Indonesia is seeking potential foreign investors in the development of its new capital

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The Indonesian government is actively seeking potential investors to finance the construction of its new capital Nusantara. The existing capital Jakarta is located on the most populous island Java, and the government is planning to build a new capital in an area of approximately 256,142 hectares in Kalimantan. The new capital project is expected to be completed in 2045, and the government is aiming for the first stage of the project development, which is the administrative building, will be completed by 2024. 

According to Indonesia's national development planning agency, Nusantara mega project requires funds of at least US$35 billion. Among these, around 80% of the construction costs are from public-private partnerships, and the Indonesian government will be funding the rest. President Joko Widodo has established a sovereign wealth fund in addition to a steering committee to regulate funds and construction progress. 

The physical construction of the capital is set to start in 2022. The central government has allocated approximately US$ 35.8 million in the 2022 state budget. This funding is very limited compared to the project cost; hence, the government is actively meeting several countries' representatives to invest in the project. Previously, Japan's SoftBank Group was ready to invest around US$ 30 billion in the construction of new capital but it exited the plan in March 2022. Hence, the government has no option other than turning to countries such as Saudi Arabia, United Arab Emirates, Netherlands and crowdfunding from Indonesia's population. 

The country plans to construct the new capital with three main goals: that it should be a symbol of the nation's identity, a sustainable city and a driver of Indonesia's economy. Indonesian ministers are actively meeting various companies and country representatives that can turn out to be potential investors to finance the construction of new capital, the IKN project, and make it a greener city. For instance,

• Indonesia's Coordinating Minister for Maritime Affairs & Investment, Luhut Binsar Pandjaitan, has approached Saudi Arabia and UAE. He mentioned UAE government had prepared US$ 20 billion for the IKN project through the Indonesian Investment Fund.
• Arifin Tasrif, Minister for Energy & Mineral Resources, visited Siemens Energy AG, a German-based energy company. The company showed interest in building the renewable energy sector in the IKN project and constructing educational facilities in the region.
• Luhut Binsar Pandjaitan has recently visited the Netherlands to invite the Dutch government and the business players to invest in the IKN project. Indonesia hopes the Netherlands will provide green economy investment in the project to strengthen their bilateral cooperation.
• Bahlil Lahadalia, Indonesian Minister of Investment, discussed with Singaporean Minister for Trade and Industry the possibility of investment to develop a smart city, digital economy, and green industry in the IKN.
• Moeldoko, Presidential Chief of Staff, met Finnish State Secretary to the Minister of Economic Affairs and stated Finland's interest in helping the new capital to be a green and eco-friendly city.

The Indonesian government is providing two options of investment schemes for foreign investors that they can choose. One is the investors can join as shareholders, and the other option is the investors can be only creditors & lend the money. Future investors can choose the option that benefits them most as foreign investors play a crucial role in building the IKN project; otherwise, the country cannot afford it with its state budget. The country plans to spend the state budget on infrastructure construction such as roads and bridges. 

To know more and gain a deeper understanding of the construction market in Indonesia, click here.