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IKN development brings positive impacts to Indonesian investment

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By: Farhan Al-Farisi)*

Indonesia, a country poised for unprecedented growth, is witnessing a surge in investment opportunities as development of the nation’s capital city (IKN) progresses. The move of the capital to East Kalimantan has generated optimism and a real positive effect in the investment landscape, with the results clearly visible in the province’s growing economic activity.

It is known that President Jokowi carried out a series of groundbreaking projects for the IKN in East Kalimantan on Wednesday (17/1). There are at least 10 projects that will begin construction and are divided into three main categories , namely projects for BUMN, private parties, and for state agency offices. The realization of projects at IKN continues to be implemented, one of which is in preparation for the 79th Indonesian Independence Day on August 17 2024.

President Jokowi himself is optimistic that the celebration of the 79th Indonesian Independence Day will be held at IKN. This optimism comes in line with the massive infrastructure development at IKN which is located in North Penajam Paser, East Kalimantan. The Head of State also ensured that IKN development would remain massive in the future. Apart from that, in February 2024, groundbreaking will take place for 8 – 10 projects at IKN.

The transfer of IKN is known to have had a significant positive impact on national investment. One of these impacts is an increase in the national economy by +0.1%. This happened because of the optimization of potential resources that had not previously been utilized in new locations outside Java. Moving the capital city provides opportunities for the development of various economic sectors that can make a positive contribution to overall economic growth.

Meanwhile, East Kalimantan Province (Pemprov Kaltim) recorded a significant increase in investment during the first quarter of 2023, showing growth of 3.03% compared to the same period in the previous year. Investment gains for this period reached an impressive 23.91%.

The East Kalimantan Provincial Government has set a target of 64.5 trillion rupiah for investment in 2023, the first quarter resulted in a realization of 15.42 trillion rupiah. This includes a significant contribution of 11.36 trillion Rupiah from domestic direct investment (PMDN), involving 3,573 projects in various districts. Foreign direct investment (PMA) reached 274.45 million United States dollars or 4.06 trillion rupiah, spread across 448 projects throughout East Kalimantan.

Head of Planning and Development at the East Kalimantan One Stop Integrated Service Agency (DPMPTSP), Riawati emphasized increasing the investment target for 2023, especially in the mining sector which continues to dominate, contributing 42.21% for PMDN and 21.5% for PMA.

Riawati also emphasized that although it still depends on the mining sector, the government is very aware of the need for joint efforts to achieve increased investment targets.

The chairman of the East Kalimantan Kadin, Dayang Donna Faroek, expressed continued support from the Kadin and the provincial government for investors interested in East Kalimantan. Dayang also asked for support from the central and regional governments in providing adequate infrastructure. According to him, infrastructure is an important part that must be synchronized between the center and the regions to realize successful investment.

It is also hoped that moving the capital city will reduce the gap between income groups. By moving the center of government to an alternative province, the economy became more diversified into more populous sectors. This diversification is expected to help reduce income disparities, both regionally and nationally. Therefore, relocating the capital not only impacts overall economic growth, but also brings significant social benefits.

Although there is potential inflationary pressure of 0.3% basis points due to moving the capital city, this impact is predicted to be minimal if the selected province has good infrastructure and a diverse production sector. Better infrastructure readiness can overcome inflationary pressures that may arise, while a diversified production sector will help reduce the negative impact.

The transfer of IKN will also provide a significant boost to trade between regions in Indonesia. More than 50% of Indonesia’s territory is expected to experience increased trade flows, especially within the province where the new capital is located. Increasing good connectivity between provinces will be the key to stimulating trade growth and increasing economic integration between regions.

The growing investment landscape in East Kalimantan and spreading to other areas as a result of being driven by the IKN initiative, reflects the country’s commitment to Indonesia-centric progress and development. With IKN actively diversifying economic activities and increasing efforts to attract investors, the positive effects will not only be felt locally but also throughout Indonesia. Commitment from government and private stakeholders, combined with strategic planning and infrastructure development, positions Indonesia as a promising investment destination.

In addition, non-traditional sectors, especially the service sector, are expected to experience increased output , providing additional contributions to overall national economic growth. As a result, it is hoped that IKN development will not only be a strategic step in administrative terms, but also a major driver of economic growth and investment in Indonesia.

)* The author is a student at the University of Muhammadiyah (UMM) Malang

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