Investors Are Needed to Use Aceh’s New Infrastructure

Business challenges
Banda Aceh, TAG - The 2004 tsunami brought with it one ironic blessing — an economic awakening of sorts for Aceh, largely due to the $7 billion relief fund that was used to rebuild the province.

Boosted as well by the 2005 peace deal that ended the thirty-year armed conflict between separatist rebels and the central government, the money built new homes and other infrastructure, helping to strengthen many local communities.

Significant economic challenges remain, however, including the creation of stable employment and long-term development for a province that has long been on the fringes of the national economy. 

Nazamuddin Basyahsaid, an economic expert at Banda Aceh’s Syiah Kuala University, said that reconstruction efforts had yet to result in the establishment of a “sustainable economy,” because investment is still needed that will maximize the province’s harbor, road and airport facilities.

“New private investment on a massive scale has yet to be seen in Aceh. This is a critical need that could help fuel the economic engine for the long term. The money circling around Aceh comes from the [central] government and a few donors,” he said. 

The World Bank’s Director for Indonesia, Joachim von Amsberg, said that after reconstruction the biggest challenge for Aceh was to create a conducive climate for private investment. 

“The investment potential in Aceh is quite large, but it has to be accompanied by assurances of security and ease for investors to come into Aceh,” von Amsberg said. 

With the influx of reconstruction spending, growth in Aceh was strong in 2006 and 2007, at 7.7 percent and 7 percent, respectively, excluding oil and gas revenue, according to World Bank figures.

But figures for 2008 showed growth in the province contracting, as reconstruction neared completion and sectors not linked to the reconstruction effort — agriculture, manufacturing and energy — exhibited lackluster performance. 

With its current infrastructure, Aceh has loads of under utilized potential. The inauguration in August of the Sultan Iskandar Muda International Airport, for example, gave the once-isolated province a modern facility capable of handling 1.7 million passengers a year — if they come.  

Since its opening the airport is handling just six international flights — to Malaysia — a week on two carriers. AirAsia flies to Kuala Lumpur and Firefly flies to Penang. Domestic flights to Jakarta are offered once a day by Garuda Airlines and Sriwijaya Air, and twice a day by Lion Air. 

While the busy reconstruction process was underway, Garuda and Lion each flew to Aceh at least five times a day, even though the terminal hadn’t been completed yet. 

During the five years of reconstruction, some 140,000 new houses were built for tsunami victims. Thousands of new schools, hospitals, public health clinics, government offices, police stations and military facilities were also built. 

Almost two dozen large and small harbors were developed, one of which, Malahayati Harbor, built by the Dutch government 33 kilometers north of Banda Aceh, was expected to be a container port. 

But those plans have yet to be realized, and only local fishing boats are using the harbor on a regular basis. During weekends, local people head to the harbor to fish.  

The same thing occurred with Meulaboh Harbor in West Aceh’s capital city. That port was renovated by the Singaporean government as a way to accelerate growth in western and southern Aceh, but the infrastructure seems to have been ahead of its time. 

There is a similar story in Krueng Geukueh Harbor in North Aceh district, which is intended to serve the eastern coast, and Sabang port on Weh Island. 

These maritime hubs remain essentially vacant.

“There is no docking activity at the harbors. If they are not utilized soon, the condition of the harbors built by donor countries will tragically deteriorate,” said Nazamuddin, adding that Aceh should focus on developing the supporting infrastructure to complement the harbors and passing investor-friendly regulations.

There is also the unfinished highway connecting Banda Aceh and Meulaboh, which was to be funded by the United States Agency for International Development (USAID) under a 2005 agreement signed with the Indonesian government. 

The agency was initially committed to developing a 240 kilometer highway that included more than 100 bridges. 

During the signing of the memorandum of agreement between Indonesia and USAID at Lhok Nga Beach in May 2005, then minister of public works Joko Kirmanto, said, “it will be the most expensive road in Indonesia, as it costs Rp 10 billion ($1.06 million) per kilometer.” 

USAID, however, decided to build just a 115-kilometer road connecting Banda Aceh and Calang, the capital of Aceh Jaya district, about half-way to Meulaboh. The project appears to be stalled at about kilometer 90, while the official project Web site, www.acehroad.org, says it will be completed in early 2010. 

“If we drive toward Calang, we frequently curse and pray at the same time, cursing USAID, which has not finished the job, and praying for our safety on a heavily damaged road. We call it a road of curses and prayers,” said local activist TAF Haikal. 

USAID officials in Aceh refused to confirm if the project had been postponed and the Web site says work is continuing.[]

Investors Are Needed to Use Aceh’s New Infrastructure Investors Are Needed to Use Aceh’s New Infrastructure Reviewed by Nurdin Hasan on December 27, 2009 Rating: 5

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