Business Implications of Indonesia's New Capital City

Indonesia’s new capital city – which is designed to be a green, smart city – presents several challenges and opportunities for business.

February 2022 , by YCPS Marketing & Communication Group

Last January 2022, Indonesia passed a law that effectively relocates the national capital of the country from Jakarta to an entirely new, yet-to-be-built city in the East Kalimantan province, which will eventually be named Nusantara.

Hoping to finalize the move by 2024, the Indonesian government has outlined several goals in a bill recently approved by Parliament such as redistribution of wealth and the reduction of pollution, traffic, and environmental impacts currently being experienced by Jakarta. Although current plans signify that cities within Java, like Jakarta and Bandung, will remain as the primary economic hubs of Indonesia, the relocation of the capital city to Nusantara will nevertheless have significant implications. 

Potential Business Implications
As part of the national capital’s relocation to East Kalimantan province, the transfer of government offices will be prioritized. By moving government offices to Nusantara, the hope is that big business players will trickle in and follow closely behind. Given that the Kalimantan province is four times bigger than Java in terms of area, the brand-new capital city has lots of opportunities for growth for those who will also relocate.

While one of the reasons this project was initially launched was to further diversify the country and spread out businesses beyond the highly saturated Java Island (which is home to 60% of the Indonesian population), one must wonder about the process that businesses will need to undertake to establish themselves in Nusantara.

For example, given that Bandung contributes approximately 14% to the national GDP (as per a report from the Ministry of the Republic of Indonesia), it is entirely possible that the city’s annual contribution might lessen as businesses will undoubtedly reallocate resources to account for the eventual relocation of the national capital. 

Although the Indonesian government has guaranteed that the migration will be a gradual five-phase plan, business expenditure is still expected to increase as imminent changes will affect operations like supply chain routes & management, manufacturing, logistics, etc.   Despite the difficulty that may arise in these areas, the move also presents opportunities for businesses in these sectors to branch out and offer their services outside of major cities like Bandung and Jakarta. While the relocation to Nusantara will be a challenging venture, it is also an equally exciting window wherein professionals can attempt to grow their businesses.

Opportunity for Smart City Implementation
In line with the government’s “Movement Towards 100 Smart Cities,” Nusantara will be developed as a smart city that will heavily emphasize sustainability. By doing so, issues related to urbanization and harmful environmental effects may be mitigated. Considering that smart city development requires collaboration between society and government, it is also possible that the implementation of a smart city concept will give businesses an easier time when accounting for the transition to Nusantara.

In the YCP Solidiance report “Can Indonesia Achieve ‘100 Smart Cities’ by 2045?” research has shown that there are significant government gaps in terms of smart city technology, thus, there is an abundance of opportunities that may be explored by potential stakeholders. These sectors vary and include areas like the Internet of Things (IoT), artificial intelligence (AI), machine learning, automation, etc. Both foreign and domestic players should recognize this trend and adjust investment accordingly.

Furthermore, to successfully replicate previous smart city developments like those in Jakarta and Bandung, the government will also need to rely on the participation of Micro, Small, and Medium Enterprises (MSMEs). To attract the support and business of MSMEs coming from more populated areas, the government will need to incentivize such a movement. In the coming years, expect further initiatives aimed at enticing large enterprises and small business owners alike to bring their businesses to Nusantara.

The development of Nusantara will play a significant role in determining the long-term future of Indonesia in several important regards, like business and economy. Since the project is still in its infancy, there is a high degree of uncertainty, but businesses should take note of the potential benefits that such an opportunity presents. Although there is a tremendous upside, some caution should still be taken as adjusting to the relocation of the national capital may be costly. Only time will tell if such an undertaking will eventually pay off. 

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