Indonesia’s building and construction sector are experiencing sustained growth, with increasing spending from both the private and public sectors. The building and construction sector is one of the strongest sectors that support economic growth in Indonesia. A study conducted by the Central Bureau of Statistics (BPS) shows that the construction sector is in the third position as the main source of Indonesia’s economic growth. The growing construction sector made Indonesia’s economy grew by 5.01% in 2017 and GDP by 10.38%, higher than the previous year.
- In 2018, total construction projects in Indonesia, excluding the oil and gas sector, are predicted to cost IDR 451,337 billion (USD 32.2 billion).
- Indonesia’s construction sector is growing by 7-8% per year.
- Infrastructure projects in Indonesia are the key to enhancing Indonesia’s construction sector.
- Between 2017 and 2022, Indonesia’s construction market is predicted to grow by 6.6%.
- In 2017, the construction sector contributed 10.38% of GDP.
- Civil construction will grow by a further 4% to IDR 293,827 billion (USD 21 billion) in 2018.
- Building construction (especially in the residential and industrial sectors) is projected to grow by 1% in 2018 to IDR 157.511 billion (USD 11.3 billion).
- The annual per capita cement consumption in Indonesia is around 200 kilograms.
- Indonesia is the top Asian country for construction market growth.
Its Growth is Inevitable
Total construction projects in Indonesia in 2018, excluding the oil and gas sector, are predicted to reach IDR 451,337 billion (USD 32.2 billion) in 2018 – 65% are in civilian areas and 35% in the building sector. In addition, the overall construction sector in Indonesia continues to grow by 7-8% per year, driven by energy and housing projects and infrastructure investment in various cities in Indonesia. This has resulted in a high demand for the construction industry. The focus on developing transportation infrastructure, water sources and construction of affordable housing units will be the key drivers for this industry, supported by the 2015-2019 Development Program, as the Indonesian government’s plan to develop Indonesia’s transportation infrastructure.
Indonesia ranks highly in terms of growth in spending on construction, as well as the second most profitable construction market in Asia, according to the Asia Construction Outlook. Indonesia’s spending on construction is estimated to increase by around 5.2% per year during 2018-2019, above the regional average of 4.4%. Foreign construction companies have entered the Indonesian building and construction market for several years, including from Japan and India.
Building and Construction Projects in Indonesia
According to the Indonesian Construction Association (AKI), the private sector develops up to 65% of all construction projects. The next few years will be tremendous opportunities for most market players in this sector as the Indonesian government aims to initiate several major infrastructure projects. Information from the Oxford Business Group shows that these projects include 2,600 km of roads, 5,500 km of rail, 49 dams and 24 seaports, 1,000 km of toll roads, and a power plant with a total capacity of 35,000 MW. Above all, under the master plan for the acceleration and expansion of economic development (MP3Ei) for 2011-2025, the Indonesian government estimates that IDR 2.55 trillion (USD 181.8 billion) is prepared for infrastructure investment.
This investment will increase economic growth under the six new economic corridors throughout Indonesia. Major infrastructure projects include:
- Trans-Sumatra toll road
- Cibitung-Cilincing toll road
- the Halim – Soekarno Hatta fast train
- Trans-Sulawesi Train
- 10 new airports
- Kali Baru Port, Bitung Port, and Cilamaya Port
Cement for Buildings and Construction
With the government’s efforts to support the development of the country’s infrastructure, sales of building materials, especially cement, are expected to increase, and optimism for cement companies in Indonesia will remain positive. Total cement sales in Indonesia reached 95-97 million tonnes in 2017, with a market growth of 10%. Semen Indonesia, the largest cement producer in Indonesia which controls 41% of the domestic cement market, increased its annual cement production capacity to 37 million tonnes in 2017. The increase in production from the previous 32-33 million tonnes fulfilled the growing demand for cement.