Published on : Thursday, June 7, 2018
The answer seems fairly clear: with the election of Jokowi, the government set clear benchmarks for what it wanted to accomplish in the tourism sector, then designed and implemented a multipronged effort to achieve those goals. These efforts have been helped by a weakening rupiah, which increases Indonesia’s allure as an affordable tourist destination. But that is only a one part of a bigger picture which includes multifaceted efforts to restructure the Ministry of Tourism, market Indonesia more aggressively as a tourist destination, enact regulatory reforms to attract investment, and target strategic destinations outside of Bali for development and promotion. Since the program kicked off in 2015, the industry has grown by leaps and bounds, generating a flurry of economic activity and creating hundreds of thousands of jobs.
Part of this had to do with timing as Jokowi’s election in 2014 roughly coincided with a drop in global commodity prices. This exposed a weakness in Indonesia’s export-heavy economy, which tends to put off structural reforms during times of high oil and gas prices. With a drop in prices, policymakers subsequently sought to diversify the economy by prioritizing the development of non-export service sectors, such as tourism. How the government went about laying the groundwork for explosive growth in the sector reveals key insights about the process of governance and economic policymaking in Indonesia under Jokowi.
In 2015, the ministry rolled out a new 5-Year Strategic Plan, setting clear goals for itself to achieve by 2019. These included the 20 million visitor number, as well as attracting Rp.
240 trillion ($17.2 billion) in foreign exchange, employing 13 million people in the industry and boosting the sector’s contribution to national GDP to 8 percent. To accomplish these goals, the ministry was first overhauled. Prior to 2015, tourism development and promotion were grouped under the umbrella of the Ministry of Tourism and Creative Economy, meaning that in addition to tourism promotion, the ministry was also engaged in financing and producing films, art and music that represented Indonesian culture and society. The 2015 restructure spun off the creative economy activities, allowing the ministry to focus more narrowly on only the development and marketing of tourist destinations. Along with this narrower mandate, it also received a significant budget increase. For instance, the budget for overseas marketing in 2016 was Rp. 1.777 trillion ($127 million), which is more than the entire ministerial budget for 2014.
To that end, a multipronged effort to develop the four priority destinations was rolled out. The first step included regulatory reforms intended to remove red tape for investors and visitors. In 2014, the president relaxed visa entry requirements, allowing visa free travel for citizens of 45 countries. In 2016, this was expanded to 169 countries. In conjunction with this, a series of regulatory reforms were pushed through early in the Jokowi administration, including opening hotels and restaurants to 100 percent foreign ownership, a streamlined permitting process for businesses and new construction, and a presidential decree speeding up the often time-consuming process of land acquisition.
Crucially, these regulatory efforts have been rolled out in tandem with big on-the-ground infrastructure projects, so that all facets of the program will have the effect of complementing each other. Since the beginning of his administration, Jokowi has been pushing for infrastructure investment and construction of roads, airports and seaports.
This will improve Indonesia’s efficiency as a link in global supply chains, while also making it easier for millions of foreign tourists to access its marquee destinations.
In the last few years, Lake Toba in North Sumatra has seen a flurry of construction activity. The stunning caldera lake lies several hours from the provincial capital of Medan, and in the past could only be reached by small propeller airplanes or by taking a minibus or car several hours over poorly maintained roads. After Jokowi took office, he pushed hard to accelerate infrastructure projects in order to improve access to the area. In 2017, he opened the renovated Silangit Airport, which now has a longer runway and much larger passenger terminal. It has also been equipped with customs and immigration facilities to handle direct international flights.
In addition to the airport expansion, the Ministry of Public Works is improving and widening over 400 km of the inner and outer ring roads that connect various destinations around the lake. This is part of Rp. 800 billion ($57.6 million) in infrastructure upgrades, including a railway line connecting Medan to the Lake Toba area that went into service in February 2018, and a toll-road connecting Medan directly to the outer ring road which is under construction and should be completed in 2019. Lake Toba, which just a few years ago was difficult to reach, is now accessible via high-capacity international airport, rail and toll-road access will shortly following. Anticipating coming growth in tourist numbers, hotel development in the Lake Toba region has accelerated, with 39 new hotels built between 2012 and 2016.
Airport construction has been something of a theme in Indonesia under Jokowi and earlier this year in the Yogyakarta Special Administrative Area, the state-owned airport operator Angkasa Pura I completed the acquisition of 587 hectares of land at a cost of Rp 4.1 trillion ($295 million) which will be used for the development of a new international airport. Once completed, it is expected to have a capacity of around 15 million annual passengers, an increase of 13.5 million over Yogyakarta’s current very over-capacity international airport.
The project was stalled by local landowners unwilling to sell, but new legal authoritiesgranted to the National Land Agency in 2015 via presidential decree have helped to expedite the final stages of the process. The completion of this airport will be a significant step toward reaching the government’s target of 2 million foreign visitors in Central Java by 2019.
The tourism industry is not only benefiting from big-ticket infrastructure projects, but also from an improved regulatory environment which is spurring large developments in Labuan Bajo and Mandalika. The Labuan Bajo Marina Project in East Nusa Tenggara will feature a 180-room hotel, ferry dock, restaurants and retail businesses. With a cost of around Rp. 398 billion ($28.6 million), the project is on target for completion in August 2018. While the Komodo National Park will continue to be a major draw, this commercial development will help diversify the sector and go a long way toward reaching the Ministry’s goal of 500,000 foreign visitors to the area by 2019. The Komodo Airport, which was upgraded and expanded in 2015, is ready to accommodate these increased numbers.
Based on the totality of these efforts it seems clear that the Ministry of Tourism’s strategic plan is working. Moreover, it is working because different actors across a range of ministries, SOEs and jurisdictions have successfully coordinated their efforts in a way that complements one another.
This reveals the double-edged nature of tourism-led growth. While the ministry’s strategic plan is well on its way to hitting broad-based metrics like overall visitor numbers, higher GDP, billions in foreign investment and the creation of hundreds of thousands of jobs, it is unclear the extent to which the attainment of these national-level goals will have negative consequences for local businesses and the environment. Furthermore, much of the government’s efforts have targeted foreign visitors and the currencies they bring. Less attention has been paid to developing the domestic tourism market, even though in 2016 there were over 264 million domestic visitors, vastly outnumbering the 11.5 million who came from overseas. As they chase overseas tourists, there is a risk of overlooking the enormous potential of the domestic travel market, a market that will almost certainly continue to grow in lock-step with the Indonesian middle class and the increasing amount of disposable income they are acquiring.
The final word on this effort is not yet in, as the program is scheduled to run through 2019. However, even now a substantial amount of the basic groundwork has already been laid for the realization of the ministry’s ambitious vision. With upcoming national elections in 2019 likely to serve as a referendum on Jokowi’s growth-oriented economic policies, the success of his government in boosting the tourism industry through sound policy-making and effective governance bodes well for him and his political allies.
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