6 May 2021
Construction Industry in Indonesia trudges ahead amidst Covid-19
Spire consultant Intan Nilaputri shares her insights on the construction landscape in Indonesia. As Southeast Asia’s largest economy reels from the effects of the pandemic, the value of its construction industry fell by 11% but is expected to recover in 2023.
In 2020, the Indonesian government had a planned expenditure budget of IDR 423.3 trillion (US$ 29.57 billion) for infrastructure development, a figure that is 5.9% higher than that of 2019. The Ministry of National Development Planning of Indonesia estimates that the national construction industry will grow between 5.2% to 6.7% in 2021.
This growth is driven by Indonesia’s government policies, as well as both local and foreign investment into the sector. Data from Indonesia’s Investment Coordinating Board (BKPM) shows that in 2020, local investment still formed an overwhelming majority of investment into the construction sector, with a value of IDR 26.0 trillion (US$ 1.8 billion) amount to 92.7% of total investment into the sector.
While prevailing data suggests robust growth of Indonesia’s construction sector, the sector is reeling from the impact of the Covid-19 pandemic. Data from Spire Indonesia shows that the Covid-19 pandemic has caused Indonesia’s economy to weaken by 2.5% in 2020, with the value of the construction sector decreasing by 11%. Spire Indonesia estimates that the Indonesian economy and construction sector will recover in 2023, with a predicted annual growth rate of 3.5%.
Despite the Indonesian government’s largest spending on infrastructure in the last decade, the construction industry is not shielded from disruptions brought about by the pandemic. It is slated to experience delays in the completion of infrastructure projects. The Indonesian government has assisted businesses in credit restructuring and provided tax breaks, initiatives said to have been effective in helping the sector navigate the ongoing pandemic.
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