On a stage in Singapore, Indonesian President Joko Widodo spruiks his planned new $48 billion capital city Nusantara to a room full of global investors.
“I suggest you don’t wait too long. Don’t just sit and watch,” Mr Widodo, or Jokowi, told the international audience in June.
“This is a golden opportunity that is very captivating in Indonesia, which all of you can be part of.”
Nusantara, Mr Widodo’s flagship project, is envisioned as a green, smart city spanning nearly 260,000 hectares to replace the current overcrowded, rapidly sinking, polluted capital, Jakarta.
The Indonesian government will foot 20 per cent of the costs of the project, already being built in East Kalimantan province on Borneo island, and is shopping for private investors to pay for the rest.
But securing funds for the bold plan is proving to be a hard sell, with formal deals yet to be inked.
Experts say the risk of building a city “in the middle of nowhere” is “extraordinarily high”, while investors are worried the project would stall after Mr Widodo’s final term as president ends in 2024.
So far, Indonesia has reportedly approached multiple countries about the project including: Saudi Arabia, the United Arab Emirates, Japan, South Korea, Iran, Canada, Germany, and Singapore.
Prime Minister Anthony Albanese offered Australian “expert technicians” to help plan the “clean, green, and high-tech city” as part of a $5 million commitment when he met Mr Widodo in West Java in June 2022.
Albanese increases support for Nusantara
During a visit by Mr Widodo to Sydney on Tuesday, Mr Albanese announced a further package of support for Indonesia to develop its new capital.
Under the latest suite of measures, there will be scholarships for Indonesians to study sustainable urban planning and local government administration.
Mr Albanese also revealed heightened collaboration between government authorities to share information and experiences about building a new capital city.
The ABC understands that is due to be formalised via a memorandum of understanding in the coming months.
Mr Albanese also welcomed plans by Central Queensland University to expand into the new capital once it is established.
In a joint statement with Mr Albanese on Tuesday, Mr Widodo outlined several of Indonesia’s top priorities he wants to work with Australia on and specifically mentioned “the construction of the Nusantara capital city”.
“Indonesia encourages Australia’s private sector and the national capital authority of Australia to work together with Nusantara capital city,” he said, without elaborating.
The seeming lack of wider investment enthusiasm has experts questioning if the project will run to completion, or be abandoned by a new Indonesian president next year.
Indonesia flags tax cuts to attract investors
In March, the Indonesian government revealed a raft of new incentives to try to lure investment in the project.
These include scrapping corporate tax for companies in some sectors that invest at least 10 billion rupiah ($1 million) for 10 to 30 years.
Tax cuts will also be given to foreign companies moving their headquarters to Nusantara, and also to financial firms that set up in a specialised zone.
Research and development costs will be tax deductible, while import taxes on capital goods will be removed.
The government says it will also provide land rights for 95 years, extendable by the same period — far longer than elsewhere in Indonesia.
People who live and work in the new city will also be exempt from income tax, the government promises.
‘Risk of failure is extraordinarily high’
Despite those incentives, there are still no guaranteed investments in the new capital city, according to Sulfikar Amir, an associate professor from Nanyang Technological University in Singapore.
“They are building a city in the middle of nowhere — in the middle of a forest — which is very new. I’m truly sceptical,” Dr Amir said.
“The Indonesian government doesn’t have any experience building a city in an empty land from zero, which means that the risk of failure is extraordinarily high.”
Dr Amir, who has been following the capital city project closely, said there were several reasons investors could be hesitant, including a lack of clarity on how backing the project might pay off.
“An investment would be compelling when we know for sure how big the profit is and where it comes from,” he said.
Dr Amir said investors in Singapore were also concerned the government’s commitment was not big enough.
“They [the investors] think that the risk is too high and thought, ‘Why would they bear 80 per cent while the government only bear 20?’ They think the risk is not fair and that it should be 50–50.
“And I think this is a very normal logic for investors, because they would not want to invest in a project that has a high level of uncertainty while they have to contribute a higher amount — more than the ones who have the interest.”
Almost 100 Singaporean investors visited the site of the Nusantara capital city shortly after Mr Widodo lifted Indonesia’s 20-year-old ban on exporting sea sand, a measure which could help land expansion projects in Singapore.
About a week after the visit, two Singaporean investors in renewable energy and waste management signed a non-disclosure agreement (NDA) with the project authority.
However, Dr Amir said the agreement did not guarantee actual investment, as more than 200 investors signed a letter of intent related to funding the project.
“[The letters] would not mean anything until [the Indonesian government] got the money,” he said.
“So until now, there have not been any official and fixed investment to the IKN [Nusantara capital city project]. They [the investors] only came and had a look around [the site].”
Concerns project will stall after Jokowi’s presidency ends
Investors have also been worried the ambitious project would stall after Mr Widodo’s final term as president ends in 2024, following elections in February.
Mr Widodo sought to allay those concerns when he spoke publicly at the Singapore event in June.
“Whoever will lead Indonesia will be focused on turning this magnificent country into the powerhouse and the giant of Asia,” he said.
Bambang Susantono, the head of the New Capital Authority, also dismissed investor concerns.
Asked whether the capital would continue under a new leader, Mr Susantono told reporters recently: “My answer is yes, absolutely.”
He was speaking from Sepaku, a district within the capital where more than 7,000 workers operating excavators and cranes were laying foundations for a new presidential palace in an area surrounded by eucalyptus forests for pulp and paper production.
But critics said laws can easily change, so it is no guarantee the project will run to completion.
Australia’s not a big investor in Indonesia
Tim Harcourt, industry professor and chief economist at the University of Technology Sydney, said Nusantara was “a strategic investment for Indonesia but not financially attractive for everyone else”.
“I think Nusantara is important but wouldn’t be a top priority for Australia, even though naturally it’s important for Indonesia,” he said.
Dr Harcourt said Australia had not traditionally been a big investor in Indonesia.
“We mainly export or import and do joint ventures,” he said.
“Australia and Indonesia have been great at trade, but investment has mainly been by bigger players like Bluescope, Orica, ANZ.”
He said right now, Australia was focused on its own clean energy projects, rather than those overseas.
“I think most of Australia’s green projects have been critical minerals, green hydrogen and some green building within Australia,” he said.
Jennifer Mathews, national president of the Australia Indonesia Business Council, said the project presented “a really big opportunity” for Australian businesses.
“I think we can offer some really interesting insights into good urban design and planning to enable that sort of sustainable and green development,” she said.
ABC/Reuters