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Nusantara: A New Beginning

reen economic transformation

Based in the Indonesian side of Borneo Island, Nusantara will be a new forest city, featuring smart city initiatives and cutting-edge technology based on sustainable and inclusive development. The plan for the new city, known in Indonesia as IKN (Ibu Kota Nusantara), is a bold move toward national reinvention that aligns with the country’s aim to be a fully developed country by 2045. “Nusantara will shape the new mindset of Indonesians by being a projection of the city of the future,” says Bambang Susantono, chairman of the Nusantara National Capital Authority. “With Nusantara, we will set up a new standard to live by.”

Nusantara will change the national development orientation from Java-centric to Indonesia-centric,

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says Bahlil Lahadalia, Indonesia’s Minister of Investment, who highlights how human development will be a big focus, along with upskilling programs for local communities.

“Nusantara is a unique project and an opportunity for investors to be a part of history while receiving a good rate of return,” says Susantono.

Nusantara, Indonesia’s new capital city, located within the jungle of East Kalimantan, is more than just a physical rebuilding of Indonesia’s capital. It is a chance to completely reinvent the Indonesian national ethos. Indonesian President Joko Widodo says that the new capital represents “a new work ethic, a new mindset, a new green economy.”

ecord Foreign Investment

While some have dismissed Nusantara as simply an opportunity for President Widodo to leave a lasting legacy after his second term ends in 2024, this ignores the underlying necessity for a new capital. Jakarta is the fastest-sinking city in the world, and parts of it could be completely submerged in less than 30 years. The necessity to save Jakarta and its over 10 million people makes the success of Nusantara imperative, as it is the lifeline to manage an impending but unavoidable crisis. Economically, it is hoped that Nusantara will greatly expand the regional economy by four to five times, and create 4.3 million to 4.8 million jobs in East Kalimantan by 2045. “Developing a brand-new city provides the unique opportunity to incorporate the latest thinking on what makes a city pleasant and efficient to live, work and play in,” says Ahmed M. Saeed, vice president for East Asia, Southeast Asia and the Pacific at the Asian Development Bank. The urban megaproject has received at least 200 letters of intent from companies in Indonesia and in partner countries such as Japan, Korea, Singapore and Malaysia, covering goods and services in diverse sectors such as energy, technology, infrastructure, housing and industrial zones.

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INDONESIA Driving the EV Revolution

INDONESIA

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A transformative and sustainable investment destination

1. https://www.nytimes.com/interactive/2023/05/16/headway/indonesia-nusantara-jakarta.html 2. https://www.nytimes.com/interactive/2023/05/16/headway/indonesia-nusantara-jakarta.html 3. https://www.ikn.go.id/en/article-and-news 4. https://seads.adb.org/news/building-green-and-smart-city-indonesias-new-capital 5. https://www.pwc.com/id/en/media-centre/pwc-in-news/2023/english/indonesias-new-capital-winks-to-foreign-investors.html 6. https://www.pwc.com/id/en/media-centre/pwc-in-news/2023/english/indonesias-new-capital-winks-to-foreign-investors.html 7. https://www.aseanbriefing.com/news/indonesia-issues-incentives-for-new-capital-city-project/

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A green and low carbon economy is one of the main strategies to transform our economy. In the roadmap towards net zero emissions by 2060, Indonesia has set ambitious targets by 2030. They include 42% of new and renewable energy in the energy mix, dominated by solar, also utilization of 2 million electric cars and 13 million electric motorcycles. Thus, we are strengthening the incentives and regulations for green investment to mobilize more capital for green projects.

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A transformative and sustainable investment destination

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says Bahlil Lahadalia, Indonesia’s Minister of Investment, referring to the increase in the country’s decarbonization targets from 29% to 31.8% (by its own efforts) or from 41% to 43.2% (with international support) in November 2022.

The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters.

PRODUCED BY REUTERS PLUS FOR

The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters.

PRODUCED BY REUTERS PLUS FOR

Nusantara’s current price tag stands at around $30 billion, and the government has already set aside 20% of the total investment. In the first out of five phases until 2045, the government is focusing on the core government area of Nusantara to host a population of 1.2 million by 2029. More than 300 investment projects have been identified, from housing, transport, telecommunication, to renewable energy, with estimated investment values ranging from $13 million to $1 billion. “The government has always rightly focused on bringing in foreign investment to help them develop the country,” says Julian Smith, lead for environmental, social and governance (ESG), and government and infrastructure at PwC Indonesia. “It wouldn’t make sense to try to develop Nusantara without foreign investment because then it will be sucking investment away from other sectors of the economy.” To build on the increasing investor interest, the government has introduced a variety of incentives including guarantees, tax exemptions and extended land rights. Under its availability payment plans, the government will guarantee the future cash flows of major private infrastructure being developed in the new capital city. “These new government schemes, which are basically providing an almost risk-free guarantee for investors, show that the government will put some skin in the game,” says Agung Wicaksono, deputy for financing and investment at the Nusantara State Capital Authority. Other incentives include providing up to 100% corporate income tax exemption for a maximum of 30 years for investments of at least 10 billion rupiah ($650,745). The duration of this incentive depends on the sector. For instance, within infrastructure and public services, investment activities that focus on the development of renewable energy, wastewater treatment, or underground utility network, will receive a tax holiday of 30 years. In addition, any company that establishes headquarters, regional offices, and financial centers in Nusantara will receive tax deductions. Finally, any company that specializes in vocational training or research and development will receive a super-tax deduction. On an individual basis, there will be an exemption from Individual Income Tax (“PPh Pasal 21”), value-added tax and sales tax on luxury goods. Under the new rules, land rights can also be extended by up to 190 years—double that of other major cities in Indonesia.

reaming Big

but with today’s limitations, continues Nusantara National Capital Authority’s Susantono. “But building a new city is not something that can be achieved overnight. In the end, my biggest hope for Nusantara is that the city can be a model not only for us, but the world.” The opportunity to be involved in the moulding of a new capital for Indonesia, which has one of the highest growth rates among G20 nations, is unprecedented. The first movers to be part of Indonesia’s boldness to dream big will undoubtedly be rewarded.

One of the biggest challenges of Nusantara is that we are trying to envision the city of the future,

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“Indonesia’s downstream plan will have profound significance for the global energy transformation and promotion of green and sustainable development,” says Chen.

Indonesia is already reaping the benefits of its downstreaming revolution. According to the Indonesia’s Ministry of Investment/BKPM, the country’s total foreign direct investment hit a record of $45.6 billion in 2022, an increase of 44.2% from the year before, due mainly to the country’s downstreaming policy. Basic metal and non-machinery industry contributed the largest share to total foreign direct investment at 24%; followed by mining (11.3%); chemical and pharmaceutical industry (9.9%); transportation, warehouse, and telecommunication (9%). The “policy will ultimately improve the structure of the balance of payments, strengthen the external position and create a more resilient economy,” states an International Monetary Fund (IMF) report on Indonesia published in June 2023. The world’s largest nickel miner, Indonesia holds the key to the global shift toward electric vehicles, with nickel a main component of EV batteries.

1. https://www.goldmansachs.com/intelligence/pages/gs-research/the-path-to-2075-slower-global-growth-but-convergence-remains-intact/report.pdf 2. https://iea.blob.core.windows.net/assets/b496b141-8c3b-47fc-adb2-90740eb0b3b8/AnEnergySectorRoadmaptoNetZeroEmissionsinIndonesia.pdf 3. https://www.whitehouse.gov/briefing-room/statements-releases/2022/11/15/indonesia-and-international-partners-secure-groundbreaking-climate-targets-and-associated-financing/ 4. https://www.eco-business.com/news/indonesias-coal-burning-reaches-record-high-amid-rise-of-industrial-smelting/ 5. https://www.adb.org/news/adb-and-indonesia-partners-sign-landmark-mou-early-retirement-plan-first-coal-power-plant

argeted Policies

Child on sitting on mother's shoulder from behind. Mother is pointing at a field of wind turbines.

Indonesia’s green transformation is vital in driving its next stage of economic growth. Southeast Asia’s largest economy offers immense opportunities in clean energy technologies, sustainable finance and a fair carbon market ecosystem.

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Situated right in the middle of Indonesia’s sprawling archipelago, Nusantara’s location speaks volumes about the principles behind Indonesia’s new mindset, and signifies the country’s push toward inclusive and equitable economic development.

Southeast Asia’s largest economy is ripe for economic transformation. With abundant natural resources, healthy economic growth and a youthful population, Indonesia’s economy is primed for a seismic shift.

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Nusantara: A New Beginning

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