Indonesia – Archipelago with high potential

Populous island world

Indonesia is located in Southeast Asia between the Indian and Pacific Oceans. The republic extends across both the Asian and Australian continents and borders on Papua New Guinea, East Timor and Malaysia. Indonesia is the largest island nation in the world and includes a total of 17,508 islands with a total area of 1.9 million km². However, only one third of the islands are inhabited. With over 270 million residents, Indonesia is one of the most populous countries in the world. At the same time, it is the most populous country with a Muslim majority.

Over half of the population lives on the “main island” of Java in the capital city Jakarta. This is one of the most densely settled regions in the world, with over 114 million people on an area the size of the state of New York. Roughly twelve million people live in the capital alone. This makes the greater Jakarta area the second-largest metropolitan region in the world.

The archipelago nation has a great diversity of ethnic groups and over 300 indigenous local languages are spoken alongside the official national language Bahasa Indonesia. The individual regions and islands can differ starkly in geological conditions and species diversity.

Young and dynamic – A stable basis for growth

Due to the high proportion of young people within the population and the country’s focus on sustainable development, pronounced economic growth and strong development have been observed in Indonesia for some time. Over 50% of Indonesians live in urban regions, and the country has a large domestic market. No wonder that its gross domestic product grows every year. 60% of this is attributable to private consumption. The tourism sector also plays a central role by bringing in a financial profit for the country. Even if the current government has so far succeeded in keeping the economic growth and positive momentum going, the pandemic and its consequences have taken their toll over the last two years.

Logistics sector opens up

A global comparison puts Indonesia’s logistics sector somewhere in the middle of the pack, but within the Association of Southeast Asian Nations (ASEAN), it is by far the largest. The country’s transport and logistics industry is estimated at more than 75 billion US dollars. This is easily more than the sectors in Malaysia, Thailand and Taiwan added together. The most recent growth rate came in at 15%. In 2021, the Indonesian government amended its local legislation to allow foreign logistics companies to offer their services directly to customers in Indonesia. In other words, continued growth can be expected here.

Getting a grip on infrastructure deficits

Despite extensive construction activity in recent years, Indonesia’s road and transportation infrastructure still lags significantly behind a modern standard. The road network now totals over 550,000 kilometers, most of which are rural roads. Highways or expressways are hardly in evidence, although new construction projects are regularly planned.

The Indonesian railway network extends about 6,000 kilometers – with the largest section crossing the “main island” of Java. Three unlinked rail networks are also present on Sumatra, which are used both for passenger and freight transport. Two new networks with a total length of 3,200 kilometers are currently in planning on the islands of Kalimantan and Sulawesi. This is the largest railway project in Indonesia since the country achieved its independence from the Netherlands in 1945.

Many of the road and rail projects are severely complicated by the geographic situation (in some cases with heavy volcanic activity), the tropical climate and the soil conditions.

High-speed rail (HSR) for Indonesia

Another major project is the construction of the 142 km long high-speed rail line from Jakarta to Bandung, built by a Chinese-Indonesian joint venture. This will be the next Chinese high-speed rail line in Southeast Asia. The trains will reach speeds up to 350 km/h, enabling faster passenger transport between the two Indonesian cities. The travel time will be reduced from over three hours to about 40 minutes. At the end of 2021, the project was already 80% complete, and the line is expected to enter operation by the end of 2022. In a second expansion phase, another line to Surabaya, on the opposite end of the island, should follow. The new line would be 600 kilometers, four times as long. A Japanese consortium has been commissioned to execute this project. Whether these connections will also be used for freight transport still remains unclear.

Predestined for maritime shipping

As the world’s largest archipelago, Indonesia has over 108,246 kilometers of coastline – number 4 in the world! Moreover, the Strait of Malacca, one of the world’s most important maritime trade routes, runs through Indonesian waters. With roughly 200 to 250 ships passing through per day, it is one of the most heavily traveled waterways in the world. Between 20 and 25% of global goods moved by ship pass through this ocean route.

Due to its island nature, Indonesia is more reliant on shipping than almost any other country. Domestic trade and goods transport are carried out largely via the water. Maritime shipping logistics makes up an important part of the overall infrastructure and the country’s economic development, with about 11% of the GDP generated in this way. There are about 100 commercial ports, although these are mostly designed for small ships. The largest port, Tanjung Priok, is located in North Jakarta and is one of the most important ports for ferry and goods traffic. About 5 billion TEU worth of goods passed through this port last year.

While the geographic location of Indonesia offers great potential, the infrastructure is still in need of improvement. Poorly equipped ports and delays in transport processing are common occurrences. This results in high logistics costs and lost income for the state, investors and – in particular – the residents of the islands. They pay higher prices for consumer goods, food and petroleum than the people living in the population centers. This in turn slows the economic development of the country.

Turning the ocean into an asset

The government is now very focused on the maritime sector and on actively promoting an expansion of the shipping industry and infrastructure. Not without reason did Indonesia’s president announce after entering office in 2014 that he wanted to make the country a hub for global ocean-going trade. As part of this effort, a new terminal is already under construction in the port of Tanjung Priok which will more than triple the transshipment capacity at 18 billion TEU. The terminal should be finished in 2023. The trend toward digitalization must also be considered, and shorter processing times are required.
The construction work on the new port of Patimban in West Java was started at the end of 2020. After the final phase, this should be able to process about 7.5 billion TEU in goods, making it one of the most important export ports in Indonesia. It should serve primarily to reduce the burden on Tanjung Priok, which is regularly overloaded.