Indonesia's burgeoning economy tries to cope with weak state of logistics

INDONESIA's 240 million people are attracting foreign companies in search of consumers and export potential, but the weak state of national infrastructure makes logistics a critical road block to advancement, reports Bloomberg.

For example, Unilever plans to hire 600 workers and invest IDR1.45 trillion (US$150 million) in northern Sumatra's Sei Mangkei special zone, 830 miles (1,335 kilometres) northwest of Jakarta, where its plant will make chemicals in soap and cosmetics.

But today, only a single road goes through plantations from the site of Unilever's projected US$150 million factory to a port on the coast in western Indonesia, which is too small to handle chemicals the company wants to ship out.

The need for good harbours, roads and railways has become acute for further development. Without them domestic shipping costs are too high and berths too shallow for bigger vessels to make direct calls, thus necessitating smaller feeder ships to take goods to larger terminals, typically in Singapore. All of which undermines competitiveness.

Indonesian President Susilo Bambang Yudhoyono said the government plans to spend US$12 billion on ports by 2025, supporting special economic zones in the nation of more than 17,000 islands. He outlined plans for six economic corridors as well as the special economic zones from mining to the tourism.

Said World Bank trade specialist Henry Sandee: "Trade between islands can take place at low cost only when ports function well."

Said Deputy Trade Minister Bayu Krisnamurthi: "The expansion of this port is very urgent. If we don't do it now, we'll face difficulty later."

Said Unilever's country manager Sancoyo Antarikso: "We're committed to the investment. But we need government to build infrastructure."

Five of Indonesia's six major container ports are operating above capacity, reducing efficiency and raising logistics costs, said Michael Lund Hansen, Asia Pacific director for APM Terminals.

Only ships of the 6,500-TEU class can get in and out of the biggest berth in the country at Tanjung Priok, thus denying entry to ships double that size that now ply Asia-Europe trade lanes.

By 2030, Indonesia is expected to generate $1.8 trillion in annual sales for agriculture, consumer and energy companies, according to McKinsey & Co consultants. Rival research firm Euromonitor International sees 31.1 million households with annual disposable incomes of $10,000 by 2020, up from 13.7 million in 2011.

Said Singapore-based Barclays analyst Wellian Wiranto: "Everyone's looking for buyers of last resort, and there just happens to be over 200 million in Indonesia who continue to snap things up from motor cars to bars of soap."

Indonesia placed 59th out of 155 economies in the World Bank's Logistics Performance Index for 2012, up from 75th in 2010. But it still falls behind India, the Philippines and Vietnam.