Indonesia Courts Investments for New Capital

• Indonesia has courted investments from the UAE and SoftBank for the development of its new capital.
• The President will establish a sovereign wealth fund to attract investments for the new capital as well as other national projects.
• Despite recent developments, Jakarta will continue to be Indonesia’s economic center.

Indonesia is trying to court major investments for the development of its new capital in East Kalimantan province on the island of Borneo. Construction is set to begin in early 2021 on the new 632,850-acre site – four times the size of Jakarta – at an estimated cost of US$33 billion.

The government aims to have this administrative center operational by 2024 and be a smart and green city equipped with modern infrastructure and public utilities.

Some 80 percent of the total costs of construction will be footed by public-private partnership initiatives, with the government funding the rest. As such, President Joko Widodo (Jokowi) will establish a sovereign wealth fund in addition to a steering committee to oversee the funding and construction efforts.

President recruits’ heavyweights

Following his recent visit to the United Arab Emirates (UAE) on January 12, 2020, the President announced that the UAE was to invest US$22 billion into Indonesia’s proposed sovereign wealth fund. The UAE has also shown interest in developing properties in Aceh province as well as the energy and telecommunication sectors.

Furthermore, Abu Dhabi Crown Prince Muhammad bin Zayed Al Nahyan will be part of the new capital’s steering committee. Other political and business heavyweights the President has recruited include former British Prime Minister Tony Blair, and SoftBank CEO Masayoshi Son.

SoftBank has offered to invest US$40 billion for the new capital, keen to support the President through the company’s expertise in artificial intelligence and other advanced technologies. Indonesia’s Coordinating Minister for Maritime and Investment Affairs, Luhut Pandjaitan, will meet Son again in Tokyo to develop the financing structure.

Hong Kong and South Korean investors have also shown interest, making offers of US$40 billion and US$50 billion, respectively, for the new capital’s development.

Indonesia is also seeking investments for its nationwide infrastructure projects. The President’s ambitious program will require more than US$400 billion over the next five years to modernize the archipelago.

Jakarta and Java to remain Indonesia’s economic hub

Despite moving the administrative capital to East Kalimantan, Jakarta and Java (the island where Jakarta is found) will remain Indonesia’s economic hub.

The government is planning to inject some US$40 billion into urban regeneration projects in Jakarta. This includes investing in infrastructure, mass transportation, and improving waste management systems.

The city’s metropolitan area, with a population of more than 30 million, already contributes to one-fifth of Indonesia’s total GDP and is home to a variety of important industries, such as manufacturing and financial services. Additionally, Java also accounts for 60 percent of Indonesia’s population and more than 50 percent of the country’s GDP, highlighting the large regional income disparities.

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