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Indonesian construction sector to grow strongly

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World Cement,

Indonesian construction will grow by rapidly to 2021, according to latest analysis by BMI Research. Although down on original estimates, “the scale of Indonesia’s industry means that even a growth rate aligning with the regional average represents significant additional value created.”

Construction activity will remain focused on the islands of Java – and particularly the Greater Jakarta Region around the country’s capital, and Sumatra. Java home to the largest population and most industrialised economy of the country. In 2015, 63% of construction activity was located in Java, according to official date.

Much of the growth in the construction sector will be driven by infrastructure development, with the Indonesian government planning US$423 billion worth of projects through to 2025.

“As the government continued to implement its ambitious infrastructure spending programme, we expect that real growth in Indonesia’s construction industry will reach an average of 6.9% per year between 2017 and 2021,” BMI Reseach said. Growth this year is expected to b 6.2%.

There remain risks to the outlook, however, as the government faces fiscal constraints and it relying of private financing for roughly 60% of the planned infrastructure investment. Issues around land acquisition and permit approval also remain a drag on the construction sector, while foreign investors face challenges competing with dominant (and politically-connected) state-owned firms in the construction and infrastructure sectors.

Despite the bullish outlook for construction, the Indonesian cement industry is currently operating at only 60% of capacity, following rapid expansion in the sector that has outpaced demand. According to Indonesia Investments, 1H17 cement sales ell 1.3% year-on-year to 29 million t – and annual growth has been slow in recent years.

Last October, HeidelbergCement subsidiary, Indocement, inaugurated its new cement plant at Citeureup. The new 4.4 million tpy production line represents one of the largest investments by the German building materials group in recent years. The new plant brings capacity at Indocement to 25 million t. Total cement sales in the country were 62 million t in 2016, according to the Indonesia Cement Association.

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