The growth of the construction sector in Indonesia is relatively slower than growth of manufacturing industry, trade/hotel/restaurant, agriculture and service. It’s not wonder if the construction sector ranks fourth in the absorption of credit, after the four above-mentioned sectors.
However, entering 2011, optimism about the more significant growth of the construction sector comes. The Indonesian National Construction Developers Association (Gapensi) predicts that national construction expenditure in 2011, resulting from state budget, regional budgets, state and regional administration-owned enterprises and private will reach Rp. 204 trillion thanks to the increase in the budget of the Public Works Ministry by Rp. 56.5 trillion.
The construction expenditure is predicted to be higher than the realized spending this year, estimated at Rp. 184.2 trillion. In view of the huge amount of expenditure, it’s reasonable if the construction service constitutes a sector playing importance role in driving up economic growth, including the opening of significant job opportunities.
Data presented by the Government disclose that the sector ranks sixth of the nine sectors contributing Gross Domestic Product (GDP). For instance, the construction sector contributed Rp. 555 trillion or 9.9% to GDP in 2009. In the case of manpower, the sector absorbed 5,438 people or 5.3% of the total Indonesian manpower.
In line with the rising budget of the Public Works Ministry to Rp. 36.3 trillion in 2010, the construction sector ranked fifth in the list of the nine sectors, which constitute the main contributors of GDP.
If the contribution is predicted to increase by only 7.5% in 2010, the sector makes up Rp. 600 trillion of the total GDP and the absorbed manpower is estimated at six million. In view of the trend, construction service providers are still optimistic that the relatively stable growth of Indonesian economy in the last several years was supported by among others the role of the private sector in the provision of infrastructure.
In addition, construction service providers have also continued to grow, from 105,510 business entitles in 2008 to 154,000 in 2010. However, the construction service providers were dominated by small-scale companies. For example, the business entities operating in the provision of construction service totaled 105,510 in 2008, of which some 94,968 (89.8%) are small-scale companies, 10,057 (9.5%) are medium-scale companies and only 755 (0.7%) are large scale companies.
The number of construction service providers is predicted to increase to 162,000 in 2011, of which 139,520 (86%) are small-scale companies, 19,987 (12%) are medium-scale companies and 2,493 (1.04%) are large-scale companies.
However, the quantitative increase has not been followed by the improvement of qualification and performance, reflected by the quality of products, punctuality of realization, efficiency in the placement of human resources, capital, and technology. Consequently, local players have not been able to complete with foreign construction service providers operating in Indonesia, currently totaling 150.
Business communities concede that the condition is attributed to, among others, improper regulation ob business requirement and qualification or skilled manpower. In addition, classification of business field has not been competitive with business classification internationally and assessment of business entity capability has not been executed by competent assessors as well as personnel in change of technical affairs have not been empowered accordance with the existing regulation.
The construction service will grow positively if the issues are solved and the central and regional governments are committed to boosting the development of infrastructure projects. We must concede that the principal of the construction sector is infrastructure so that the development of physical facilities and infrastructure, such as toll road, seaport, airport and other public utilities need support of the construction service sector.
Commenting about the stagnant development of infrastructure, the government has realized that the issue is attributed mainly to arduous licensing, non investor-friendly bureaucracy, overlapping regulations and complicated land appropriation. Actually infrastructure projects could be realized easily if the government has strong political will to overcome problems which have long encountered the construction business communities.
Infrastructure projects will not only enhance competitiveness of Indonesian economy but also create multiplier effects resulting from the acceleration of economic growth, manpower absorption and enhancement of the people’s welfare.
The funds provided in the state budget are quite abundant. In addition, financing sources also come from banking, capital market. Shortly the sector encounters no problem financial but the issue resides in the field. Once again if the government is able to overcome the problems, economic growth will be better.
Interregional, insular and city connectivity requires linkage through highway and toll road facility and infrastructure as well as transportation facilities to facilitate the transport of goods, people and service. The success of China and India to develop their economy so as to be able to grow double digit is driven by strong political will of the governments of the two countries to build and provide adequate infrastructure and support of the whole people. Hopefully the success of the two countries could inspire the Indonesian government to do the same thing in Indonesia.