 to an estimated 4.7 million kilometers in 2014. Meanwhile, the total length of highway in China rose from 60,300 kilometers to about 112,200 kilometers.
Admittedly, it may not be fair to compare any other country to China’s streak of roadbuilding. But the contrast certainly in stark. At the end of 5 years, Indonesia will have less than 4,000 new kilometers of main and toll roads.
The delays in Jakarta in tendering out projects relates in part to problems with land acquisition and paperwork problems in getting the tender documentation prepared. Land and paperwork challenges will ring familiar with many businesspeople struggling to operate in Indonesia.
The second page of the paper highlighted how police are being urged to obey the president’s order to stop prosecuting the people who are trying to fight corruption. Another article notes that Jakarta may be unable to pass a budget, so the city is preparing to use last year’s budget as a guidepost.
One of most disturbing articles can be found on page 4, where President Jokowi has urged farmers to work harder for food sufficiency. The government has already announced that it will not import any rice to meet rising demands for this staple crop from consumers. As a result, the government hopes that farmers will start growing more rice to make the entire country self-sufficient in rice production.
The paper reported that Jokowi said, “I asked all farmers to be more confident in producing rice.” The government is expected to announce a price of unhusked rice that will be “consistent with farmer’s expectations.” The president has already said he wants the country to be self-sufficient in rice, sugar and corn within five years.
To achieve the targets, the Indonesian Military (TNI) has been ordered to assist. The Army signed a Memorandum of Understanding with the Agriculture Ministry for cooperation. The Army agreed to deploy 50,000 people plus 50,000 non-commissioned officers to serve as agricultural field advisors.
Where to begin on unpacking this story? I think a future post will go into some of the issues around food self-sufficiency in greater detail. For now, just note that this is likely to be a poor idea with a fairly miserable track record of success wherever it has been tried.
Banning the importation of rice, sugar and corn (which is what the government seems to believe is necessary to ensure sufficient local production), only distorts the market even more. It will likely lead to ruinous costs for the government as price supports will likely be needed, as well as all sorts of subsidies and assistance to farmers for things like fertilizers.
The Indonesian distaste for imports is deeply problematic. In general, a great deal of time and effort has been spent complaining about the trade balance and decrying imports. Imports are not automatically bad. Many exports, for instance, require a certain level of imported content. Again, I could go on, but will move along.
It is unclear to me how bringing the Army into the field will improve the capacity of farmers or the ability of the Army to do its job.
The business section opened with an article on how the ministry is building roads to connect up seaports and airports. The government has already announced plans to develop 24 seaports across the next five years, along with 5 new airports. But none of these projects will work if the road infrastructure is not also in place.
As a result, the article notes, the Public Works and Housing Ministry has pledged to build 1,000 km of roads to connect these facilities (to what, exactly, is not clear from the article). The ministry is also tasked with creating 1,350 km of roads to support 15 national strategic tourism areas.
What is not obvious at all is whether the roads announced in the business section are the same roads announced on the first page of the paper. If they are, then most of the new road construction will be aimed at getting goods and people out of seaports and airports and getting people to tourist destinations. While necessary, such construction will not solve many of the road and trade bottlenecks that are causing companies major headaches when trying to operate in Indonesia.
Sixty percent of the budget will go to road building in the eastern part of the country. The government is hoping that public-private partnerships will boost infrastructure and accelerate growth.
Another great story on the business front page related to e-commerce. The government has asked for the development of an “e-commerce roadmap” in the next 3-6 months. Right now, there is a ban on foreign investment in e-commerce. (I’m not sure exactly how this works frankly.)
The government is to discuss whether online merchants should have to register with the government or not and become a licensed provider of e-commerce products. Surely one of the biggest benefits of e-commerce is that it allows anyone—from one person operating in their own home to some of the biggest firms in the world—to buy and sell goods and services. If every merchant has to be licensed, much of the benefit is likely to be lost, particularly for smaller firms.
In any case, the government has promised to list all the “lingering” issues in the industry to sort out the most pressing. Hopefully, businesses from around the world will let Coordinating Economic Minister Sofyan Djalil know all about those lingering issues that impede the growth of what ought to be the most dynamic sector of the economy.
The last two articles on the front page are also of relevance to a trade audience. One announces the launch of a banking road map in May. The roadmap is supposed to include options for consolidation including the integration of IT systems for state-owned sharia and commercial lenders. Finally, the government announced the preparation of regulations for the water industry. One issue is whether or not the government ought to seize control over the bottled water industry.
Thus, this random day in the Jakarta Post highlights so many of the issues for businesses trying to operate in Indonesia: struggles with infrastructure, land and paperwork issues, fear of imports, desire for self-sufficiency in food production, desire to regulate business and create greater opportunities for corruption, and the possible seizure of assets by the government for all sorts of reasons. It's a challenging place to work.
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