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As economies across Asia, including Indonesia, struggle to attain adequate growth, governments are increasingly realizing the importance of having in place the right infrastructure to support growth.
The demand for more and better infrastructure is driven not only by the needs of rapidly growing populations for better productivity, safety, as well as care for the environment, but also by the need to replace existing outdated assets.
PwC Indonesia estimates that investments in infrastructure in the country will grow by a compound annual growth rate (CAGR) of 9.5 percent from 2014-2019. Infrastructure spending is also expected to increase from $57 billion in 2014 to $90 billion in 2019 and $139 billion in 2025.
However, public spending is limited and tightly constrained, forcing governments to prioritize projects that not only meet needs the most, but are also able to bring about rapid transformative changes.
In this environment, innovation becomes an important avenue where governments can do more with less.
To meet these significant infrastructure needs, access to sufficient funding must be assured, legal and regulatory frameworks need to be constantly – if not regularly – adjusted, and steps must be taken to ensure there are sufficient skilled people to plan, design and build the projects. It is in these aspects that governments need to take the lead, including by offering clear directions, setting clear priorities and supporting an appropriate procurement approach while ensuring opportunities are available for creativity and innovation to flourish.
The private sector’s role, on the other hand, will primarily be in promoting and encouraging innovation and creative solutions through increased research and development, and in contributing to the huge, long-term capital investments needed in the infrastructure sector. Aside from funding, innovations are also needed to address the sector’s the main challenges, such as how to better integrate infrastructure projects with various subsectors, including transport, energy, water, waste, emergency response systems and other essential public services.
Many industries have seen drastic technology-driven transformation, and the infrastructure sector will be no exception.
Governments and communities may be able to clearly identify what infrastructure they need, but the impact of technology on future infrastructure requirements is often missing from the equation. It is an accepted premise that technology continues to evolve, continually reshaping the infrastructure we have, as well as their requirements and challenges. It may also impact how businesses and individuals use infrastructure. As infrastructure projects often have a long life cycle, it is imperative for decision makers to factor rapid advances in technology in their design and planning, especially in this digital era. The keyword then becomes flexibility.
Flexibility will allow room for sustainable innovation in the various stages of infrastructure provision, from the design and planning stage to their physical construction and their operation and maintenance.
At the design and planning stage, software innovations will allow for better planning, site and zoning studies, and simulation of strains under different conditions. The use of good software may also lead to more accurate estimates of the costs and time needed for infrastructure projects.
Innovation in building techniques and materials will allow faster construction, while in the operational stage, innovations in monitoring, data gathering and analytics will allow better maintenance and more efficient operations.
Both the private sector and government institutions should put more effort and funding into research and development activities and innovations.
However, innovation should not be restricted to the technology sector but should also occur in supporting sectors for the infrastructure industry. Innovation in funding, especially in time sluggish global economic growth, is important.
Innovations are needed to channel long-term capital into the industry and also to deepen the involvement of the private sector in infrastructure financing. The current role of the private sector in funding, such as through public-private partnerships, needs to be adjusted and refined to draw more private sector interest. There is also a need to encourage more infrastructure debt financing that can make large infrastructure projects more bankable.
Schemes like PPP will also need better laws and regulations, and innovation, once again, will be needed to make them more flexible and more attuned to the long-term nature of infrastructure projects. This flexibility is needed to absorb advances in technology or changes in demand that may arise during the long life cycle of infrastructure projects. Innovation in policies is also needed to assure a good synergy across the various sectors involved in infrastructure projects, as well as between the various projects that are being undertaken.
The 2016 Indonesia Economic Forum will tackle how Indonesia can become an innovation nation. The two-day event from November 14-15 at the Shangri-La Hotel in Jakarta will gather hundreds of top business leaders, policy makers, and thought leaders to discuss these issues.