A road winds through plantations from the site of Unilever's planned $150 million factory to the coast in western Indonesia — ending at a port too small to load the chemicals the company seeks to ship from the remote region.
"We're committed to the investment," said Sancoyo Antarikso, a Jakarta-based director of the Indonesian unit of Unilever, the world's second-largest consumer goods maker. "But we need government support to build infrastructure."
President Susilo Bambang Yudhoyono plans to fix that by pouring $12 billion into ports by 2025, supporting special economic zones in the nation of more than 17,000 islands. It's part of his goal to expand Indonesia's economy almost fivefold to at least $4 trillion in the period. Unilever's plant making ingredients for soaps and shampoos will lie in one such zone, Sei Mangkei, 830 miles (1,335 kilometers) northwest of Jakarta.
"Development of ports is essential," said Henry Sandee, a senior trade specialist at the World Bank in Jakarta. "Trade between islands can take place at low costs only when ports function well."
The need to boost spending on harbors, roads and railways stands to benefit construction businesses such as PT Pembangunan Perumahan, PT Wijaya Karya and PT Adhi Karya, according to PT Bahana Securities. Each of the stocks may advance more than 20 percent in the next 12 months, said Harry Su, head of research.
Yudhoyono's plan is to add infrastructure to achieve growth of up to 9 percent annually, as in China. The pace of expansion in the world's fourth-most populous nation has averaged about 5.6 percent in the past decade, less than China's 10.6 percent.
Six of the world's 10 busiest ports in 2011 were in China, according to the World Shipping Council. Indonesia's only entry in the top 50 was Tanjung Priok near Jakarta, ranked 24th. State-owned Indonesia Port Corporation II has started work on a harbor in Kalibaru near Tanjung Priok to ease bottlenecks.
"The expansion of this port is very urgent," Indonesian Deputy Trade Minister Bayu Krisnamurthi said in an interview in Jakarta. "If we don't do it now, we'll face difficulty later."
In addition to fanning domestic shipping costs, berths that are too shallow for bigger vessels curb direct links to overseas markets such as Europe, forcing Indonesia to feed goods abroad through terminals in Singapore.
Ships carrying 6,500 standard 20-foot containers, or TEU, are currently the biggest that can berth at Tanjung Priok, compared with up to 16,000 TEU for those sailing between Asia and Europe.
Five of Indonesia's six major container ports are operating above capacity, reducing efficiency and raising logistics costs, Michael Lund Hansen, regional director of portfolio management in the Asia Pacific for A.P. Moeller-Maersk A/S's APM Terminals, said in Jakarta in 2011.
Indonesia placed 59th out of 155 economies in the World Bank's Logistics Performance Index for 2012, up from 75th in 2010 but below Singapore, Japan, Taiwan, South Korea, China, Malaysia, Thailand, India, the Philippines and Vietnam. The index measures the perceptions of international freight forwarders doing business with Indonesia.
Still, the allure of growing spending power in a nation of about 240 million people is luring foreign companies.
Indonesia may generate $1.8 trillion in annual sales for agriculture, consumer and energy companies by 2030, McKinsey & Co. said in a report in September. There will be 31.1 million households with over $10,000 in annual disposable income by 2020, from 13.7 million last year, according to Euromonitor International.
"The chief allure of Indonesia continues to be the familiar story of consumption," said Wellian Wiranto, an investment strategist at the wealth management unit of Barclays Plc in Singapore. "Everyone's looking for buyers of last resort, and there just happen to be over 200 million of them in Indonesia who continue to snap things up, be it motor cars or soap bars."
Yudhoyono, whose second and final term ends in 2014, outlined a strategy of creating six economic corridors as well as the special economic zones in the country's development plan for 2011-2025. The corridors range from areas centered on mining, such as Kalimantan, to the tourism hotspot of Bali.
In Northern Sumatra's Sei Mangkei special zone, Unilever plans to hire 600 workers and invest 1.45 trillion rupiah ($150 million) in a plant that makes oleochemicals, which are used in products such as soaps and cosmetics, said Antarikso. Unilever is based in London and Rotterdam.
Businesses such as Paris-based L'Oreal, the world's largest cosmetics maker, are also expanding in the country. The company is investing 100 million euros ($128 million) in a plant in Jababeka Industrial Estate, West Java, which will be its largest one globally.
Indonesia's Investment Coordinating Board targets domestic and foreign investment of 300 trillion rupiah in 2012.
Yudhoyono plans to spend about 1,786 trillion rupiah through 2025 on projects such as new roads, bridges and ports. Under his economic master plan, Kuala Tanjung near Sei Mangkei, and Makassar and Bitung in the east, would become alternative international seaports in addition to an expanded Tanjung Priok.
The construction push should help lift Pembangunan Perumahan shares to 925 rupiah in the next year, said Su of Bahana Securities, from a close of 770 rupiah yesterday. Wijaya Karya will climb to 1,700 rupiah from 1,330 rupiah. Adhi Karya will also advance to 1,700 rupiah, from 1,380 rupiah, he said. All three companies are based in the capital.
At the same time, gains in the president's economic development program have been undermined by corruption scandals and delays caused by land disputes. Yudhoyono has mandated a maximum 583 days to complete land acquisition for public works.
In Sei Mangkei, the government has been slow to issue permits allowing construction on protected mangroves, said Hartono, senior manager for planning and enterprise development at Indonesia Port Corporation I, who like many Indonesians goes by one name.
"If the government wants to implement its master plan and make Sei Mangkei into a special economic zone, it had better ease more on permits to build infrastructure," he said.
— With assistance from Berni Moestafa, Hidayat Setiaji and Eko Listiyorini in Jakartam and Brendan Murray in Sydney.Reuse content