UAE commits $23bn to Indonesia infrastructure projects

The United Arab Emirates is to pump $23bn into Indonesia to help finance infrastructure and energy projects in south-east Asia’s largest economy. The UAE investments will be made via Indonesia’s new sovereign wealth fund, according to a spokesman for President Joko Widodo and will contribute to the building of the country’s proposed $31bn new capital city. The fund, created by Mr Widodo, is designed to support local start-ups and to boost economic growth.

The announcement followed a visit by Mr Widodo to the UAE at the weekend. The deal will include “11 business agreements consisting of energy, oil and gas, petrochemical, seaport, telecommunication and research,” said Luhut Pandjaitan, Indonesia’s coordinating minister for maritime affairs and investment, in a statement.

The UAE’s commitment comes after Mr Widodo, who was re-elected in 2019, made increasing foreign direct investment a priority for his second term. FDI is critical for Indonesia, which runs a current account deficit and in 2018 resorted to import tariffs to keep it in check, but also to bankroll Mr Widodo’s $400bn infrastructure programme, announced after his re-election.

This mega plan involves moving Indonesia’s capital from Jakarta to East Kalimantan province on the island of Borneo, as part of efforts to invigorate an economy that is growing at about 5 per cent a year. Construction is scheduled to begin in 2021 and relocation in 2024. Yet, Indonesia has lagged behind its neighbours in terms of FDI, with investors historically lamenting red tape and protectionism, especially in the natural resources sector. But FDI showed signs of picking up in the third quarter of 2019 aided by a post-electoral boost, with volumes growing 17.8 per cent year on year to Rp105tn ($7.6bn), according to the Indonesia Investment Coordinating Board. The UAE has joined other international players — including Masayoshi Son, chief executive and founder of SoftBank, and the Asian Infrastructure Investment Bank — in helping to fund the proposed new capital.

Indonesia wants to pass legislation to establish a plan for the new city in the first half of 2020. As part of the deal the Abu Dhabi National Oil Company (Adnoc) signed a series of agreements with Indonesia’s oil and gas company Pertamina and Chandra Asri, a petrochemicals company. Adnoc also signed a memorandum of understanding with Pertamina to explore the potential for the development of a crude oil to petrochemicals complex in Balongan, Indonesia. “The agreements signed with Pertamina and Chandra Asri will potentially help Adnoc to secure additional in-market presence in one of south-east Asia’s fastest growing economies,” said Sultan Al Jaber, Abu Dhabi company’s chief executive.