The building and construction sector is one of the prominent sectors that support the economic growth in Indonesia. A study from Central Bureau of Statistics (BPS) shows that the construction sector is ranked the third as the major source of Indonesian economic growth. The flourishing of construction sector makes the Indonesian economy in 2017 grow by 5.01%, and the Gross Domestic Product (GDP) by 10.38%, higher than the preceding years.
The total construction projects market in Indonesia in 2018, excluding oil and gas sector, is forecast to reach IDR 451,337 billion (USD 32.2 billion) in 2018—65% would be in the civil area and 35% in the building sector.
In addition to that, the overall construction sector in Indonesia continues to thrive with the growth of 7-8% annually, driven by energy and residential projects and investment in infrastructure in cities across Indonesia, leading to high demand for the construction industry. Focus on the development of transport infrastructure, water resources, and the construction of affordable housing units for human settlement will be key growth drivers of the industry, supported by the Development Program 2015–2019, as Indonesian government’s plan to develop the country’s transport infrastructure.
Indonesia is ranked high in terms of potential construction spending growth, as well as the second most profitable construction market in Asia, according to Asia Construction Outlook. Indonesia’s construction spending is anticipated to hike approximately 5.2% per annum during 2018-2019, which is above the regional average of 4.4%. Foreign construction companies have been entering Indonesia’s building and construction markets for several years, including countries like Japan and India.
According to Indonesian Construction Association (AKI), the private sector is developing up to 65% of all construction projects. Over the next few years will be great opportunities for most market players in this sector as the government of Indonesia targets to start a few large infrastructure projects. Information from Oxford Business Group shows that these projects include 2,600 km of roads, 5,500 km of railways, 49 dams and 24 seaports, 1,000 km of toll roads, and power plants with a total capacity of 35,000 MW.
On top of that, under the new economic development master plan (MP3Ei) for 2011-2025, the Indonesian Government estimates an amount of IDR 2.55 trillion (USD 181.8 billion) of infrastructure investments. These investments will boost economic growth under the six new economic corridors across Indonesian archipelagoes. Major infrastructure projects are as follows:
As an effort of the government push to bolster the country’s infrastructure, building materials sales, particularly cement, are expected to peak, and the outlook for the cement industry companies remains highly positive. The total sales of cement in the country have reached 95-97 million tons in 2017, with market growth of 10%.
Semen Indonesia, the largest cement producer in Indonesia which controls 41% of the domestic cement market, increased its yearly cement production capacity to 37 million tons in 2017. The increase of Semen’s production capacity from its previous 32-33 million tons equips the company with a competitive edge to meet the ever-increasing cement demand.