Nusantara is set to replace sinking and polluted Jakarta as Indonesia’s political center by the end of 2024.

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Indonesia has ambitious plans to move its capital from Jakarta to Nusantara in East Kalimantan.

The move, which is expected to happen by 2045, is part of Indonesian President Joko Widodo’s plan to diversify economic activity across the country and reduce population and traffic congestion in the capital.

Jokowi, as he is popularly known in his homeland, is full of optimism when it comes to the mega project. He believes Nusantara will bring business and investment opportunities to Indonesia.

At a conference in Singapore in June, the President described investment in Nusantara as a “golden opportunity”. He wanted to reassure investors that the project “will continue to be safe” regardless of who wins the 2024 presidential election.

However, some researchers have expressed reservations about the transfer of capital.

The Indonesian government aims to relocate up to 1.9 million people to Nusantara by 2045, with some officials set to relocate as early as 2024. According to Melinda Martinus, senior researcher for Sociocultural Affairs at the ISEAS-Yusof Ishak Institute, such a plan is likely to fail because the project is still in its infancy.

“People need to be attracted to come to a new place. They need to see robust infrastructure first, like schools, hospitals and housing facilities, otherwise it won’t be attractive for them to move there,” Martinus told CNBC.

The Nusantara National Capital Authority, a government agency tasked with planning and building the new capital, did not immediately respond to CNBC’s request for comment.

Funding concerns

Nusantara is estimated to cost around $35 billion to build, but according to the project’s official website, the government has only committed to investing 20% ​​of the money needed.

According to the country’s Ministry of Public Works, priority will be given to the construction of main roads, water and sanitation infrastructure, the presidential palace and the office of the vice president.

We assume that the basic infrastructure created by 2024 will provide a solid basis for private investments.

Agung Wicaksono

Nusantara National Capital Authority

Jokowi’s government hopes the remaining 80% of the funding will come from foreign investors, but there have been some concerns about pumping money into the project and that could hamper progress even further, researchers told CNBC.

It will not be easy for the government to secure 80% of foreign investment unless it can provide proof of the feasibility of Nusantara and the certainty that the project will continue even if a new government takes office next year said Ju Ye Lee, economist at Maybank Investment Banking Group.

She explained that the Indonesian government is not a big infrastructure investor.

The country’s infrastructure budget has been on the decline since 2017, when it peaked at 2.8% of GDP, but fell to 1.9% of GDP last year, according to a Maybank report.

The Indonesian government claimed that Nusantara will be the first city in Indonesia to adopt 100% renewable energy by 2045.

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Researchers speaking to CNBC said the government may need to increase its funding to more than just 20% due to a lack of transparency about the project’s success.

Asked if the government will increase investment to more than 20%, Agung Wicaksono, deputy finance and investment manager at the Nusantara National Capital Authority, said it was not up for discussion at the moment.

“But we believe that the basic infrastructure that will be built by 2024 will serve as a solid foundation for private investment,” Wicaksono told CNBC in June.

“You have to show your skin in the investment game. So this is the government showing skin in the game.”

Bruno Lanvin, president of the Smart City Observatory at IMD Business School, said Asia-Pacific investors need to take the lead before the rest of the world follows suit.

“Investors are like sheep, they like to go where everyone else is going,” Lanvin said.

“This is a public sector decision and was announced by the President, so at least those speaking about it should follow their word with action,” he added.

Indonesian President Joko Widodo is extremely optimistic about the mega-project and believes in the business and investment opportunities that Nusantara will bring to Indonesia.

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“There is no doubt that over the next decade, the Asia-Pacific region will lead the world in terms of growth, production, competitiveness, demographics and talent… Therefore, mobilizing interests in the region will become critical to the financial success of Nusantara,” he said.

Indonesian developer Ciputra Development is the latest company to announce it will invest in Nusantara. The company wants to develop 300 acres of buildings including residences, a hotel and possibly a golf course.

Uncertainty about Indonesia’s next president is another major obstacle holding off investors.

Jokowi’s government enjoys widespread approval as Indonesians are “very satisfied with his infrastructure projects and development programs,” Martinus said.

“But there is a political debate about what happens if the opposition party wins,” she stressed. “Their interest in going ahead with the project is really, really low – so there are concerns.”

However, the project will move forward if the current government is re-elected, she said, adding that the current government “takes building the new capital very, very seriously”.

What will happen to Jakarta?

A lack of funding is just the beginning of a series of problems Indonesia could face from moving the capital to Nusantara, and the move could bring new challenges for Jakarta.

Researchers expressed concern that the relocation of the capital will reduce the focus on building Jakarta and residents living there will bear the brunt.

“That begs the question, what happens to the people who aren’t going to move? Who will invest in resources to protect their wealth if they stay in Jakarta?” Diane Archer, senior research fellow at the Stockholm Environment Institute, said.

The city is currently vulnerable to flooding, she explained, and not enough is being done to alleviate the problem.

Unless the government invests more in protecting Jakarta, conditions for those left behind will worsen.

Diane Archer

Stockholm Environment Institute

There are many residents in Jakarta who live in rural settlements and don’t have the means to relocate, Archer said.

Even if this were the case, they are likely to live in similar housing conditions unless the government provides them with affordable housing in Nusantara.

“Unless the government continues to invest in protecting Jakarta, conditions for those who remain will worsen,” Archer warned.

“They will face worse flooding and greater exposure to waterborne diseases, and infrastructure such as office buildings, homes and shopping malls will also be affected.”

The new presidential palace under construction in the country’s new capital, Nusantara.

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Another challenge Archer predicted is the lack of demand for service-oriented jobs.

She explained that informal workers have irregular incomes and may not be able to afford housing in Nusantara.

“If people in the new capital need grocers, taxi drivers and cleaners, where will they live?”

Additionally, there is a common misconception that the move will solve Jakarta’s overpopulation problem, but Nusantara will not be able to accommodate enough people to solve this problem, according to Martinus.

“Jakarta is home to around 30 million people and the metropolitan area is very congested… Relocating a very, very small part will not solve the city’s congestion problem,” she stressed.

A sustainable city

The government has claimed that Nusantara will be the first city in Indonesia to adopt 100% renewable energy by 2045, and IMD’s Lanvin is optimistic that goal can be met.

It will be easier for a brand-new city to adopt renewable energy than for old cities trying to go net-zero, Lanvin explained.

“Every new infrastructure and every new road will be carbon neutral from the start – and if they decide that mobility is based on renewable energy, we will see electric cars, electric buses and electric trams.”

On the other hand, a net-zero emissions city could deprive Kalimantan’s coal workers of their livelihoods, Maybank’s Lee warned.

Indonesia is offering more tax cuts and looser land purchase terms under a new rule as it struggles to attract more investors to its new $34 billion capital project.

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“The coal industry accounts for around 35% of East Kalimantan’s GDP and employs nearly 9% of the population,” she said, adding that the province is heavily dependent on coal, which has boomed since the Ukraine war.

Although the government has stated that Nusantara will be built on “unproductive, forested areas,” there are still environmental concerns surrounding the construction.

“Cement is a major emitter of greenhouse gases, and cutting down trees to replace them with buildings releases new greenhouse gases,” Archer said.

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