AREAS OF OPPORTUNITY

Indonesia 2018 | ECONOMY | INTERVIEW

TBY talks to Dr. Bambang Brodjonegoro, Minister of National Development Planning (Bappenas), on acquiring financing for infrastructure projects and boosting private sector involvement in the country.

Dr. Bambang Brodjonegoro
BIOGRAPHY
Bambang Brodjonegoro took office as the Minister of Bappenas in 2016 and previously served as the Minister of Finance from 2014-2016 in the cabinet of Joko Widodo. Under the administration of Yudhoyono, Brodjonegoro was the deputy Minister of Finance starting in 2011. Prior to his political career, he served as the Director at the Islamic Development Bank from 2009-2011 and as dean of faculty in the economics department at Indonesia University from 2005-2009. He graduated from the faculty of economics, University of Indonesia, with a master’s degree in urban planning. He holds a doctoral degree in regional planning from the University of Illinois.

To what extent will PPPs be utilized in the infrastructure sector moving forward?

Our main duty is to support the government in accelerating infrastructure development and the source of financing for the development could be from the budget, state-owned enterprises (SOEs), or the private sector. In our five-year plan through 2019, we have laid out that the budget might contribute a maximum of 40%. In our estimation, SOEs will contribute around 23%, which means there is still 37% left that has to be fulfilled by the private sector. Our role is to select the infrastructure projects that are eligible for one of these schemes of financing, with the objective to involve the private sector more. We have two schemes to do so: PPPs and equity financing. For both, our task is to promote these projects domestically and internationally, and we actively go on roadshows to meet with potential investors. In the past, FDI in Indonesia was mostly in manufacturing; however, we now have infrastructure as a real opportunity. For PPPs, we have a strong backlog of 90 projects, including social infrastructure such as hospitals, correction facilities, and educational institutions. For equity financing, which is pure private sector, we promote projects such as toll roads, power plants, airports, seaports, and oil and gas infrastructure.

How can you make private sector involvement more attractive?

For equity financing and PPPs, we have concessions for the private sector. For PPPs, the idea is that this is private sector money; it has a certain period of concessions depending on the project type, and if the project is not that viable for the private sector, then the government can step in with a guarantee or a viability care fund. For equity financing, it is even more attractive as the private sector does not participate as an active developer but rather a shareholder. We can support project recycling so it does not have to be on a greenfield site but can be brownfield or operating site. We target long-term fund managers such as pension funds, welfare funds, and life insurance, offering better returns than bank deposits at least 13%.

What unique opportunities for growth are in the SME sector, and how can you capitalize on entrepreneurship?

As an emerging country and member of the G20, we have aspirations to be a developed country, not just with a large GDP but also with a sizable GDP per capita. One critical oversight of our development strategy is the lack of entrepreneurship, both in terms of quality and quantity. Without significant entrepreneurship, we cannot be a developed country. The problem in Indonesia is that we are targeting the number of SMEs without checking if they are active in productive or value-added sectors, or mostly working as traders or retail. These professions are harder to scale into larger business models, and our challenge is to have our micro-entrepreneurs be more productive, either in agriculture, manufacturing, or services. We have always treated farmers and fishermen as though they are not entrepreneurs though they hold the greatest potential, and one strategy is to empower them more. Another strategy is to improve and promote vocational schooling. For this, we need to shift the mindset by promoting the importance and the prospects of these skills, especially to graduates that have the potential to become new entrepreneurs, applying their skills directly.

How do you follow trends and strategize on the development of the economy?

Our economy has to be adaptive to any new innovation, while also monitoring closely the impact of the digital economy for job creation. We still have around 5% unemployment, equivalent to 8 million people. With a more dominant digital economy, we need to be more creative in finding these opportunities. For future innovation, we would like to have job opportunities rather than just sophistication of IT. We should adapt the digital economy while absorbing unemployment.