Waiting for Joko: Indonesia’s infrastructure inertia stalls builders
JAKARTA - For Indonesia’s second-largest state construction firm PT Wijaya Karya Tbk, the half-year since President Joko “Jokowi” Widodo took office with promises of a massive infrastructure push has been as much about waiting as it has been about building.
Like its peers, Wijaya Karya had expected a revenue boost from the 290 trillion rupiah ($22 billion) the government had budgeted for infrastructure projects this year, a more than 50 percent increase from the previous year.
Investors, equally encouraged by Widodo’s five-year, $455 billion plan to beef up dilapidated facilities, have pumped money into the big four state builders. Shares of Wijaya Karya, PT Waskita Karya Tbk, PT Adhi Karya Tbk and PT Pembangunan Perumahan Tbk now trade at an average of 22.4 times their expected earnings for the next 12 months, above the average 15 times ratio for listed Indonesian firms.
These valuations, however, look increasingly precarious as the hopes that accompanied Widodo into office last year collide with the red tape and land disputes endemic to Southeast Asia’s largest economy.
“We had made the lowest bid for many projects, but the government hasn’t announced them yet,” Wijaya Karya CEO Bintang Perbowo told Reuters. “As there’s a delay on the government side, we have to tweak our strategy.”
Foreign investors have accounted for 42 percent of the Indonesian stock exchange turnover so far this year, and Thomson Reuters data shows Baring Asset Management and FIL Investment Management were, as of March, among the top 10 investors in Wijaya Karya.
The company, like other state contractors, is expected to support the government’s infrastructure push and had banked on state projects to account for more than half of 31 trillion rupiah it targeted for contracts this year. But worried about the government delays, it is now aggressively chasing private sector clients, Perbowo said.
“There isn’t much time left,” he added.
NOT GETTING THE MESSAGE
Total revenue of the four state contractors fell 9 percent in the first quarter, the biggest drop in two years, Thomson Reuters data shows. This reflected the lack of government disbursement, brokerage Danareksa Sekuritas says.
As of April, the government had spent less than 2 percent of its 2015 infrastructure budget, the finance minister told a national planning meeting.
Several ministers have blamed the slow allocation of funds on the government’s revision of the state budget in February to partly reflect the abolishment of fuel subsidies, but bureaucratic tangles also abound.
A $43 million reservoir being built by Waskita Karya, for example, has run into delays because of bureaucratic difficulties in clearing the land, Corporate Secretary Anton Nugroho told Reuters.
Analysts and some officials say the real hurdle facing infrastructure projects is the same blighting nearly all sectors of the economy: the disconnect between what Widodo says the government can do, and the reality.
“You have Jokowi still saying the right things, but at the end of the day he has to be supported by the rank and file,” said Wellian Wiranto, economist at Singapore’s OCBC Bank. “Not just the cabinet, but also the bureaucracy at large, and that part I think is still not getting the message.”
A former businessman and governor of Jakarta, Widodo portrayed himself during his election campaign as a man of action who understood investors’ needs. But internal sniping in his cabinet, along with the sheer size of the bureaucracy and the slowing economy, have since weighed on this image.
Earlier this month, Indonesia posted its weakest economic growth since 2009 for its first quarter, as the government struggles to find new engines for growth after a commodity boom fizzled out due to slowing demand from China.
Even private consumption, which makes up more than half of gross domestic product, is slowing down as a fuel price hike in November and a weakening rupiah have eroded purchasing power in the country of 250 million people.
“Initially people thought Jokowi was a different guy, he had a track record of getting things done,” said Keith Loveard, head of risk analysis at Jakarta-based Concord Consulting. “But I think the job has proved much harder for him than he imagined.”
LONG-TERM BOOM
Under Widodo’s five-year infrastructure plan, Indonesia needs some 25 dams, 10 airports, 10 industrial parks and about 2,000 km (1,250 miles) of roads.
Indonesia’s long-term spending plan for its infrastructure sector means that the potential is still huge, said Bharat Joshi, head of Indonesia investment at fund Aberdeen Asset Management, which is seeking exposure to the sector.
“We have to give the benefit of the doubt given that it’s Jokowi’s early days,” he said.
Aberdeen, however, prefers to invest in cement makers rather than the construction firms at the moment.
“We’re not sure who will actually be bidding for projects or what their execution track record is like,” Joshi added.
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