Indonesia’s building and construction sector is in the midst of a sustained boom, with both private and public spending on the rise.
- Indonesia’s construction sector is growing 7-8 percent per year.
- The Indonesia’s construction market totaled US$49.2 billion in 2014.
- In 2012, the construction sector contributed 10 percent to GDP.
- Annual per capita cement consumption in Indonesia stands at around 200 kilograms.
- Indonesia was identified as the top Asian country for construction market growth.
The construction sector in Indonesia has been growing 7 to 8 percent. One of the causes is high demand for housing and the growth of the property sector in several big cities around the country. Public works investment is key in the government plan to deliver roads, water resources and human settlement infrastructure for long-term development.
Foreign construction companies have been entering Indonesia for several years. In 2011, the number of foreign contracting companies registered in Indonesia was 128, mostly from Japan. The number of consulting companies registered in Indonesia is 78, and the number of EPC contractors is 23. In 2012, 5 contractors from India also expanded to Indonesia.
Indonesia Construction Project
According to data issued by the Indonesian Construction Association (AKI) the first half of 2011 saw 6.4 percent growth. The private sector is developing up to 65 percent of all construction projects. Last year e.g. government planned construction more than 4000 kilometers of roads, 150 kilometers of rail lines and 14 airports. These all part of a building program aimed at improving transport and logistics linkages across the country.
According to the publication Asia Construction Outlook, Indonesia is the top rated country in terms of potential construction spending growth in the medium-term. Construction spending is forecast to grow about 5.2% per year in the 2014-2019 period, which is above the regional average of 4.4 percent. In fact, the publication has identified Indonesia as the second most profitable construction market in Asia. The country also has an increasingly open and attractive market for investment.
Indonesian cement sales are expected to peak at 95-97 million tons in 2017, while domestic production capacity is expected to reach 90 to 95 million tons by the same year. Production capacity in 2014 is 68 million tons per year. Therefore, Indonesian cement producers need to enhance production capacity to meet future cement demand.
Semen Indonesia, the largest cement producer of Indonesia, is planning to construct new cement plants in Padang and Rembang. With effort to add a total of 6 million tons of cement per year to the current production capacity figure of 30 million tons per year. Total investment for these two plants is about IDR 7 trillion (USD $598 million). Meanwhile, Indocement Tunggal Prakarsa, Indonesia’s second largest cement producer, is planning to invest USD $1.2 billion for the construction of two new plants in Central Java and North Sumatra. This raise Indocement’s total installed design capacity from 18.6 million tons in 2014 to around 24 million tons by 2018.
Asia Construction Outlook notes that 2013 construction spending in Indonesia totaled US$247 billion. Under the new economic development master plan (MP3Ei) for 2011-2025, the Indonesian Government estimates almost US$181.8 billion of infrastructure investments will boost economic growth under the six new economic corridors across archipelago. Major infrastructure projects include:
- Trans-Sumatra toll road
- Cibitung-Cilincing toll road
- Halim–SoekarnoHatta express train
- Trans-Sulawesi train>
- 10 new airports
- Kali baru Port, Bitung Port, and Cimalaya Port
These new projects, along with increased activity by the private sector, put a strain on Indonesia’s building materials suppliers. These Projects should have to boost production capacity to meet the growing needs of local builders.
Surveys predict that the strongest regional construction spending growth will be in Indonesia and China.
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