Indonesia Infrastructure Report Q1 2008

Indonesia, South East Asia's largest economy, is home to a vibrant construction industry and is witnessing increased investment flows into its infrastructure sector as the state strives to improve the statutory framework - making domestic infrastructure projects offered to investors more attractive and bankable. This report forecasts that the construction industry is likely to experience an average annual growth rate of 5.74% over the 2008-2012 forecast period.

In the current year, the central government has allocated nearly 20% of the overall budget expenditure to public infrastructure development. Moreover, with projects worth more than US$100bn in the pipeline, Indonesia's domestic construction industry looks set to experience robust growth, in line with economic expansion. In a recent Presidential address on the draft 2008 state budget, it was indicated that budgetary allocations to the transport and public works departments will be increased significantly. It is estimated that in the period 2005-2010, the Indonesian infrastructure sector would require over US$150bn in funding and a large part of this will have to be raised purely through foreign and domestic private investment.

However, Indonesia is plagued with a few negatives. Primary among these is its business-operating environment - considered among the poorest in Asia. Investors have often to contend with security concerns and poor governance characterised by widespread corruption, lack of transparency, poor legal compliance and a highly inefficient tax regime.

That notwithstanding,, BMI analysis indicates that on account of its vast untapped opportunities, the Indonesian construction industry value is expected to reach about US$38.76bn in 2008 and rise to US$44.4bn in 2012. Moreover, in BMI's Infrastructure Business Environment Ratings for Asia, Indonesia manages a net score of 50.