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Indonesia – Capital city to move from Jakarta to East Kalimantan

Indonesia is planning to move its capital city, presenting opportunities for Australian businesses to help with construction and urban development.

President Joko Widodo has proposed moving the capital from Jakarta in Java to East Kalimantan. Java is densely populated, accounting for 60% of Indonesia’s population and over half of Indonesia’s economic activity. Kalimantan is larger in area yet accounts for less than 10% of GDP.  The change is expected to reduce geographical inequality and help address Jakarta’s environmental headaches, including heavy traffic, overcrowding and pollution. East Kalimantan is also less exposed to natural disasters, and will help relieve pressure on Jakarta, which is sinking by 25cm each year due to over-extraction of groundwater.

If parliament approves the bill, construction will start in 2020, with about 1.5 million civil servants expected to move to the new capital from 2024. The project is estimated to cost around US$33b, of which around 80% will be funded by the private sector and public-private partnerships.

Indonesia is expected be the world’s fifth-largest economy by 2030, and Australia’s proximity presents a significant opportunity. Australian businesses in the construction, engineering, and utilities sectors are well placed to work with Indonesian partners to develop the new city. Better yet, the activity and development in the new city may drive demand for Australian commodity exports. Australia is Indonesia’s eighth largest importer, primarily of natural resources and agricultural products.

The recent Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) will further support Australian businesses as it allows 99% of Australia’s exports to enter Indonesia duty-free or with improved preferential arrangements.