Indonesia’s Nusantara project could help lay foundation for Asean’s economic potential

As President Joko Widodo hits a funding speedbump, he should look to Asean neighbours to help construct new capital city Nusantara
Such an agreement would show that the region is maturing, and coming closer to realising its potential as the world’s new growth centre

Joseph Sipalan

Published: 10:00am, 13 Jan 2023

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Indonesia’s President Joko Widodo received some welcome news earlier this week when a clutch of Malaysian companies registered their interest to invest in his country’s ambitious project to build a new capital city.

The move came as Malaysian Prime Minister Anwar Ibrahim on Monday travelled to Jakarta in his first overseas trip, during which a plethora of commitments and agreements were made. The deals will see Malaysian and Indonesian firms join hands on manufacturing, renewable energy, pharmaceutical and property-development projects, with a total potential value of 1.66 billion ringgit (US$380 million).

Should the projects get off the ground, the total contribution would be a fraction of Indonesia’s bill to build Nusantara city in Kalimantan, which has been estimated to be as much as US$40 billion.

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Indonesia celebrates its 77th anniversary of independence at site of future capital Nusantara

Nevertheless, it will get the ball rolling for Widodo’s vision to move the country’s political centre, as current capital Jakarta faces the threat of sinking due to a combination of overexpansion and climate change.

Jokowi, as he is popularly known, announced the plan to build Nusantara in 2019 after being re-elected for his second and final presidential term.

Development is under way, with the government bearing 20 per cent of the cost. The plan is to move about 1.9 million people to the new capital by 2045, with some civil servants possibly shifting to Nusantara as early as next year.

The great hurdle for Jokowi is securing investors to cover the remaining 80 per cent of development costs.

Illustration of Indonesia’s future presidential palace in East Kalimantan, as part of the country’s relocation of its capital Jakarta to Borneo island that will be named “Nusantara”. Photo: AFP/Handout

Nusantara suffered a major setback in March, when Japanese investment giant SoftBank withdrew its interest. Indonesia’s government reportedly said the deal fell through as it could not meet the bank’s terms.

The decision caused a domino effect among potential Japanese financiers, with the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development also pulling out in October, according to a Bloomberg report.

There are still some potential investors who so far remain on board with the project. The United Arab Emirates (UAE) announced it would use funds from an existing US$10 billion investment commitment to Indonesia for Nusantara.

South Korea’s Land and Housing Corporation says it has signed a letter of intent to participate in the city’s development and that several South Korean government agencies are in talks to build a government housing complex at Nusantara.

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But a key concern is that none of these deals – including the latest exchanges with the Malaysians – are binding. This means potential partners could withdraw if things do not pan out.

The situation presents an opportunity for the Association of Southeast Asian Nations (Asean) to explore the potential for sourcing investments and financing for major projects from among member states of the regional club.

Asean has grand hopes of developing what it calls the Asean Economic Community, a road map towards developing a robust and prosperous business environment aimed at helping companies of member states take full advantage of the region’s dormant potential.

This builds on earlier policies to encourage business-to-business collaborations and deals to expand the footprint of local companies into other member states.

Located in eastern Borneo – the world’s third-largest island – Nusantara is set to replace sinking and polluted Jakarta as Indonesia’s political centre. Photo: AFP

Considering the fact that a large proportion of Nusantara is meant to be developed using private investments, the new city provides a fitting platform for companies and firms in Asean member states to leverage on these policies, while keeping true to the grouping’s long-held pursuit of common prosperity.

Of course, it would be unrealistic for Indonesia to pin all of its hopes on its fellow Asean members to secure sufficient funding for Nusantara.

But active participation of governments and companies of Asean member states in the project would go a long way in showing to the world that the region is maturing, and coming closer to realising its potential as the world’s new growth centre.