Indonesia is feeling more optimistic about the progress in the construction of its new capital in East Kalimantan following the groundbreaking of a mixed use property project owned by China’s Delonix Group on Sept 25. This will be the first wholly-owned foreign investment project in “IKN”, or the New Capital of Nusantara.  

The Delonix project proves President Joko Widodo’s conviction that foreign investors would put their money into projects in the IKN, thus quelling rising doubt among observers.

Delonix was one of five investors, witnessed by Widodo on Sept 25, to break ground on their property projects in the new capital. The other four are an Australian joint venture firm, a Russian joint venture company, and three fully Indonesian investors.

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The Delonix project includes hotels, serviced apartments, shopping centers, office complexes, sports centers, and green open spaces, together occupying 24,000 sq m of land. Investment totals Rp 500 billion ($33 million).    

The Australian investor is the Australia Independent Schools. It will build a campus with a capacity for 750 children from pre-school to high-school levels. The investor from Rusia, Russia Magnum Estate, will build a luxury resort.  

Widodo expressed his optimism that Delonix’s move would trigger other foreign investors to follow suit.  

“These foreign investments, especially the Delonix investment, show (foreign investors’) trust and is evidence of our self-confidence that Nusantara is a location very attractive for the investment sector,” Widodo said in the ground breaking ceremony.

So far, the government has signed about 400 letters of intent with local and foreign parties to invest in the new capital.  

Delonix Group, a global investment and tourism group that has expanded its presence into the Asia-Pacific region, already has operations in Indonesia under PT Delonix Group Indonesia. The latter was established in 2023.

Widodo, who will end his second five-year term of office next month, called on prospective investors to come to IKN before area land prices go up two to five times from next year.

Widodo decided to execute his predecessors’ idea of relocating the country’s capital city from Jakarta so as to ease area congestion and over population. Jakarta is also seen to be sinking at an alarming rate.  

The new capital in resource-rich East Kalimantan province is seen as his biggest legacy.  

Widodo believes that relocating the capital to East Kalimantan will also help achieve economic equality between the better developed western part of the country and its eastern regions, with IKN serving as a new economic hub.      

The IKN project, which aims to create a “smart city” with digital infrastructure, was launched in 2022, and the government has ever since spent almost Rp 85 trillion on the project.

As the government and parliament had hoped that the state will not have to fund more than 20 percent of the development cost of IKN, Widodo has tried hard to lure foreign and local investors to join in the project. Total project cost is Rp541 trillion.  

The IKN project is planned to finish in 2045 and is divided in five phases of construction. Phase one work, from 2022 to 2024, is almost finished. It includes the construction of basic infrastructure, the state palace and presidential office, ministers’ office buildings, and the housing for government employees.

Shinta Widjaja Kamdani, deputy chairwoman of international relations of the Indonesian Chamber of Commerce and Industry, sees the groundbreaking of foreign projects in IKN on Sept 25 as a very positive and strategic step.

“This gives a strong signal that the IKN project can attract global investors and shows that Indonesia is viewed as a potential investment destination, with promising economic growth,” Kamdani said.

She said, however, that certain aspects require serious attention in order to lure more foreign investors.

Those aspects include IKN’s infrastructure development that must go according to schedule, undelayed relocation of population to IKN so as to activate area economy, thus ensuring economic certainty for investors.

Supportive regulation and business friendly policies need to be strengthened so as to better facilitate investors, Kamdani said.

Entrepreneur Stanislaus Yan Biantoro Kurnia believes that the relocation of the capital to East Kalimantan is a very good way of ending Java-centric development.

He said the relocation is also a good alternative for maintaining political stability as an overcrowded Jakarta has so far been easily used for mobilizing street demonstrations that disrupt business activities.  

“But, building a new city is not easy,” Kurnia said, citing as an example an Indonesian conglomerate’s failure to complete a modern township project with 1,000 apartment buildings east of Jakarta.  

Heru Sutadi, a technology analyst and executive director of ICT Institute, said the digital infrastructure being developed at IKN should be fully utilized and not merely functions as a show window.  

“What is important is not the display case but the digital infrastructure’s real function of serving the people,” Sutadi said.

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President-elect Prabowo Subianto, who will be sworn in as president next month along with his running mate Gibran Rakabuming Raka, Widodo’s eldest son, has repeatedly stated that the pair will continue implementing the IKN project and other strategic projects initiated by the current president.

It remains unclear exactly when Subianto and Raka will relocate to IKN as Widodo said that such relocation will be made only if all the things necessary for the pair to do their job effectively have been put in place.

Alex Zheng, founder and chairman of Delonix Group, and Bill Lin, president director of Delonix Group Indonesia also attended the ground breaking ceremony.

The writer is a freelance journalist for China Daily.