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Poor infrastructure curbs Indonesian growth

07 October 10 14:01
By Karishma Vaswani
BBC News, Jakarta

In a small factory on the outskirts of Jakarta, signs of Indonesia's economic rise are everywhere to see.

Rows of young men and women, neatly dressed in their bright blue uniforms, are sitting at their work-stations, hammering out hundreds of pairs of shoes a day.

Just five months ago, these Levi's shoes were manufactured in China. Today they are being produced right here, in a factory on the outskirts of Jakarta.

The recent labour unrest in China has made Indonesia a more attractive destination for foreign firms, and lower salaries for workers is also a big draw.

According to recent statistics, Indonesian workers make about $120 (£75) a month. These days, that compares well with steadily rising Chinese wages, which have gone up 20% this year alone.

Beating china

But it has not always been like this in Indonesia - and not many knows more about that than Achmad Marendes, the manager at the Prima Inreksa plant.

His factory has been operating in this suburb of Jakarta for the last few years.

He remembers a time when the economic environment was not so rosy - and when Indonesian companies were feeling the pinch because of China's competitive advantage.

"Four or five years ago, there were a lot of factories that closed down around here," he says during a tour of the factory.

"We definitely saw a slowdown because of China"

Today, though, Mr Marendes admits he has never had it so good.

"We used to have about one or two visits a month from foreign companies," he says.

"Now we're getting five visitors a month from potential buyers, so that's a very good sign.

"And they're all companies from the US, UK, Korea or Japan. They were doing business with China, but now they want to move their business here. That's good for us."

Port hold-ups

Orders for shoes have doubled at his factory recently, so Mr Marendes is planning to hire another 1,000 people to cope with the extra work.

But there is a problem - one that's standing in the way of his future success. Meeting production deadlines are a daily headache because of inefficiencies at the local port.

Much of the raw materials used in the shoes produced at this factory come from overseas, so hold-ups at the port cost him time and money.

"We have a lot of imports from Korea and China, specifically the leather and synthetic materials," he says.

"Sometimes it takes up to a week for our goods to be delivered to our factory after they've arrived at the port in Jakarta.

"There are a lot of inefficiencies there. I'd love to see that waiting time be cut down to seven days, but who knows when that will happen. Currently that's the biggest problem for manufacturers like me."

Slow development

Ports are a crucial part of the Indonesian economy.

It is thought that 80% of this country's international trade is transported by sea.

But they have not kept up with the pace of growth in the country.

Businesses complain that despite repeated assurances from the government, there have been no signs of matching those assurances with investment in infrastructure.

As a result, many of the ports in the country are dilapidated, crumbling and notoriously slow.

The Indonesian government is trying to change the image of Indonesia's ports.

It has appointed RJ Lino as the man tasked with the challenge of upgrading the facilities at its biggest port, Tanjung Priok, in Jakarta.

He used to work there 20 years ago so he knows what it used to be like.

"Twenty years ago, Tanjung Priok was a very good port," he says as he shows off the operations in the sprawling complex.

"We were only behind Singapore and Japan.

"That was when I used to work here, but then I left. Now I've come back to find that most of the facilities I built haven't changed. There's been very little development."

Investment required

But Mr Lino has ambitious plans to change all of that.

On the agenda is a new container terminal at Tanjung Priok, one that he says will match international standards.

"We will start building by the end of the year and it will take six or seven years to complete the entire project," he says.

He will need international cooperation to help build the new terminal, though, and the whole investment will cost up to $2-3bn £1.25-1.88bn).

Indonesia's government is looking for $160bn in foreign investment to upgrade its infrastructure, and that money cannot come soon enough.

It is not just Indonesia's ports that are suffering from a lack of investment. The roads, highways and bridges are also in a state of disrepair.

The government has said it will increase spending on infrastructure by up to a third next year, but many are sceptical about whether that will be enough - and whether the projects will actually get off the ground.

Infrastructure projects in Indonesia often face long delays before they get underway, due to unwieldy bureaucracy and complicated laws.

Vicious cycle

The lack of investment in infrastructure has many consequences, and not just for Indonesian businesses.

Yusuf is a deliveryman for a local factory.

He is used to spending hours on the roads, stuck in Jakarta's infamous gridlock.

It is thought the traffic jams alone cost businesses in Jakarta $1bn a year in lost time and fuel.

Yusuf says the hours he wastes sitting in traffic have an impact on his salary and therefore his ability to feed his family.

"When the roads are bad, they have to close down some lanes so it creates a jam," he says as he tries to manoeuvre his way through the maze of vehicles on the streets.

"When there's a jam, a trip that I can make in one hour takes twice as long. And so the goods don't get delivered on time."

It is a vicious cycle - and one that hurts Indonesia's poor the hardest.

Millions of this country's most vulnerable are living a hand-to-mouth existence.

They are counting on their government to improve their prospects.

Before Indonesia can join the ranks of India and China, it needs to make sure that its citizens climb up and out of this poverty for its economy to stay on track.

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