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Half of all construction contractors close down as projects stall: Association

Jakarta Post - September 17, 2020

Mardika Parama, Jakarta – Around 50 percent of the country's construction companies have permanently shut down their businesses as of July, with small firms taking the biggest hit, amid project delays and cancellations in both the public and private sectors, an association has said.

Indonesia Building Contractor Association (Akbarindo) chairperson Agusti Mirawat said Tuesday that small contractors in rural areas were losing business, as local administrations cut their budgets for infrastructure projects and maintenance to fund COVID-19 containment measures.

"Around one half of construction service providers have been lost as many projects, particularly in rural regions, are being scrapped by local administrations. On average, administrations have reallocated 40 percent of their infrastructure budgets to fight the pandemic," he said during an online discussion held by marketing consulting firm Markplus.

In addition to project cancellations, contractors have also allocated additional expenditure for COVID-19 transmission prevention equipment and health protocol implementation during the construction process.

"We hope the Public Works and Housing Ministry will restart the infrastructure projects in rural regions that were canceled by local administrations. If the ministry has projects, please include small contractors," Agusti said.

The pandemic has taken a toll on infrastructure development globally. In Indonesia, supply chain disruptions have slowed the construction of ongoing projects, while the reallocation of state funds to social programs has decreased the amount of funds going to new projects.

The public works ministry's budget has been slashed by Rp 34.5 trillion (US$2.3 billion) as part of the government's latest budget reallocation program to finance the government's COVID-19 mitigation effort and economic stimulus.

The hit to demand has not only been felt by small construction providers. State-owned construction giant PT Wijaya Karya (Wika) also slashed in August its new contract target for 2020 by a third to Rp 21.38 trillion due to project postponements during the pandemic.

Wika president director Agung Budi Waskito said on Aug. 26 that the company had struggled to book contracts in the first half of the year as many projects had been postponed as a result of the social restriction measures imposed to limit the spread of COVID-19.

"As of the second quarter we have achieved Rp 3.4 trillion. We will gain the rest in the third quarter, especially in the fourth quarter," said Agung.

Construction project cancellations have also hurt the revenue of producers of building materials, such as cement and industrial explosives.

Indonesia Cement Association (ASI) data show that nationwide cement demand, a key indicator of domestic consumption, fell to 12.52 million tons in the April to June period, down from 13.75 million tons in the same period last year. Cement sales in the first half of the year have dipped 7.72 percent year-on-year (yoy) nationwide to 27.1 million tons, according to the association's data.

Meanwhile, state-owned explosive maker PT Dahana's operation director Bambang Agung said that the company aimed to expand its market penetration into Australia, as the domestic market for industrial explosive dried up.

"We see Australia becoming a promising market for explosives, particularly for mining purposes such as in the Northern Territory and Western Australia," he said during the Markplus discussion.

Dahana exported in April 215 tons of explosives to Australia, up from 123.5 tons in 2019.

Bambang also echoed Agusti's statement, saying that field operational costs had been increasing as the company needed to provide additional safety measures for COVID-19 prevention.

"Cash flow control became our primary focus due to the halting of projects and the extra spending for health protocol implementation. We have seen our profit decrease slightly due to the current situation," he said.

Source: https://www.thejakartapost.com/news/2020/09/16/half-of-all-construction-contractors-close-down-as-projects-stall-association.html