Indonesia infrastructure tipped to rebound strongly from Covid-19 trough

INDONESIA has been tipped as "one of the fastest-growing construction markets in the region", as a rebound from Covid-19 is boosted by strong government support for the sector.

Fitch Solutions has projected year-on-year growth of 8.7 per cent for the construction sector in 2021, followed by an average annual expansion of 6.8 per cent from 2022 to 2030.

"Projects that were delayed over the past year will likely be accelerated over the coming quarters, and this feeds into our near-term growth outlook," analysts wrote in a recent report.

"Our optimistic outlook for growth in the sector is also underpinned by a robust pipeline of projects, including several large-scale government-backed infrastructure programmes."

Road and power projects are expected to be key drivers of infrastructure growth in the next decade, especially as toll roads have what Fitch called a "multiplier effect on economic growth".

Nomura analyst Tushar Mohata wrote in a separate report that infrastructure players' earnings recovery could lag a balance sheet recovery, on a "potential back-loaded new contracts surge".

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But government toll road divestment plans, as well as loan guarantees and other public support, could provide the private sector with uplift, he said.

"On the positive side, cash flow recovery continued for the third consecutive year, and we expect contractors' balance sheets to recover next with the asset recycle in place," he added, noting that contractors likely left the worst of the downturn behind them in 2020.

The Fitch team noted that the Indonesian government has set aside close to half of its latest national budget to infrastructure development, and could ease restrictions on foreign investors as the country's infrastructure deficit will need more private capital to support future projects.

Foreign funds and state-backed agencies - such as the US International Development Finance Corporation - could work with the Indonesian Investment Authority, even as China continues its Belt and Road Initiative and remains keen to invest in Indonesia, the report said.