Indonesia’s remarkable plan to reinvent not just a capital city but itself as a nation took another step forward over the weekend when the formal celebration of Indonesia’s independence took place in Nusantara, on the Indonesian side of Borneo Island.
But the project, still in its first year, is already facing significant issues, including little interest so far from foreign investors, missed deadlines, disputes over land ownership, and claims of environmental degradation.
The current capital, Jakarta, is home to 10 million people but is also the world’s fastest-sinking city.
It sits on swampland and is bisected by 13 rivers, and frequent flooding is also a significant issue. Modelling by the Bandung Institute of Technology suggests that, by 2050, about 95 percent of North Jakarta will be submerged.
The new capital has been more than just the building of a replacement on more stable land in the jungle of East Kalimantan—Indonesia has made the project a symbol of a proposed national reinvention that aims to make it a fully developed country by 2045.
The new city is planned to feature “smart city” initiatives and cutting-edge technology underpinned by sustainable and inclusive development.
Outgoing President Joko Widodo says that the new capital represents “a new work ethic, a new mindset, a new green economy.”
Modelled after the capitals of Brazil and Australia, Widodo says replacing Jakarta with Nusantara will lessen the regional inequality that exists across Indonesia.
Areas around government buildings are crisscrossed with walking trails, and there are plenty of trees and dozens of ponds.
Unlike the majority of major cities in Indonesia, including Jakarta, it is designed to be a pedestrian and bike-friendly landscape.
Low-carbon transport will be a key feature, as Nusantara is aiming for net zero emissions by 2045, 15 years ahead of Indonesia’s target. Only electric vehicles will be allowed in the city.
State utility Perusahaan Listrik Negara and Singapore’s Sembcorp Energy are building a 50-megawatt solar power plant slated for completion this year.
Start of the Transition
A week ago, Widodo led the first cabinet meeting in the new Garuda Palace in Nusantara (also known as IKN), a solid symbolic gesture of the government’s determination to push ahead with the project. Then, over the past weekend, he presided over the first Indonesian Independence Day celebrations to be held in the new capital.“IKN is a canvas where the future is created,” he said when opening the cabinet meeting on Aug. 12.
“Not many nations have the opportunity or ability to build their capital from scratch. Not only physical changes, the capital move to Nusantara [also marks] changes of our mindset. Economies that will be nurtured in Nusantara are the green economy and digital economy.”
Despite the events being held there and a law on Jakarta’s status passing in April that removed the word “capital” from the city’s description, Widodo said last month that the capital relocation requires a presidential decree.
That might be left to his successor, Defense Minister Prabowo Subianto, who will be sworn in as president on Oct. 20.
“We don’t want to rush something that is not [ready] yet,” Jokowi said. “We'll see progress on the ground.”
That leaves the country in an odd hiatus.
Legally speaking, it has no capital at all, although in practical terms, Jakarta will continue to perform many of the functions of one, even after the proclamation is made because the fifth and final stage of Nusantara isn’t slated for completion until 2045.
Work on the first stage began only this year. It includes the construction of basic infrastructure such as a dam and highways, as well as the centre of administration, where the new presidential palaces and ministerial offices are located.
Fourty-seven apartment towers containing nearly 3,000 residential units—enough to house 10,000 people and meant for civil servants and their families—are also being built. The residents are expected to start moving in next month.
The city is expected to host a population of 1.2 million by 2029.
Widodo’s Lasting Legacy
With just over two months left in his 10-year tenure, Widodo is rushing to make as much progress as possible on a project he sees as his major legacy.However, since the law prohibits the state from paying for more than 20 percent of the estimated 466 trillion rupiah (US$29.3 billion), the rest needs to come from the private sector.
The government has already spent roughly 83 trillion rupiah on first-phase projects, leaving only 10 trillion rupiah to reach the 20 percent threshold.
Widodo had promised the balance would come from public-private partnerships and direct private investment, including from overseas. But so far, the private sector has only committed 56.2 trillion rupiah to Nusantara, most of which is from Indonesian companies.
The outgoing president claims 55 projects are underway, including hotels, hospitals, banks, education institutions, and retail and logistics centres.
“It wouldn’t make sense to try to develop Nusantara without foreign investment because then it will be sucking investment away from other sectors of the economy.”
To attempt to woo offshore funds, the Indonesian government offers extraordinarily generous tax concessions and even guarantees the future cash flows of any significant private infrastructure developed in the new capital.
Investments of at least 10 billion rupiah (US$650,700) will receive up to 100 percent exemption from corporate tax for a maximum of 30 years. The duration of this incentive depends on the sector in which the investment is made.
For instance, those focusing on developing renewable energy, wastewater treatment, or an underground utility network will receive the maximum 30-year concession.
Any company establishing headquarters, regional offices, and financial centres in Nusantara will receive tax deductions.
Environmental Destruction Concerns
However, the project has its detractors, too, who are concerned that it is destroying large areas of forest and ancient mangroves that are rich in biodiversity.Forest Watch Indonesia (FWI) claimed 18 thousand hectares have already gone.
It also points out that land in the region is held under a “highly complex” system of permits, some overlapping, held by “various space-hungry investments like mining, logging, industrial timber estates, and palm oil plantations.”
This situation, FWI claims, means negotiations to acquire the land for the construction of Nusantara “is likely being done in a closed manner and without meaningful public participation.”
A government spokesperson, however, said the president plans to protect and replant almost 180,000 hectares (445,000 acres) of forests, ring-fencing 10,000 hectares (25,000 acres) of green space within Nusantara.
Meanwhile, there are also questions about incoming president Prabowo’s commitment to his predecessor’s vision despite his promises of policy continuation. He talks more about his policies of providing free meals for children and boosting the defence sector than about Nusantara.
