Unlocking Investment Opportunities in The New Capital of Indonesia

In recent years, the proposed new capital of Indonesia, Nusantara, has generated much interest and discussion. 

With plans to relocate the capital from Jakarta to the island of Borneo, the Indonesian government aims to decentralize economic activity and alleviate Jakarta’s current issues.

Moreover, the construction of Nusantara as the new capital of Indonesia offers immense investment opportunities for businesses and individuals alike, with ample potential for developing new renewable projects, infrastructure, and real estate. 

This article explores the investment prospects available in the new capital of Indonesia and the incentives provided to those who participate in this unique opportunity.

Jakarta is No Longer The Capital City of Indonesia by 2024

Despite pandemic-related setbacks, the relocation of Indonesia’s new capital to the island of Borneo is scheduled to take place in the first half of 2024.

Initially presented in September, the proposal involves relocating the capital from Jakarta to a 56,180-hectare area in East Kalimantan province. 

If the bill is passed into law by parliament this year, it will provide the legal basis for the 489 trillion rupiah project to proceed before the 2024 presidential election. 

Nevertheless, there are worries regarding deforestation and its potential environmental repercussions.

The relocation aims to promote a more equitable distribution of economic activity throughout the country, mitigate income inequality, and address the issues of traffic congestion, flooding, and pollution currently faced by Jakarta.

Why the New Capital Nusantara is a Prime Investment Opportunity

The estimated cost to construct the planned city of Nusantara is over $35 billion, with the Indonesian government funding around 19% of the total cost. 

The remaining funding is open to foreign investors, with commitments from investors in UAE, China, South Korea, and Taiwan and offers from European countries. 

The planned city offers various investment opportunities in infrastructure, industrial complexes, water treatment facilities, housing, hotels, chemical and green industries, ports, and airports. 

The Indonesian government also encourages investment in transportation and renewable energy outside the new capital. 

The government offers tax holidays, super-tax deductions, 0% withholding tax, additional tax benefits for the capital city’s development, and non-fiscal incentives. 

Infrastructure projects for the first development phase are underway, including a water reservoir and a toll road extension. With Indonesia’s growing economy and various incentives for investors, investing in the new capital of Indonesia is a compelling opportunity.

Read more: Indonesia to Adopt Global Minimum Tax in 2023: What It Means for Businesses

Investment Opportunities in the New Capital Nusantara

The Indonesian government offers several incentives to attract foreign investment to its ambitious new capital city project, Nusantara. 

The project, which will sit on a massive 632,850-acre site, presents opportunities for investors from various industries as it will require both soft and hard infrastructure developments.

The project aims to transform inland forests into a new administrative center to be a smart city with efficient operations and better government services, expand maritime infrastructure, and develop renewable energy sources. 

The sectors that are outstanding opportunities for foreign investors are: 

1. Development of Smart City

Nusantara aims to be a smart city that utilizes information, communication, and technology to enhance government services and operational efficiencies. 

The government plans to use the Internet of Things (IoT) to deliver connected solutions, such as monitoring traffic flows and energy conservation.

The capital city will have significant green open spaces, with 75% of the planned site designated as such.

2. Maritime Infrastructure

The government aims to establish Indonesia as the primary hub of Indo-Pacific maritime activity through the Global Maritime Fulcrum (GMF) master plan.

The GMF involves investing over $6 billion to expand ports in the archipelago and reduce logistic costs for investors. 

The sea toll program is the flagship project under GMF, aiming to reduce the price disparity of essential goods between the main islands and smaller isolated islands.

3. Renewable Energy 

Indonesia aims to achieve a renewable energy mix of 25% by 2025. The construction of the new capital from the ground up offers significant opportunities for creating fresh renewable initiatives. 

East Kalimantan province has considerable potential for clean energy, including wind power, biofuels, solar power, hydropower, and geothermal energy.

Challenges in Investing in the New Capital Nusantara

Firstly, as the construction of the new capital city is anticipated to take 15-20 years and comes with considerable opportunity costs, there is a concern that the IKN project may divert attention away from the government’s primary goal of managing the pandemic. 

There are also worries that the conflict between Russia and Ukraine may immediately influence financial and corporate decisions.

Secondly, IKN Law might have formal and material flaws since it was approved swiftly and without adequate public input, which is against the law. There are several petitions filed against the IKN Law.

Thirdly, the underlying studies need to be more comprehensive and provide a sound philosophical or technical analysis, which raises questions about the accuracy and reliability of the project.

Fourthly, The IKN mega-project is viewed as a risk to vulnerable biological habitats and environmental sustainability, raising concerns about ecological deterioration.

Fifthly, as there are concerns about the social disparity, the growth of urbanization, and social conflict, moving the capital may lead to new inequality and social strife. Therefore, the government must devise a plan to address this worry.

Lastly, as the majority of the land in the IKN area is already under the hands of private companies in the agriculture, forestry, and mining sectors—many of which have links to elite officials and their relatives—there are concerns about conflicts of interest in land concessions.

Conclusion

The move to IKN is a momentous one. Multiple ministries are involved in making the transition as smooth as possible. However, funding is still primarily needed. 

Multiple efforts have been made to the private sector through socialization to invite investments into the new capital of Indonesia. 

The project’s novelty has resulted in various incentives offered to participants, making it a unique investment opportunity.

Investors who want to become part of this movement may benefit from the services provided by InCorp Indonesia (formerly Cekindo) regarding company registration and business license.