Liga Asuransi – Dear risk takers, how are you? I hope your business is doing well.
At the end of this year 2023, as the insurance broker that focuses on Engineering Procurement and Construction, I want to write an article about Indonesia’s 2024 Construction Outlook and its relation to risk management and insurance. If you are interested in in this article, please share it with your friends.
Construction projects play a pivotal role in a country like Indonesia, contributing significantly to economic growth, job creation, and infrastructure development. As a rapidly growing nation with a large and diverse population, Indonesia’s construction sector catalyzes progress, addressing critical needs such as housing, transportation, and utilities.
Beyond the immediate economic impact, construction projects enhance overall societal well-being by improving living standards, fostering urbanization, and promoting connectivity. In a country prone to natural disasters, resilient and well-planned construction is essential for disaster preparedness and recovery.
Additionally, the construction industry in Indonesia serves as a dynamic engine for innovation and technology adoption, aligning the nation with global trends. As Indonesia positions itself for the future, construction projects stand as a fundamental driver, shaping the landscape and ensuring sustainable development for the benefit of its people.
I am pleased to present this article, largely sourced from BCI (Building Construction Information) Central, highlighting the significant role that construction projects play in a country like Indonesia.
BCI Central, a renowned global provider of construction information services, has been instrumental in shaping our understanding of Indonesia’s construction landscape. At L&G Insurance Broker, we take pride in fostering long-term partnerships, and it is with great appreciation that we acknowledge our company as a valued subscriber to BCI Central for the past 10 years.
Today, BCI Central is pivotal in empowering businesses globally by providing construction-focused tools essential for success.
THE INFLUENCE OF 2024 OF THE CONSTRUCTION INDUSTRY
During the BCI Breakfast Briefing event on 30/11/2023, BCI unveiled its annual report titled “The Influence of 2024 on the Construction Industry.” The event featured distinguished guest speakers, including Fithra Faisal, PhD, Co-Founder of Nex Policy; Ir. Agus Ahyar, MSc., Director of Basic Infrastructure at the IKN Authority; and Mohammad Salman, ST, IAI, Senior Project Architect at MAP Architects & Engineers Indonesia.
The speakers discussed the global economic outlook for 2024, highlighting the persistent uncertainties stemming from geopolitical pressures, digitalization trends, climate change, and pandemic risks. Financial instability, coupled with slowing economic growth in advanced economies like Europe, China, and the United States, is expected to persist in 2024.
Despite these global challenges, Indonesia’s economic growth is projected to accelerate, positioning itself favorably among G20 and ASEAN nations. The year 2024 holds particular significance due to the scheduled Indonesian Legislative and Presidential Elections, which are anticipated to impact economic growth.
The ongoing construction projects related to the new capital city of the archipelago (IKN) are progressing according to schedule, exerting a notable influence on the construction market.
Cahyono Siswanto, National Research Manager at BCI Central, presented the Indonesia Construction Market Outlook 2024, indicating a projected 4.68% growth in the total construction project market (Building and Civil projects, excluding Oil and Gas) compared to 2023.
Cahyo further detailed that civil sector activities, including Infrastructure, Transportation, and Utilities, are expected to increase by 4.05% in 2024, reaching IDR 156 trillion. Key civil projects driving this growth include roads and bridges, dams, ports and civil works, and power plants. The building sector is anticipated to grow by 5.2% in 2024, reaching Rp193.15 trillion.
INDONESIA’S TOTAL CONSTRUCTION MARKET IN 2024
In 2024, the global economy is poised to persist in a state of uncertainty, grappling with challenges such as geopolitical pressures, digitalization trends, climate change, and lingering pandemic risks. Financial instability, coupled with decelerating economic growth in financially robust advanced countries like Europe, China, and the United States, is anticipated to persist throughout the year.
Despite this global backdrop, Indonesia’s economic growth is forecasted to maintain an upward trajectory, defying the risks posed by the global economic slowdown. The country’s economic performance and inflation rates stand out favorably among G20 and ASEAN nations.
The significance of 2024 is heightened by the impending Indonesian Legislative and Presidential Elections, expected to influence the nation’s economic growth.
Notably, construction projects related to developing the new capital city of the archipelago (IKN) are progressing according to schedule, impacting the construction market significantly.
Civil sector activities, encompassing Infrastructure, Transportation, and Utilities, are expected to increase by 4.05% in 2024, reaching IDR 156 trillion. Key civil projects driving this growth include roads & bridges, dams, ports & civil works, and power plants. The building sector is anticipated to grow by 5.2% in 2024, reaching Rp 193.15 trillion, with the Housing and Industrial project categories contributing significantly.
The positive market outlook is expected to paint an optimistic picture of the Indonesian construction industry in the coming year, instilling confidence among local construction stakeholders.
BCI Economics, the construction market intelligence division of BCI Central, serves as a global provider of construction information services. Leveraging extensive empirical knowledge, BCI Economics offers construction industry-based research and reports across Australia, New Zealand, and Asia, including the Indonesia Construction Market Outlook.
In the context of Indonesia’s evolving infrastructure landscape, the year 2024 represents the final year of the Joko Widodo-Ma’ruf Amin administration. Consequently, there is a heightened urgency for the government to conclude strategic programs and projects initiated over the past few years. This imperative is crucial to ensuring a smooth and continuous transition during the impending government change.
To address the infrastructure agenda in 2024, the government has earmarked a substantial budget of Rp422.7 trillion from the 2024 state budget (APBN). This marks the highest infrastructure budget in the last five years, reflecting a 5.8% increase from the 2023 infrastructure budget realization forecast of Rp399.6 trillion. The 2022 infrastructure budget amounted to Rp373.1 trillion, with a significant increase in 2021 to Rp403.3 trillion after a temporary dip to Rp207.3 trillion in 2020 from Rp394.1 trillion in 2019.
According to the 2024 Financial Note, Rp213.7 trillion of the infrastructure budget is planned for distribution to ministries and institutions. This allocation is intended for the construction of regional roads, the development of the Nusantara Capital City (IKN), stadium renovations, and the construction of educational and health infrastructures.
Additionally, Rp20.27 trillion will be allocated for non-ministerial/institutional expenditure, focusing on infrastructure development in new autonomous regions (DOBs) and supporting public-private partnerships (PPPs). Furthermore, Rp94.8 trillion will be allocated for regional performance benefits (TKD), covering special allocation funds (DAK) and infrastructure and general allocation funds (DAU) in the public works sector. Finally, Rp93.9 trillion is earmarked to provide state equity participation (PMN) to state-owned enterprises (SOEs) and institutions in the infrastructure sector.
IBU KOTA NEGARA (IKN)
President Jokowi, delivering a compelling speech on the 2024 APBN Draft and the 2023 Financial Note at the Nusantara MPR/DPR/DPD Building in Jakarta on Wednesday (16/8/2023), shared exciting news about the increased infrastructure budget. The primary focus of this boost is to champion several pivotal projects, chief among them being the ambitious Nusantara Capital City (IKN).
Intriguingly, beyond the monumental IKN venture, Jokowi unveiled a comprehensive strategy for the prioritization of the 2024 infrastructure budget. The emphasis lies on the provision of essential services, the amplification of productivity through enhanced connectivity and mobility infrastructures, and the fortification of irrigation networks through the strategic construction of dams, primary irrigation canals, secondary irrigation canals, and tertiary irrigation canals.
Adding a layer of significance, Jokowi outlined the prioritization of the budget for infrastructure in the energy sector, fostering affordable, reliable, and sustainable food sources, ensuring equal access to information and communication technologies, and extending support for strategic projects that promise transformative impacts.
What makes this development even more intriguing is the President’s commitment to accelerating infrastructure development through a dynamic fusion of funding schemes. This involves the synergistic collaboration of investment financing, ministerial/institutional expenditure, and an amplified role for the private sector.
Jokowi passionately articulated the importance of this budget increase, underlining its pivotal role in propelling massive infrastructure development. The envisioned outcome includes the strengthened provision of basic services, heightened productivity levels, and the revolutionary improvement of irrigation networks through the strategic construction of dams.
As the narrative unfolds, a parallel story emerges in a Reuters article dated August 16, 2023, revealing Indonesia’s plan to allocate a substantial $2.7 billion in its 2024 budget for the construction of the new capital city. The monumental project, Nusantara, set to rise on Borneo Island, has been in the works since the nation’s announcement in 2019. The new city, positioned to replace the overcrowded and sinking Jakarta, carries an estimated total cost of $32 billion, scheduled for completion in 2045.
Finance Minister Sri Mulyani Indrawati shared insights, indicating that 35 trillion rupiah from the 2024 budget will be allocated to the public works and housing ministry. This allocation is destined to facilitate the construction of essential infrastructure and housing for civil servants, affirming the government’s commitment to completing supporting infrastructure by 2024.
The forthcoming months are poised for action, with plans to initiate the construction of housing for approximately 16,000 civil servants, military personnel, and police officers in September. A fascinating detail surfaces as the government targets completion of 12 out of 47 apartment blocks by July next year, aligning seamlessly with the ambitious timeline set for the first Independence Day flag ceremony in the new capital. This multi-faceted story weaves together the aspirations of a nation, the visionary leadership of President Jokowi, and the tangible strides towards an innovative and sustainable future for Indonesia.
THE CRUCIAL ROLE OF RISK MANAGEMENT AND INSURANCE IN CONSTRUCTION PROJECT OF 2024
In the ever-evolving landscape of construction projects in 2024, the importance of robust risk management and comprehensive insurance strategies cannot be overstated. As the industry faces diverse challenges and uncertainties, implementing effective measures to mitigate risks and safeguard against unforeseen events becomes a cornerstone for success.
Mitigating Unpredictability
Construction projects inherently involve a myriad of variables, from changing weather conditions to unforeseen regulatory changes. Effective risk management allows project stakeholders to identify potential pitfalls in advance, offering the opportunity to develop proactive strategies for mitigation. By anticipating challenges, construction teams can navigate uncertainties more effectively, ensuring timelines are met, and budgets are adhered to.
Financial Safeguarding
In an industry where budgets and timelines are often tightly managed, the financial impact of unexpected events can be significant. Robust insurance coverage acts as a financial safety net, protecting a range of risks, including property damage, liability claims, and project delays. This financial safeguarding ensures that projects can withstand unforeseen circumstances without jeopardizing their overall success.
Enhancing Project Resilience
The dynamic nature of the construction industry demands resilience. Risk management practices contribute to project resilience by fostering adaptability and preparedness. Whether it’s addressing supply chain disruptions, labor shortages, or changes in market conditions, a proactive risk management approach allows construction projects to weather challenges and emerge stronger.
Ensuring Regulatory Compliance
In an era of evolving regulations and heightened scrutiny, adherence to compliance is paramount. A robust risk management framework ensures that construction projects align with regulatory requirements, reducing the risk of legal and financial repercussions. Insurance tailored to specific regulatory needs adds a layer of protection, ensuring that any compliance-related challenges are effectively addressed.
Protecting Stakeholder Interests
Construction projects involve a multitude of stakeholders, each with unique interests. Effective risk management and insurance not only shield project owners and investors from financial losses but also protect the interests of contractors, subcontractors, and suppliers. This collaborative risk mitigation approach fosters trust among stakeholders, contributing to the overall success of the project.
Embracing Technological Innovations
In the digital era, technological advancements play a pivotal role in risk management for construction projects. From predictive analytics to real-time monitoring, integrating technology allows for more accurate risk assessments and timely decision-making. Additionally, innovative insurance solutions leverage technology to provide tailored coverage, enhancing the overall risk management strategy.
Project Continuity in the Face of Adversity
Construction projects are not immune to disruptions, whether natural disasters, accidents, or unforeseen economic shifts. An integrated risk management and insurance strategy ensures project continuity in the face of adversity. This resilience is a key differentiator, allowing projects to move forward confidently despite external challenges.
THE IMPORTANCE OF A LOCAL INSURANCE BROKER IN INDONESIA
In the dynamic landscape of construction projects in Indonesia for 2024, the role of local insurance brokers emerges as a critical factor in ensuring success, resilience, and compliance. These professionals play a pivotal role in navigating the intricacies of the Indonesian market, offering tailored solutions that address the unique challenges and opportunities within the construction industry.
Navigating Local Regulations and Compliance
Local insurance brokers possess intimate knowledge of the regulatory landscape in Indonesia. In a sector where compliance is paramount, their expertise ensures that construction projects align with local regulations and legal requirements. This not only mitigates the risk of legal repercussions but also streamlines the project’s path to success by avoiding regulatory obstacles.
Tailored Coverage for Unique Risks
The Indonesian construction industry is characterized by its unique set of risks, including environmental factors, geopolitical considerations, and local market nuances. Local insurance brokers bring a nuanced understanding of these specific risks, allowing them to tailor insurance coverage that precisely addresses the challenges faced by construction projects. This customized approach enhances risk mitigation and financial protection.
Cultural and Linguistic Proficiency
Effective communication is essential for successful collaboration in any construction project. Local insurance brokers, equipped with linguistic proficiency and cultural understanding, bridge potential communication gaps between project stakeholders, insurers, and regulatory bodies. This ensures that all parties involved are on the same page, minimizing misunderstandings and fostering a collaborative environment.
Real-Time Market Intelligence
The Indonesian insurance landscape is dynamic, influenced by economic shifts, industry trends, and emerging risks. Local insurance brokers serve as invaluable sources of real-time market intelligence. They keep construction projects informed about evolving insurance trends, ensuring that risk management strategies remain proactive and aligned with the current market conditions.
Navigating Complex Claim Processes
In the unfortunate event of a claim, local insurance brokers act as advocates for construction projects. Their understanding of local claim processes, relationships with insurers, and ability to navigate bureaucratic procedures become instrumental in expediting claims settlement. This ensures that projects can recover swiftly from setbacks, minimizing disruptions.
Supporting Local Economies
Engaging local insurance brokers contributes to the growth of the local economy. These professionals often have established relationships with local insurers and service providers, fostering a network that benefits the broader community. Supporting local businesses in the insurance ecosystem creates a symbiotic relationship, reinforcing the economic sustainability of the construction industry.
Adaptability to Local Risk Landscapes
The risk landscapes in different regions of Indonesia can vary significantly. Local insurance brokers, deeply embedded in their respective regions, bring a granular understanding of these localized risks. This adaptability allows them to recommend insurance solutions that are specifically tailored to the risks prevalent in the project’s geographical context.
Building Trust and Long-Term Partnerships
Trust is the cornerstone of successful collaborations. Local insurance brokers, often deeply rooted in their communities, prioritize building trust and fostering long-term partnerships. Their commitment to understanding the unique needs of construction projects cultivates a sense of reliability and confidence, essential elements for enduring success.
CONCLUSION
In conclusion, the diverse array of discussions in the preceding chats illuminates the pivotal role of the construction industry in Indonesia’s economic landscape, especially in the anticipated year of 2024. Rooted in insights predominantly sourced from BCI, these conversations underscore the nation’s resilience in the face of global economic uncertainties. The comprehensive infrastructure agenda, propelled by a substantial budget allocation of Rp422.7 trillion, reflects the government’s commitment to fortifying the nation’s foundation. As the final year of the Joko Widodo-Ma’ruf Amin administration unfolds, there is a heightened urgency to conclude ongoing projects, ensuring a seamless transition during the impending change in government.
The construction sector, a vital economic engine, is poised for robust growth in 2024, driven by civil sector activities and notable projects such as the development of the Nusantara Capital City (IKN). The positive market outlook instills confidence among local construction stakeholders and BCI.
As the narrative weaves through discussions on economic outlook, infrastructure projects, and strategic planning, the year 2024 emerges as a crucial juncture in Indonesia’s trajectory. The nation stands at the intersection of global challenges and local aspirations, poised to navigate uncertainties and forge ahead with transformative infrastructure initiatives. The threads of these conversations collectively paint a nuanced picture of Indonesia’s economic resilience, strategic vision, and the intricate dance between government initiatives, private sector involvement, and public welfare.
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