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'Car Addiction,' the Real Indonesian Infrastructure Challenge

10 Juni 2019

By: Aichiro Suryo Prabowo

 

If infrastructure policy is Joko Widodo's (Jokowi's) main policy, then the road is the hallmark of his re-election campaign. He claimed to have built hundreds of kilometers of roads, including 600 kilometers of the long-delayed Trans-Java network. This eventually connected the most inhabited Indonesian island from end to end, and more than 1,000 kilometers of road borders on the outskirts of this archipelago.

 

The toll road projects that have been stalled under the previous government - such as Becakayu in Jakarta and Bocimi in West Java - have also been restarted and completed by Jokowi. These successes confirmed his reputation as president who worked to deliver results, and were consistent with his campaign slogan during his first term presidential campaign: "work, work, work."

 

I have to admit that I am one of the direct beneficiaries of Jokowi's infrastructure drive. Traveling by car from my hometown of Yogyakarta to Jakarta usually takes around 12 hours — now it only takes 9 hours, or less. Such time efficiency is expected given the significant budget increase that Jokowi has provided for infrastructure development.

 

From 2010-2014, the infrastructure budget averaged just under Rp150 trillion every year. In 2015, he allocated Rp256 trillion and gradually increased it to Rp.415 trillion in 2019.

 

Roads, in particular, take a lot of infrastructure budget allocations: The Ministry of Public Works and Housing, for example, has allocated more than a third of its annual budget for road supply and management. Jokowi also uses state-owned companies to take up most of the infrastructure projects, which supply additional budgets for road investment.

 

All of these efforts are for the sake of Indonesia's development: have more ways to improve the mobility of goods and people, create market access, and encourage business activities; studies have confirmed a positive correlation between physical infrastructure and economic growth.

 

However, for some of the most developed provinces in Indonesia, having more roads might have negative consequences. In places such as Jakarta, Bali and Yogyakarta, roads are already congested and traffic congestion results in inefficiencies for the economy. Meanwhile, the desire to own a car is increasing, especially in the middle class.

 

Therefore, strong political will and effective policies at the national level are needed to overcome this problem: instead of just expanding the road, it may be time for the government to also think of ways to limit the number of cars.

 

MIDDLE CLASS OF INDONESIA AND THEIR CAR
The number of cars in Indonesia has increased significantly over the past two decades. According to the Central Statistics Agency (BPS), there were only 2.6 million cars in 1997. This number more than doubled to 6.8 million in 2007, and reached 15.4 million in 2017. These cars most are found in Java province, where Jabodetabek (3.8 million), West Java (1.5 million), and East Java (1.4 million) are in the top three. Outside Java, the highest number of cars is found in South Sumatra (915,000) and Bali (878,000).

 

The automotive industry is sure to enjoy the Jokowi government. When he took office at the end of 2014, car sales were around 1.2 million per year. Annual sales fell in 2015 to 1.01 million units, but since then the trend has been relatively stable with small annual increases: in 2016, 2017 and 2018, annual sales of 1.06 million, 1.07 million and 1 respectively ,15 millions.

 

However, these numbers are all above the average annual sales over the past decade — a fact that benefits the car industry group. Recently, the Chair of the Indonesian Automotive Industry Association (GAIKINDO), Yohannes Nangoi, called Jokowi the president of "the most concerned about cars", given the many developments in public pro-car facilities, such as highways and highways.

 

Two factors can explain the increasing presence of cars in Indonesia. First, Indonesians tend to see their social status as defined by car ownership. In 2014, a global survey by Nielsen found that among Indonesian car owners, 67 percent of respondents considered car ownership as a symbol of important success, far higher than the global average of 52 percent. Meanwhile, 93 percent of Indonesian non-car owners regard the lack of cars as a source of shame, a level far higher than less than 50 percent of the average other countries surveyed.

 

Second, people buy cars for pragmatic reasons, related to affordability and functionality. The Toyota Avanza - one of the best-selling multipurpose vehicles on the market - has a price range between Rp180-230 million - a good price for those in the middle income group. They are able to buy Avanza on credit, with a 15 percent down payment plus a long installment period of up to 5 years, which results in a monthly payment of less than IDR 5 million.

 

The price of gasoline is also relatively cheap. Although the global average price of gasoline is US $ 1.13 per liter, but prices in Indonesia are only US $ 0.70, cheaper than Vietnam (US $ 0.87), Thailand (US $ 1.12), and Singapore (US $ 1, 57). Even though the free floating fuel price policy was introduced at the beginning of Jokowi's presidency, until now, the decision on pricing for gasoline remained politically motivated.

 

Last year, the government abruptly canceled the increase in subsidized "Premium" fuel prices, just moments after Energy and Mineral Resources Minister Ignasius Jonan announced the plan.

 

Taxes and fees related to vehicles are also set at levels that do not harm car owners. As a result, there are only a few monetary barriers to prevent people from buying cars. With a public transportation system that is unreliable in most provinces - where unclear schedules and routes are cut off - using cars has become a reasonable choice for the Indonesian middle class.

 

CAR AND CONSTRUCTION
The problem with cars — when compared to other modes of transportation — is how much road space they occupy. The widely shared photos show differences in the amount of physical space taken by 69 people when they chose transportation options that included their own car, public bus, or bicycle.

 

A person's decision to own a car can secure personal space, but at the expense of public space — this is basically a negative externality. Social costs are even greater when health factors are considered, as seen in the increasingly bad life expectancy of people living in Jakarta as a result of Jakarta's air pollution.

 

As many as 3.8 million cars that jam into the streets of Jakarta have created one of the worst traffic in the world, which Jokowi himself admits to attracting huge costs for the economy. But by looking more closely at the data, we see that other Indonesian provinces seem to follow the same development trajectory.

 

The table below provides a comparison (ratio) of the number of cars (units) with road length (km) in 10 provinces in Indonesia. The bigger the ratio, the more cars occupy the road. Jakarta has a surprising rate of 545.5 units of cars per kilometer of road. Bali (99.9) and Yogyakarta (65.5) are second and third.

 

Sumber: Berdasarkan analisis dari Kementerian Pekerjaan Umum dan Perumahan dan Badan Pusat Statistik. (via New Mandala)

 

Traffic in the top provinces may not all be exactly like Jakarta. However, people will still find their roads and traffic jams during rush hour. In Yogyakarta, for example, waiting times at intersections along the northern part of the Ring Road are often endless as at the main intersections in Jakarta, such as Pancoran and Ragunan.

 

JOKOWI POLICY: PRO-INFRASTRUCTURE = PRO-CAR?
When it comes to congestion problems, the government's general response is to build more roads. In Jakarta, the Ministry of Public Works and Housing commissioned the construction of 6 toll roads that will connect busy routes, including Sunter-Pulo Gebang-Tambelang, Kemayoran-Kampung Melayu, and Minggu-Kasablanka Market. In Yogyakarta, the government finally acted on the old considerations regarding the construction of an underground road and is in the process of building it now.

 

Jokowi must understand, however, that building roads will only address the availability of road infrastructure. With his previous experience as a local leader (shown by 2 years as Jakarta Governor and 7 years as Solo Mayor), he must know that the demand side - which mostly comes from car ownership - also needs to be addressed. In other words, building a road is a partial solution. If the government does not limit the number of cars, their presence will grow out of control.

 

Unfortunately, there is no major national policy to limit - let alone reduce - the number of cars in Indonesia under Jokowi's leadership. Some policies seem to go in the wrong direction: the government has discussed making cheaper cars, as seen by the proposal of the Minister of Industry Airlangga Hartanto to cut domestic sedan tax sales last year, and Finance Minister Sri Mulyani's recent plan to abolish taxes on electric cars.

 

Under Jokowi's supervision, the government also issued a policy that allows advance payments to buy new cars on credit as low as 0 percent. All of this has the potential to encourage, rather than reduce, the presence of cars on the road.

 

Traffic management, as well as collecting taxes and levies related to vehicles, are the domain of local authorities, not the central government, but that does not mean the central government cannot be involved. National regulations can still be effective in bringing change at the local level. For example, the central government can establish national guidelines on competitive local taxes and fees for owning and using cars in crowded areas, and allocating local revenues from vehicle taxes or parking fees for investments in public transportation systems.

 

POLITICAL ECONOMIC CHALLENGES
This analysis is not saying that the car is bad. But just like other items, the items are good to a certain point, if they exceed, there are diminishing returns. Cars may be beneficial for farmers who live in rural areas or families who live in distant provinces, but in urban areas they have problems.

 

With that in mind, government actions should not be aimed at removing cars from the market, but rather ensuring that the number of cars is right. The problem with having too many cars is proven in Jakarta, and will expand to other provinces in the next few years. As Indonesia's economy grew, the middle class grew with its purchasing power, and increased the desire for social status, namely car ownership.

 

Apart from clear mechanisms and possible solutions, there are no politicians or policy makers who seem to want to highlight this problem, at least so far. Perhaps political economic barriers are too significant.

 

First is that the automotive industry creates jobs. The automotive industry — which accounts for 10 percent of Indonesia's GDP — has created 350,000 jobs (ie workers related to car production) plus 1.2 million jobs indirectly, according to Minister of Industry Airlangga Hartanto.

 

Secondly, taxes and levies related to vehicles have become the main revenue streams for some provincial governments. One of them is the cost of transfer of vehicle ownership (BBNKB), not only from cars, which have accounted for more than 30 percent of regional revenues in Riau Islands, East Java, Bali, Banten and Southeast Sulawesi.

 

Lastly, and perhaps most importantly, increasing the price of cars will only hurt the middle class, which may weigh on the voices of politicians.

 

Many people say that 'class politics' does not exist in Indonesia, but can be seen in policy decisions that are in line with the interests of the Indonesian middle class. Jokowi's policy on car and road infrastructure is a policy that supports the middle class, which simultaneously demands more cars and less space on the road.

 

It is not clear whether the public understands the need for exchanges (fewer cars and more space on the road), unless there are politicians, policy makers, or presidents who dare to tell them that they cannot have both — which raises the question: is there such a person? ***

 

Aichiro Suryo Prabowo is a public policy analyst who currently teaches at the University of Indonesia. Aichiro has a master's degree in public policy from the University of Chicago, and has worked as a consultant at the Asia Competitiveness Institute, the Economist Intelligence Unit and the World Bank in Jakarta. His column of opinions have been published by the Jakarta Post and the Huffington Post.

 

 

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