Tag Archives: Economy

Indonesian infrastructure: Paved with good intentions?

What's left of the road to the asphalt mine in Buton, Sulawesi
The road to one of the world's biggest asphalt mining areas

Asphalt. It’s not something I’ve ever given much thought to, except to wish there were more of it under the wheels of my car (Kenya) or motorbike (Indonesia). But now I’m in Buton, the island in Southeast Sulawesi which is one of the world’s largest suppliers of the stuff of which dream highways are made, so I thought I’d go and see an asphalt mine.

I say “mine”, but in eastern Buton you can walk across the slightly bouncy ground, bend down and pick up chunks of pure asphalt with your bare hands. It requires virtually no processing: scrunch it up a bit, roll it out and you’ve got a nice new road. The Buton Asphalt Indonesia company’s website proudly showcases the billard-table smooth roads that China builds with asphalt from Buton. And certainly China’s hungry for tar. A mainland Chinese company has piled up 50,000 tonnes of the stuff on the wharf I visit; the asphalt mountain stretches off into the distance, for all the world like an old-fashioned Welsh slag heap. It is scheduled to be dispatched to China that very night (five weeks after Indonesia’s ban on the export of raw minerals came suddenly into effect, but that’s another story…).

Buton Asphalt International is proud of its smooth surfaces in China
Buton Asphalt International's website boasts of smooth roads in China

The local government does nicely out of this business. Each existing mine needs at least four different types of licence (environmental, business, mining, “exploitation”), none of which is free. There are taxes and royalties. And some of the mines are owned by local politicians. The potential for future earnings is huge: it’s estimated that there are reserves of about 3.6 billion tonnes of natural asphalt in Buton; at current prices that’s a “street value” of US$360 billion. So answer me this: why did it take me over three hours to drive the 78 kilometres from the main city of Bau Bau to the asphalt mining area? Why does the local government not spend just a little bit of that revenue buying some of the asphalt hacked out of the ground in its very own district, and laying it down on the road pictured at the top of this post, the main thoroughfare leading to Asphalt Central?

Shaking up infrastructure and politics in Aceh and Papua

Poor David Cameron; something always seems to steal his thunder. During his visit to Indonesia today, it was two huge earthquakes in Aceh. I’m in Aceh just now, and was watching his press conference on Indonesian TV when the room started to shake and we had to tear ourselves away from his platitudes. The UK Prime Minister is reportedly looking for business for UK companies. If investment decisions were based on need, or on the impact they might have on the daily lives of poorer people, Cameron might encourage UK businesses to turn his blah blah about bridge-building into something more concrete. In the last couple of months I’ve been in two of Indonesia’s richer provinces, Aceh in the extreme west, and Papua in the far east. In both, there are shocking lapses in investment in infrastructure — lapses that make life miserable for kids on their way to school, women on their way to sell vegetables in the market, people trying to scrape together a living running motorbike or pick-up truck taxi services.

The high-wire act that passes for a bridge near Tangse, in northeast Aceh, shown in the video is the remains of a wooden bridge washed out by a massive flash flood in early 2010 — what the locals call “our tsunami”. Although there are still millions of dollars sloshing around in unspent funds donated for reconstruction after the 2004 tsunami, nothing had been done to fix this bridge 18 months after its evaporation. You’ll have to excuse the shaky filming — I had to keep one hand on the wire as I crossed….

A woman carries vegetables to market across a half-collapsed bridge in Wamena, Papua, Indonesia
A woman carries vegetables to market across a half-collapsed bridge outside Wamena, Papua

This other photo was taken in Wamena, in the stunning central highlands of the country’s richest province, Papua. Wamena is the main town in the highlands, and this bridge is on the main road out of town, linking the hospitals, markets and high-schools of town with the rural hinterlands. Or rather not linking them; motorbikes can get across but it has been months since a truck or minibus made the leap.

It’s sobering to see the people of Aceh’s reaction to today’s earthquakes, even in the hills where I am just now and where there’s no risk of a tsunami. The girl I was talking to went so faint that she to had to be helped out of the building for the second earthquake, 8.8 on the Richter scale. A little later, still shaky, she told me that she had lost several family members in the 2004 tsunami. She also agreed with someone’s only half-joking suggestion that this was the earth’s reaction to Monday’s elections in Aceh. These were comprehensively won by Partai Aceh, the political offspring of the GAM guerilla movement improbably directed out of Sweden. Though they’ve been widely accused of election-related manipulation, violence and intimidation, Partai Aceh played the Peace card in this election. But they played it upside down. Rather than say: “if you vote for us, we’ll keep the peace”, the rank and file, at any rate, were saying: “if you don’t vote for us, your precious peace will be no more”.

I rather suspect Partai Aceh would have won even without the scare tactics. But Earthquake-Girl’s reaction to my idiocy (as I wandered back in to the shaking building to get my computer) reminded me of this fact: the more people know the bitter taste of fear, the more effectively it controls their behaviour. The people of Aceh spent the 15 years to 2005 finding corpses by the roadside in the morning, trembling at midnight knocks on the door from guerillas and soldiers alike, being shaken down for cash, rice, a motorbike. They’ll vote for anything that avoids a return to that.

Spicing up capitalism: in praise of monopolies

Nutmeg drying
Nutmeg drying in the Banda islands. This low-grade nutmeg is known as BWP: "broken, wormy and punky".

I welcomed 2012 while in the Banda islands, moderately famous because just one of the nine tiny islands of this isolated group was once thought to be a fair exchange for Manhattan, something I wrote about while a Reuters correspondent in these parts two decades ago. The differing fortunes of the two islands — the one still rich in nutmeg, the other now just plain rich — inspired Michael Schuman to give us this homily of protest at protectionism. He makes a sensible enough point; economies need to anticipate tomorrow’s needs rather than try to entrench today’s. Could the Dutch have anticipated that the perfidious Brits would smuggle nutmeg over to the similarly volcanic, sea-side location of Grenada and break the Dutch monopoly over the spice trade that way? Probably, yes. Could they have anticipated that the market for nutmeg would implode in large part because people got better at preserving ice and chilling food, and thus had less need for preservatives such as nutmeg? Maybe. Did they give a damn about the long-term prospects of the crop, or indeed the local population? The answer to the second part of the question is obvious: since the Dutch slaughtered most of the indigenous population in order to establish the monopoly, they were unlikely to be overly concerned with the continuing welfare of the slaves they imported to work the nutmeg plantations. Whether they cared about the price of nutmeg in the long term is harder to guess at. Nutmeg provided a nice little bonanza for a while, but it was the vast sugar plantations of Java and rubber plantations of Sumatra that underwrote most of the development of the Netherlands, now one of the world’s more generous welfare states. Though by Michael Schuman’s standards the nutmeg growing islands of Indonesia are poor, it’s perhaps worth noting that, with the crop requiring virtually no work and nutmeg now fetching US$12.00 a kilo and the mace that covers it US$ 27.00 a kilo, the nutmeg planters of Banda are the envy of many people on other small, far-flung islands in Indonesia.

I was interested to find a staunch defender of the Dutch in the form of the British naturalist Alfred Wallace — some say the true originator of Charles Darwin’s theories of evolution. Wallace spent 12 years wandering this part of the world killing things: shooting birds and pinning down butterflies mostly, though he did a fair bit of damage to the orang-utan species, too. Writing in the 1850s, long after the Brits were growing nutmeg elsewhere, he claims that the Dutch had a moral duty not only to monopolise nutmeg, but to destroy any excess trees that might raise production and lower the price. His logic is as follows: nutmeg is not a necessary commodity. It is not even used by the natives as a spice. (That’s still more or less true, though they do make some quite good jam out of the fruit that surrounds the nut). So raising the price does not hurt the local population. On the contrary, pushing up the price and putting the gains into state coffers provides a source of income for the state that would otherwise be raised from the local population in taxation. And we all know that taxes do hurt.

It would be a fair argument if the gains did indeed go into state coffers, and if they were indeed used to benefit the people who were doing the picking, peeling, drying, and shelling of nutmeg. If money made from the (admittedly not very onerous) sweat of the Banda islands is used to swell private purses or subsidise the already relatively well-sated needs of people in the Netherlands, on the other hand, or even of people in Java, it’s harder to make the case. It’s a debate which is still immensely relevant today, as Indonesia struggles to divvy up the wealth that geography has distributed so unevenly across its great surface. Of which a great deal more anon…

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Indonesia gets investment status, but where’s the investment?

Indonesia starts the new year hopefully: it has been upgraded to investment status by one of the rating agencies. It’s no huge surprise; rating agencies tend to think quite short term, and short term, the indicators look good. The Financial Times is enthusiastic about what it calls a “demographic dividend” i.e. lots of young people. “Indonesia’s dependency ratio of workers to retirees is dropping from about 55 percent now to 45 per cent by 2025,” says the pink paper. What looks to the FT like “favourable demographics” looks to me like a collapsed family planning programme that will surely be problematic in the longer term.

But the paper’s David Pilling sees three other sorts of trouble: infrastructure, infrastructure and infrastructure. To that I would add pandemic corruption and the gaping absence of an independent judiciary, but I can’t disagree with the observation that there has been an underinvestment in ports and power stations. This little video was shot off a cargo boat “docked” at Lirang in Southwestern Maluku, at the sea border with East Timor (the grey land mass in the background of some of the shots is East Timor — a hazard for the users of cell phones because their powerful comms get passing boat passengers so excited about having a signal that we don’t clock that we’re paying international roaming charges). The scramble to get on board is a pretty good illustration of what many people on the remoter islands deal with if they want to go anywhere else, but since goods have to be offloaded in the opposite direction it also shows why petrol sells at more than five times the government-set subsidised price, and why it is so difficult to build up the other sorts of services that people want.

I’d agree, too, that more power stations are needed. I’ve learned that one of the easiest ways to judge the level of “development” of a town is to ask whether it has electricity 24 hours a day. Even when the answer is yes — and in this part of Indonesia it rarely is, below the sub-district (kecamatan) centre level — brown-outs are a norm; the sound of generators is almost as common in the evenings as the buzzing of mosquitos. I’m in two minds, however, about the underinvestment in roads. Building roads is the most palpable and most immediately achievable way for a newly-elected Bupati, the district heads who in this era of regional autonomy wield an immense amount of power, to show that he is delivering “development”. Building roads has lots of other advantages too. It’s an easy way to repay the favours provided by Chinese Indonesian businessmen (most of whom at least dabble in contracting) during the election campaign, not least because road building is easy to dole out: this 5 km stretch for PT Putra Wijaya, that 12 km block for the more generous PT Sinar Jaya. It involves contracting and buying stuff, so the possibility for kickbacks and skimming cash off budgets through overpricing is manifold. And it is endlessly repeatable. I’ve tortured my rented motorbikes over roads that are beginning to crack and subside at the beginning of the newly tarmacked stretch when the trucks are still out dumping asphalt at the far end of the same stretch, just a few kilometers down the road. They may as well have taken a can of black spray-paint to the existing
earth track.

In this age of transparency there’s often a “Papan Proyek”, a project information board, at the site of a new road construction project, so it’s possible to know what the formal budget is. If you added up all the stretches of road under construction in Indonesia, you’d probably get to a respectable sum. The problem is not an underinvestment in roads on paper, it is an underinvestment in well-engineered, sustainable roads in practice.

Credit where credit is not due

The Tree of Cell-Phone Life
Sucking a phone signal out of the cashew tree, Lamahera, Indonesia

You can tell a lot about a country from the sort of junk mail it circulates. Or, in the case of Indonesia, junk SMSs. Travelling in areas where a particular tree is designated as a “pohon senyal” or “signal tree” (hold on to the tree and you might just get enough of a signal of your phone to send a text or even make a call) I get quite excited if my phone beeps. But with disappointing regularity, it is someone trying to give me money. “NEED 200 MLN IN QUICK CASH? JUST 1.6 %, NO FEE, QUICK PROCESS FROM WELL KNOWN BANK. CALL EVA AT 021 92526473.”

200 million rupiah is around US$ 21,000. And MY well-known Malay-Indonesian bank assures me they’ll lock in a 7% interest rate if I put it on deposit for three months. So if I borrow at 1.6, and lend at 7.2… Hmmm. Is this beginning to sound like one of those Nigerian “You’ve won the lottery” scams? The easiest conclusion to draw is that a few Indonesians are very credulous, and that this is a plain old scam. But Bank Indonesia, the central bank. recently shocked markets by cutting its base rate to 6%, its lowest rate ever. Which means that money is getting cheaper for everyone — more credit floating around, though 3-month deposit rates of 7.2 become rather less likely.

My well-known bank is one of those trading at about three times their book value, pumping out around 20% more loans this year than last, in response to consumer demand. But wait, it’s also the bank that tried to shove a platinum credit card down my throat “Guaranteed no fees, life-long”. Despite the fact that I am unemployed and on a cultural visit visa. So that I can consume, simultaneously adding to their “assets” and creating demand, and so creating the need for more loans.

Having come from the doldrums of the Euro-wobbly West, it’s great to feel the energy of an economy that is growing at 6.5% a year. Faster even than inflation, for now. Bank Indonesia may well be lowering rates to discourage “hot money” from the West, but they have to consider, too, the message that cheap money sends to the recipients of all those junk SMSs. Does anyone else see the word “bubble” floating on the Indonesian breeze?