ASEAN is becoming one of the most important regions, especially for the past year, after the global economy crisis. With more than 590 million people population and strong domestic consumption, ASEAN is, without a doubt, one of the most promising markets for now and in the future. Total trade within this area is about US$1.7 trillion and gross domestic product is US$1.5 trillion. Integration of economic and business activities would be a booster to faster growth rate of all the countries within ASEAN.

Therefore, connectivity is very crucial for ASEAN's countries as one of the conditions needed for the ASEAN integration in order to develop into ASEAN Community and ensuring ASEAN's centrality in the evolving and dynamic regional architecture. The connectivity plan for 2015 has been finalized recently during the 17th ASEAN summit in Hanoi, Vietnam. According to the plan, the connectivity will involve physical connectivity, institutional connectivity, and individual connectivity.

Physical connectivity will involve infrastructure development in the land, sea, and air transportation. It will also involve energy sector and Special Economic Zone. Institutional connectivity will be more on government to government relationship in economy sector such as ASEAN single window and Customs Integration. Last but not least, the individual connectivity is more on the effort to promote cooperation in terms of cultural, educational, and tourism activities.

Connectivity in 2015 will assist ASEAN in achieving higher growth; facilitate single market and integrated production networks; enhance intra-regional trade; attract more investments coming into the region; promote and foster shared cultural and historical bonds. ASEAN connectivity in 2015 will also spur domestic connectivity through economic development supported by infrastructure and communications networks as well movement of people, goods and services within the region.

Implication for Indonesia

According to the master plan, 47 seaports will be built across ASEAN by 2015, with 16 ports are going to be from Indonesia. Tanjung Priok Port, Jakarta, and Tanjung Perak Port, Surabaya, has been included by the Indonesian government in the plan for the 2015 ASEAN Connectivity. The government has been committed to give full attention on the two ports. Apparently, the government is facing some homework regarding ports and the supporting infrastructure development.

The first issue is the financing side. Fortunately, World Bank and Asian Development Bank (ADB), as well as individual donor countries have expressed interest to finance projects under the Master Plan on ASEAN Connectivity, including in Indonesia. Japanese Government will provide US$200 billion to finance various projects under the ASEAN connectivity plan.

Indonesia will also be linked with the whole of ASEAN. For instance, the planned railway from Kumming in China to Singapore will be connected with Indonesian railway in Sumatra and Java. Besides building railways linking to the western part of Indonesia, under the ASEAN Highway program, many roads across the region will also be upgraded and standardized to link with those in other ASEAN countries.

However, for Indonesia, the issue is not just the connectivity with other ASEAN countries, but also the connectivity within Indonesia itself, especially the transportation issue within island and inter-island. As a large archipelagic country, Indonesia has certain characteristics in its transportation segment. Each island or region has its own characteristics, modes, the integration of which is still developing. Made up of a number of islands, transportation across Indonesia has significant scope for development on a domestic scale; more so for inter-modal transport. However, in its early stages of planning, each mode and its infrastructure was planned independently by the related state and regional authorities. Thus, inefficient inter-modal transfer and high inter-modal externalities are apparent across Indonesian islands.

Actually the problem is not just about geography and multimodal transportation issues. Poor and inadequate road networks, under-developed seaports and airports, corruption, arduous bureaucratic procedures and the lack of coordination among government agencies are some known restraint which result in gross inefficiencies. Unnecessary transactions occur along the supply chain, creating a chain of rents and transfers that charges into the final commodity price. This greatly harms Indonesia's international trade competitiveness and contributes to a high-cost economy.

Although perceptions of the business climate are improving on most fronts (ranked 122 from 183 countries in 2010, improved from 129, IFC), perceptions of infrastructure and transportation have worsened. In a report released in January 2010, the World Bank ranked Indonesia 75th among the 155 economies rated in its Logistics Performance Indicators. This represents a significant decline compared to 2007, when the country was ranked 43rd. Ominously for Indonesia, the fall in ranking reflects stronger efforts by other countries to introduce reforms and improve logistics performance. Vietnam and the Philippines, from ASEAN countries, all have higher LPI scores than Indonesia despite their lower income levels. Nevertheless, Indonesia remains among the top 8 lower middle-income performers in 2010.

The table below defines Indonesia's performance on certain key logistics parameters -

While the table below gives comparisons of major ports from ASEAN countries:

Based on the opinion of one of the major global shipping line companies, an efficient terminal operator should fulfill several conditions. The first one is the integrity of the schedule of berthing windows, which is the key factor for the customers. The water depth and maximum draught are also important to ensure the ports' readiness to take larger ships. The customers also require constant availability of navigational services. Continuous flow without interruption of the operation is also critical. Cranes quality and good productivity are also required. The customers would also like to see implementation of Electronic Data interchange in Cargo combining.

In the long term, high growth will go to the port operators that can implement the best services to their customers. A good example of these services can be found in Qingdao Port, China. The port provides one-stop shopping, consolidation of services, and easy access. Indonesian port must also be able to cater for growth and adjustments in size to accommodate the needs of its customers especially from ASEAN and also need to make sure well-utilization of its facilities.

Indonesia needs to open up the port development opportunity to level the playing field, encourage investment and competition for port, marine access, safety, and security. Indonesia should also reduce the process lead time and cost within the port. This can be done by using technology and improving the system. Another competitive advantage for Indonesia is the labor cost which is amongst the cheapest in ASEAN countries.

Creating Special Economic Zone or Free Trade Zone around existing ports can help attract investment into the captive hinterland. However, challenges faced by the zones include insufficient in size, complex incentive structure, and multiple point of contact for the government and ambiguous tax and duty regime.

Resolving these issues will attract investment from the manufacturers and create production hubs in Indonesia, which in turn will make Indonesia the key origin / destination for shipping liners. As the key success factors for ports are location and the captive hinterland that provide the cargo traffic, Special Economic Zone and Free Trade Zone can maximize the economic benefit for Indonesia.

The government of Indonesia has taken its initial important action by creating a National Port Master Plan which would consider port development in terms of market demand, essential infrastructure, financing methods, and required policy initiatives over the next 20 years. The target of the government with this plan is to address the inefficiency and high costs of current port operations, creating a new national port system that meets international standards.

As an archipelagic nation with ports located across many far-flung islands, Indonesia can achieve this goal only through intense communication and cooperation between key regional and provincial governments working together with the national government, to make sure that they understand and support the vision for a new port system and infrastructure improvement. Indonesian government will also need to further develop its shipping and logistics industry with the spirit of continuous improvement to be able to compete and cooperate at the same time with other ASEAN countries. Effective management and planning is definitely needed at the national level.

For more information, please contact: Sasikarn Watt. Corporate Communications – Thailand P: +662.637.7414 E:   This e-mail address is being protected from spambots. You need JavaScript enabled to view it