Call for public-private tie-ups to spur Indonesian growth

IMPROVED public-private partnership (PPP) deals could be a shot in the arm to Indonesia, amid the failure of existing investment to deliver higher growth, one economist has proposed.

Flagging how increased investment spending has not translated to the same level of gross domestic product (GDP) growth since the 1997 Asian Financial Crisis, United Overseas Bank economist Enrico Tanuwidjaja has suggested PPPs in high-potential, under-invested sectors.

"Re-igniting PPP investment schemes in certain areas that may have absolute and competitive advantage may yield more sustainable higher growth rates," he said.

Mr Tanuwidjaja also called for supportive structural reforms that, "in our opinion, are vital for higher-quality and sustainable economic growth of Indonesia".

Foreign direct investment (FDI) flows have mainly been into the sectors of mining, transport, storage and communication, metal, machinery and electronics, electricity, gas and water supply, and chemicals and pharmaceuticals since 2010, he noted.

Meanwhile, domestic direct investment (DDI) went to the food industry, transport, storage and communication, electricity, gas and water supply, food crops and plantations, and construction.

But he said that a PPP system could boost productive investment growth and lift overall GDP growth of Indonesia in under-invested, high-potential sectors outside energy and transport.

The food industry, motor vehicles and other transport equipment, and food crops and plantations were named as notable sectors for investment growth.

"Some of these areas are already dominated by DDI and by providing higher necessary basic or intermediate infrastructure from the public investment scheme and subsequently PPP investment, these industries can grow to be more competitive," said Mr Tanuwidjaja.

PPP could also help export-oriented sectors, such as by plugging the under-investment gap in machinery and vehicles, he added: "By focusing on high local content industries for exports, investment in the areas of food, motor vehicles and transportation equipment, as well as crops and plantations, stand to benefit from a competitive level of the rupiah."

But he warned of challenges such as a land acquisition process that he said has "stalled quite a few PPP projects in the past", as well as a decentralised public sector that limits government contracting agencies' capacity to prepare project studies and other processes.

"Lack of co-ordination between multiple government stakeholders and a lack of clarity on responsibilities of each agency during a PPP project preparation and approval have often (been) cited to be the major cause of project delays, particularly in relation to decision-making processes," he observed.

Mr Tanuwidjaja added: "Continued structural reforms in areas of land acquisition, project management capabilities, financial deepening in the banking and capital markets, as well as the legality issues and perception of risks remain necessary to be put in place to support the successful PPP investment."