Indonesia on the hunt for investors to back its new capital

Indonesia is struggling to attract foreign investors to fund the development of a $32bn new capital city on the jungle-clad island of Borneo after Japan’s SoftBank withdrew its backing in March.

“Many countries are interested in participating” in the government’s plan to shift the capital from Jakarta to the newly christened city of Nusantara, including China, Japan and South Korea, the lead official for the project insisted.

“Hopefully by the end of this year we [will] know how many investors are very serious,” said Bambang Susantono, head of the Nusantara Capital City Authority, in an interview with the Financial Times.

Nusantara is the signature project of President Joko Widodo, who views the new capital as fundamental to his legacy after his second term ends in 2024. Jakarta sits on swampland and is sinking rapidly. Parts of the megacity that has a metropolitan population of 30mn could be completely submerged by 2050.

Widodo, who announced the project in 2019, has been criticised for rushing through a bill mandating the capital’s relocation, especially after funding for the project failed to materialise.

Japanese tech conglomerate SoftBank pulled out of the project in March and no other big investor has been announced, although the Asian Development Bank is assisting with planning and fundraising.

Susantono said South Korean and Japanese groups were interested in sharing technological expertise for the green, smart city and that “China is interested on many fronts but we are still discussing . . . their involvement”.

After a meeting in July between Widodo and President Xi Jinping, China’s foreign affairs ministry said Beijing would take an “active part” in developing the new capital.

Indonesia said public funds would be used for only 20 per cent of the project when it is completed in 2045 and home to as many as 1.9mn people.

But experts expressed doubt the government could attract that level of private backing, comparing Nusantara to other failed purpose-built capitals such Naypyidaw in Myanmar.

“The state cannot afford this,” said Jamie Davidson at the National University of Singapore, who has written a book on the politics inhibiting infrastructure investment in Indonesia.

Even the first stage seems “too ambitious”, said Deden Rukmana, a professor of urban planning at Alabama A&M University. “You cannot just bring everything into life in less than two years.”

There are also concerns over China’s involvement, which could deter western investors. “I think China will be the last resort. They want investors from other countries but they may ultimately have to go to Beijing,” said Sulfikar Amir from Singapore’s Nanyang Technological University.

The $3.3bn state-budget funded first stage, spanning 921 hectares, is scheduled to be completed by 2024, with the presidential palace finished in time to celebrate the country’s independence anniversary.

The vice-president’s palace and the headquarters of several ministries, the armed forces, the police and state-owned entities will also be completed, Susantono said.

“We want a complete ecosystem,” he said. “In 2024, you can come, you can see the plazas, you can have a Starbucks there, you can have restaurants, maybe not only Indonesian but also international restaurants.”

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