In January this year, the Indonesian Parliament has approved a bill that officially declared Nusantara as the new capital city of Indonesia. Although Jakarta will remain the financial and commercial centre for the largest economy in Southeast Asia, the central government is moving its administrative centre to Nusantara, a new city being built in the middle of the rainforest at Indonesia’s East Kalimantan province on the Borneo Island. The idea of Nusantara is exciting enough to raise the interest of those who are seeking opportunities in the newfound city. This article will encapsulate what Nusantara has to offer and its prospects.
The reason to move the capital is due to a set of environmental issues facing Jakarta, including water crisis, chronic air pollution, more frequent natural disasters, and rising sea levels that are sinking the city faster. The government thus decided it was more economical to relocate the capital city to lower the development pressure on Jakarta. The relocation was also an approach to redistribute wealth to other parts of Indonesia, thus reducing disparities among regions by its economic spillover. Currently, the Javanese Island where Jakarta is located holds more than half of the Indonesian population and 59% of the national GDP.
East Kalimantan region was selected for the new capital due to its strategic location in the middle of the Indonesia archipelago. The site is situated between East Kalimantan’s major cities, namely Samarinda, the provincial capital city and the Balikpapan port city. This allows the site to leverage the existing infrastructures, thus saving on development costs. Currently, Nusantara is accessible by the Balikpapan-Samarinda and trans Kalimantan highways. Both cities are also equipped with seaports and airports, making Nusantara highly accessible.
In general, Kalimantan is a resource-rich region. East Kalimantan is among Indonesia’s significant export contributors with a total value of US$13 billion in 2020, although that amount is the lowest since 2004 due to the COVID-19 pandemic. Its primary exports are coal, oil and gas, palm oil, fertiliser, and rubber. Given the geographical advantages, the government plans to develop low carbon energy in East Kalimantan to support Nusantara’s vision to become 100% clean energy-dependent. Balikpapan is also set for petrochemical and pharmaceutical industries to capitalise on its strengths.
Nusantara region will cover 256,143 hectares of land, of which 56,181 hectares will be developed as the capital city, 6,116 hectares of land will house the federal government administrative centre, and the rest will be kept as green areas. The new city is estimated to generate 10 million population after completion, of which 500,000 people are estimated to move into the city in its first phase by 2024. Unlike other monofunctional government administrative centres like Canberra of Australia, Brasilia of Brazil and Putrajaya of Malaysia, Nusantara will also comprise other major economic functions. These include research and development and innovation (R&D&I), industry 4.0, smart city, education, tourism, healthcare, and businesses. It is envisaged to become the first FDI destination for Indonesia and the top 5 destinations for talents in Southeast Asia after 2035, and the top 10 most liveable cities in the world after 2045.
The infrastructure and facilities projects will be undertaken through public-private partnerships. These include, among others, electricity, water, communication, transportation, and government offices. On the other hand, the private sector is encouraged to invest in residential development, higher education, science-technopark, private healthcare, shopping malls and retailing, and Meetings, Incentives, Conventions and Exhibitions (MICE). Nonetheless, cautiously, active participation by government-linked companies in these businesses might crowd out private players from taking part efficiently.
Observing the current development in Indonesia, the relocation will likely materialise at least for its first phase. However, in the long run, the plan might face some recalibration and readjustment given the more normal uncertainties of the world today. The President’s commitment to move to the new capital by 2024 before the end of his term will diffuse the risk of the plan being derailed by his successor. The appointment of Bambang Susantono, the former Asian Development Bank (ADB) Vice-President, as the head of the National Capital Authority earlier this March shows the plan is progressing accordingly. Although Masayoshi Son’s SoftBank recent decision to pull out from investing in Nusantara has become a setback, the prospects are still promising as Indonesia continues to excite the world with consistent updates on the project to attract more investors. The country has now turned its focus to drawing investments from Middle Eastern countries and China.
Eventually, the success of Nusantara will depend on not only the hardware but also the support from its software – ease of doing business, efficient and corruption-free civil service, the right set and productive workforce and others. Therefore, the government is also looking into simplifying business processes and regulations, developing a digital governance ecosystem, strengthening coordination among government agencies, and improving the competency of its civil service towards smart governance. These factors, combined with good infrastructure and built environment, are imperative to set the look and feel of the place to attract investors and talents to support Nusantara’s future economic 4.0 aspiration.
To summarise, Indonesia is building its ambitious new capital city called Nusantara in East Kalimantan to redistribute wealth to other parts of the country while reducing development pressure on Jakarta. The government chose the East Kalimantan province as the site of its new capital due to its strategic location, abundant resources, and the existence of established cities and infrastructures nearby. The capital city will have mixed-used functions emphasising green, sustainable, and smart-city development. The development provides vast opportunities for investments and job creation to attract talents. A conducive ecosystem is being developed for businesses to thrive to complement physical development and ensure success. Therefore, getting things right from the start and sustaining the progress is pertinent for Nusantara to become a significant global city post-2045 as aspired.
