News Room - Business/Economics

Posted on 14 Jan 2009

Glum outlook for construction: Survey (Indonesia)

The influential role of the construction sector in boosting the economy this year might be a tad overrated, as the global financial and liquidity crisis squeezes available financing for construction projects, an international survey has shown.

 

Issued last week, the survey, by the global construction sector research center, BCI Asia, forecasts lower investment in construction this year. reversing the impressive growth of the year before.

 

According to the survey, after construction projects last year enjoyed exceptional growth rising to US$27.2 billion, up from $19.8 billion in 2007, the forecast trend for this year is down, as the global economic crisis hits home.

 

The survey shows that the value of projects under construction could fall to $22.9 billion by the end of this year, contracting by at least 16 percent from last year and possibly falling even further to $15.3 billion next year.

 

BCI Asia Managing Director Thor Kerr said that the decline was already felt by the end of 2008.

 

"The value of projects at design and documentation phases contracted last year because major projects were abandoned for lack of finance," Kerr said.

 

Against the backdrop of the global economic slowdown, the government expects Indonesia's economy to grow this year by between 4.5 and 5.5 percent, somewhat slower than the estimated 6.1 percent in 2008. Some economists forecast even slower growth, arguing that only 4 percent growth would still be quite an achievement under current adverse global conditions.

 

To stimulate economic growth and minimize the negative impacts of the downturn, the government is committed to spending more than Rp 100 trillion (around $9.1 billion) on infrastructure projects. The government has also estimated the need for around $65 billion for investment in the sector.

 

Still, despite huge government funds allocated for infrastructure, the survey expects that this year and next, there would be fewer new industrial facilities and utilities being constructed. A recovery is set to take place in 2011 when business confidence and international liquidity should return to the market.

 

The value of projects under construction in 2011 will rise to $23.6 billion before peaking the year after at $32.7 billion, the survey said.

 

For this year however, decline is inevitable, emulating the trend in Asia, where construction volume will fall by at least 16 percent and maybe as high as 32 percent.

 

In November last year, Vice President Jusuf Kalla said in a speech that the construction sector would play a major role in priming the economic pump and maintaining people*s buying power.

 

"During a time of crisis, the government must find a way to create jobs and increase buying power," he said. *The construction industry*s work must be maintained,* he added.

 

But, aside from the government-funded projects, private investment would be harder to come by, according to the BCI report, a prediction shared by publicly listed construction firm PT Adhi Karya.

 

"Nongovernmental projects tend to be high-risk nowadays with difficulties in loan mobilization," Adhi Karya corporate secretary Kurnadi Gularso said recently.

 

According to the survey, an average of $6.3 billion has been spent in the country annually on private projects such as hotels, retail outlets and offices.

 

Meanwhile, around $8.6 billion has been spent mostly on government-related projects such as power stations, infrastructure and mining facilities.