Sarawak stands to gain from Indonesia’s capital move

ALL eyes are on Indonesia after its parliament passed a law on January 18, approving the relocation of its capital from Jakarta to East Kalimantan that will be named Nusantara, with Sarawak standing to gain from this move both directly and indirectly.

 

According to Bernama, the new capital city is one of Indonesian President Joko Widodo’s priority infrastructure development projects in Indonesia as the catalyst for unlocking overall economic potential, promoting growth, creating jobs, and reducing poverty.

“Indonesia set aside US$35.8 million in the 2022 state budget for the construction of the new capital. The entire project costs US$35 billion,” Bernama reported.

“Actual physical construction could start this year awaiting the capital city bill approval by parliament.”

On September 9 last year, Jokowi signed Presidential Regulation No. 85 of 2021 on Government Work Plans for 2022, which comprises eight strategic steps to speed up the transformation of Kalimantan, including the building of the new capital city complete with supporting infrastructure.

Others include accelerating investment realisation, optimising the development of commodities and increasing legal certainty on land ownership by issuing land rights certificates.

Following this, the Malaysia government has been urged to increase the number of development projects in Sarawak, given that Kalimantan borders the state.

Bernama reported Datuk Seri Rohani Abdul Karim (GPS-Batang Lupar) saying in November 2021 that “the matter was very important to improve the economy in the areas in Sarawak, as rapid development was taking place in Kalimantan.”

“Therefore, development, and the need for more projects that can generate economy in the surrounding areas, is crucial to ensure that the economic overflow and development will be enjoyed by all,” she said when debating the Supply Bill 2022 (Budget 2022) at the Dewan Rakyat.

Meanwhile, Ma’mun Sulaiman (Warisan-Kalabakan) said that Malaysia would see an economic impact and spillover when Indonesia’s new capital relocated to Kalimantan.

He highlighted among other things, the construction of the Pan-Borneo Highway project, which is expected to be an economic catalyst for the people of Kalabakan and Tawau, apart from benefiting the state in general.

More recently, the Tourism, Creative Industry and Performing Arts Minister Datuk Seri Abdul Karim Rahman Hamzah said that construction companies in Sarawak should look into opportunities in the infrastructure development in East Kalimantan where the new capital of Indonesia will be set up.

He went on to note that a lot of infrastructure development projects can be expected in Nusantara and as Sarawak is located next to Kalimantan, construction companies in the state are well positioned to participate in their implementation.

 

 

“When the Kuala Lumpur Capital City was moved to Putrajaya, there was a huge boost to the construction industry there.

“If companies from Sarawak could compete and participate down there (in Nusantara), why not?”

Abdul Karim, who is also Minister for Youth, Sport and Entrepreneur Development, believed that there will be more flights between Sarawak and Kalimantan with establishment of Nusantara.

“This is a good development for I believe it will bring about more development. Any of such development will have spin-off (effects) to the provinces in Kalimantan, and Sarawak, we will enjoy of the spin-off (effects) too.

“We have to wait and see, what are the areas we can be of help. We have to see where we can develop so that it will bring about mutual benefits for both.”

He believed that industries such as construction and food will see a tremendous growth when the new capital city of Indonesia is established.

 

 

Indonesia’s economy to continue expanding

ANALYSTS are anticipating Indonesia’s economy to continue expanding in the near future, underpinned by the recovering domestic economic activities.

In a recent report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) gathered that Indonesia’s economy expanded at a robust pace in the fourth quarter of 2021 (4Q21) as the gross domestic product (GDP) growth advanced to five per cent year on year (y-o-y), from 3.5 per cent y-o-y in 3Q21, surpassing the market consensus of 4.9 per cent y-o-y.

“The stronger-than-expected growth was bolstered by the recovery in domestic spending activities following the relaxation of the stringent Covid-19 restrictions as well as the tax incentives,” MIDF Research said in its Indonesian economic outlook report.

“All the demand components contributed positively to the economic growth during the final quarter. The country continued to register a trade surplus, benefiting from the rising foreign trade and high commodity prices.”

On a quarterly basis, MIDF Research saw that Indonesia’s economy grew at a slower pace of 1.1 per cent quarter on quarter (q-o-q), compared to 1.6 per cent q-o-q in 3Q21, albeit slightly higher than the market estimates of one per cent q-o-q.

The research arm noted that for the whole year, Indonesia’s GDP rebounded steadily by 3.7 per cent in 2021 after contracting by 2.1 per cent in the prior year.

The stronger growth – which was in line with the government’s projections of between 3.7 per cent to 4.5 per cent – was mainly buoyed by the strong domestic consumption activities and growing external demand compared to the previous year when the economic activities were hampered by the lockdown measures.

“Moving forward into 2022, we anticipate Indonesia’s economy to continue expanding underpinned by the recovering domestic economic activities,” it continued.

“However, certain headwinds such as the recent outbreak of the Omicron variant may dampen the recovery process.”

 

 

Sarawak to receive ‘tremendous economic spillover’

IT was reported by Reuters in December 2021 that Widodo broke ground on a US$132-billion “green” industrial estate on Borneo to be built with investments from China and the United Arab Emirates and electrified by a Chinese-funded hydropower plant.

“Theoretically speaking, Sarawak being the closest neighbor to Kalimantan would receive tremendous economic spillover from Indonesia’s plan to move its capital from Jakarta to Kalimantan, but we would only be able to reap the benefits if we are prepared and ready to capitalise on our comparative advantages,” Sarawak Business Federation secretary general Jonathan Chai told BizHive recently.

“With the anticipated completion of the Pan Borneo Highway and the much improved digital infrastructure, educational and medical facilities, banking and logistics as well as diversity of languages, we are in a well placed position to take advantage of the significant impact on trade, economic and social opportunities from the relocation of Indonesian capital to Kalimantan.

“Sarawak could benefit directly from it through the abundant clean energy supply, niche tourism, and the fast-moving consumer goods (FMCG) with the improved road connectivity and infrastructure.

“The clean energy supply will be one of the developments worth highlighting as Widodo plans to shift fossil fuel energy to clean energy.

“This is an opportunity for Sarawak to offer and introduce its clean energy expertise similar to what it has done with Bakun and other hydropower plants.

“In addition, we have been raking in the revenue thanks to medical tourism, as private hospitals here have already received thousands of medical tourists from Indonesia annually due to having lower treatment costs and there being a shortage of medical infrastructure in neighboring Kalimantan.

“The capital shift could potentially allow this niche market to flourish even more with the shift of more affluent population to the new capital.”

Chai noted that education will be the other sector with huge potential.

“With the various established international and private schools and the branch campuses of Australian universities like Swinburne and Curtin, they are the potential revenue earners for Sarawak.”

On another note, Chai highlighted that the Sarawak government is also moving forward in the same direction as its Indonesian counterpart by going green.

“In fact, environmental sustainability is one of the key strategies for our Post Covid-19 Development Strategies 2030 in developing our economy and it would be further enhanced through the development of the Sarawak Sustainable Environment Blueprint.

“The blueprint would cover both the green and blue economy initiatives like climate action, forestry, financing, water and land use, and green cities and mobility.

“With the similar vision of environmental sustainability in the development of economy as envisaged by both leaders, perhaps we could complement each other by exploring business opportunities and intensifying mutual cooperation in developing the ‘green’ economy in Borneo.”

Having said that, Chai opined that Sarawak’s businesses, especially the small and medium enterprises (SMEs), must tap the opportunities of the wider and populous market in Kalimantan but also be mindful to protect themselves against competition.

“With that, I hope the SMEs will continue to strive and constantly improve, as well as leverage the various initiatives and programmes that are made available by the government, especially on digitalisation and adoption of IR4.0.”

 

 

Important for Sarawak to focus on ESG

As Indonesia makes strides in its green industrial ventures, Sarawak can stand to gain to improve on its environmental, social and governance (ESG) aspects.

According to Asteel Group managing director Datuk Seri Victor Hii, the Sarawak state government is heading in the right direction in promoting an environmental-friendly economy and introducing ESG policies to shore up the confidence of both local and foreign investors.

“While we have been making huge strides, there’s always room for improvement for Sarawakian businesses as overall better standards require a continuous and collective effort from all,” Hii told BizHive.

“Further, it is vital for companies to enhance their awareness of ESG to remain resilient and become responsible corporate citizens. This is also important for us to implement to reduce emissions and achieve Net Zero Carbon Emissions by the year 2050.”

Hii viewed that Borneo has a lot of potential to be an economic powerhouse thanks to its geographical position and natural resources shared by Malaysia, Indonesia, and Brunei.

“The recent move by Indonesia to build the world’s largest green industrial park in the North Kalimantan province will enable Malaysia to further enhance its bilateral trade with its closest neighbour. The park is set to attract manufacturers and producers of high-tech and precision products, including solar panels, green aluminium, industrial silicon and much more.

“The Indonesian government also estimates that the development will spur job creation and gainful employment; generating jobs for 100,000 workers or more.”

 

 

Hii gathered that the park is also set to be a model for the development of future green industrials parks in the region, with its plans to power the park with hydropower plants and solar power plants.

“According to various sources, its technical hydropower potential is estimated to be around 75,000 megawatts and its usage will be driven by the Indonesian government’s aim to increase the share of renewable energy in Indonesia’s total energy usage of 23 per cent by the year 2025.

“This has the potential to bring positive change, especially for metal producers that rely heavily on fossil fuels. This move will empower them to adopt environmentally-friendly production processes to reduce carbon emissions.

Furthermore, the industrial park will also shift Indonesia’s position as an exporter of raw materials to a major producer of processed metals.

Currently, Indonesia is a primary source of aluminium metal in the region, and is the world’s sixth-largest bauxite reserves.”

While the study of the impact of the capital shift is still underway by the state government, Asteel Group foresees that there is a potential for economic spill over effect.

“The industrial park in Kalimantan is backed by investors from Indonesia, China, and the United Arab Emirates (UAE) which may attract more foreign investors to the Borneo region; with its close geographical position, Sarawak may benefit from these foreign investments,” he continued.

“This is an opportune time to further enhance our bilateral trade with Indonesia. Companies in East Malaysia can also work in partnership with the state government, to look into business expansion and explore the vast business opportunities in Kalimantan.

“Further, with more foreign visitors, Sarawak can also gain from this shift by boosting our tourism sector with enhanced facilities and infrastructure as well as better land and air connectivity.

“We also had a head start with our hydropower, with stable of hydropower plants located in the state; we can certainly benefit from an exchange of knowledge with our Indonesia counterpart and position Sarawak as a state that promotes clean energy.”

Hii further commented that the move will also create big pools of highly skilled talent for Sarawak to tap into to drive our economy.

“In the interim, we can also be the hub to supply them with building materials for the development and offer them an alternative buildings solution such as the Industrialised Building System.”

 

 

Meanwhile, Vistage chair Stanley Liew has viewed the increasing focus on Borneo as “a bold move by Indonesia”.

“They will captivate a lot of attention globally, create opportunities, and attract international interests and investments,” Liew added.

“This move will enhance Indonesia’s economic power house further. With US$132 billion budget for the mega project covering an area of 988 square miles which includes 215 square miles for the new capital city, the ‘cake is big’ and attractive to many.”

“Indonesia has set a target to transfer the capital city status from Jakarta to Ibu Kota Negara (The Nation’s Capital) by 2024. However, it is estimated that the capital city will be fully completed by 2045.”

Liew opined that this mega project in Eastern Kalimantan will be a great boost to Indonesia’s economy.

“Many jobs will be created. Many supporting industries and businesses will emerge, providing opportunities for business people. With an almost immediate increase in population, there is an immediate demand for basic needs like grocery stores, supermarkets, electrical stores, demand for utilities, medical and dental services, education at all levels starting from pre-schools and kindergarten to tertiary educations. The list goes on.

“Timing is important. Whoever can spot the opportunities and jump on the band-wagon at the right time will have the first mover advantage.

“It’s like you are starting from scratch and with a guarantee that there are demand and needs for the essential products and services.”

 

 

Sarawak needs to be prepared and ready

LIEW highlighted that for Sarawak to benefit from Indonesia new capital, the state must be prepared and ready.

“At the moment, with the present state of things, I don’t think Sarawak is ready to reap much or any benefits.

“Sarawak, in particular Kuching is already an attractive destination to residents from Singkawan and Pontianak for tourism, food, education and medical (services).

“The same services can be extended to the estimated 11 million people in East Kalimantan, including the 1.5 million government servants to be re-located to Nusantara. Sarawak can only benefit if there is proper connectivity.

“Currently, there is no direct air link to Balikpapan or Samarinda, the two nearest cities to the new capital. Neither do we have road or direct sea link.

“Sarawak must immediately plan and implement the relevant infrastructure and connectivity to capitalise on the opportunities.

“A trans Borneo highway will help to move goods and services across the border. Efficient Immigration and Custom check points need to be set up to facilitate the movements.

“Air connections between Kuching, Miri and Nusantara will be vital for Sarawak to take advantage and lure the 1.5 million civil servants, with steady incomes, from the new capital to visit Sarawak, be it for food, shopping, or for education and medical (purposes).”

Liew also opined that Sarawak’s service providers must be ready too, by upgrading the facilities, products or services quality, in order to benefit from the potential increase demand.

He noted that Sarawak has many unique local products and food such as the Sarawak Laksa, Kolo Mee, Midin, and more, which could be designed and packed according to international standards to raise the product quality image.

“The Sarawak government should consider setting up an agency to help promote Sarawak products and services to Indonesia especially at the new capital, starting now to create awareness of the products or services available.

“Trade missions and exhibitions should be organised to promote our Sarawak products and services. Marketing and promotions should be heightened to create awareness and visibility of our products and services.”

On man-power, Liew did not think there will be much impact for Sarawakians, given that currently a lot of Sarawakians are working in West Malaysia, Singapore or other foreign countries.

“It may be easier to apply for jobs in West Malaysia as it is same culture, same country and only one hour 40 minutes by flight between Kuching and Kuala Lumpur, serviced by three major airlines. Moreover, no work permit is needed.

“At the initiate stage, Nusantara may need more construction workers, which I believe supplies will come from Indonesia, and China their project partners.

“Sarawak has been bringing in construction workers from Indonesia.

“Once the constructions are completed, its merely an administrative centre for Indonesia, and I don’t see how this can attract Sarawakian to work there, unless they offer attractive salary.

“It maybe years later before our people will move to work in Indonesia, which I think is remote. That is when Nusantara has set up its commercial hubs and is fully developed in about 20 years’ time.”