The BGA Indonesia team, led by Managing Director Douglas Ramage, wrote an update to clients on Indonesia’s capital relocation.

Context

  • The Indonesian government has undertaken an ambitious task: relocating the country’s capital to a planned city in East Kalimantan named Nusantara. This monumental project is slated for completion by 2045, with the goal of transforming the site into one of the world’s most livable cities and a thriving hub for some of Indonesia’s most promising economic sectors.
  • The next administration, set to take power in October 2024, will likely prioritize other pressing infrastructure initiatives over Nusantara. All candidate teams have conveyed to BGA that, if victorious, they would focus on projects concerning transportation, food, energy or health care.

Significance

  • Administrations since the 1950s have proposed relocating Indonesia’s capital away from Jakarta due to its vulnerability to natural disasters and other deficiencies, which impact government functions. Jakarta is the fastest-sinking city in the world, possesses one of the poorest air quality levels and is prone to traffic jams that result in billions of dollars in economic losses each year.
  • The primary challenge in realizing the vision for Nusantara lies in financing. No major financing deal has been signed since SoftBank withdrew its commitment last year.

Implications

  • Companies should note that the government in March introduced a generous set of incentives aimed at encouraging investment, including 10- to 30-year tax holidays for companies investing at least $650,000 in select sectors. Investment in key economic sectors and industries crucial for a city’s growth will rely heavily on the government’s ability to establish favorable market conditions that make sense for businesses.
  • Human rights and environmental concerns will persist throughout the project’s development, and construction and logistical challenges will gradually become more prominent. Concerns have also been raised about the sustainability of the city’s initial energy sources.

We will continue to keep you updated on developments in Indonesia as they occur. If you have any questions or comments, please contact BGA Indonesia Managing Director Douglas Ramage at dramage@bowergroupasia.com.

Best regards,

BGA Indonesia Team

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Managing Director

Doug is the founding managing director of BowerGroupAsia Indonesia in Jakarta. He is one of the foremost experts on Indonesia’s political economy, business and regulatory affairs, with over 30 years’ experience living and working in the country. In addition to his role at BGA, Doug serves as chair of the American Chamber of Commerce (AmCham) in Indonesia, the country’s largest international business association.  Doug works closely with multinational companies and the government to find solutions to policies that impact Indonesia’s competitiveness, foreign investment opportunities and market access. He is skilled at leading teams to develop commercially strategic advocacy efforts that ... Read More