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New capital city investment depends on population density, says senior expert

Tempo - October 24, 2022

Moh Khory Alfarizi, Jakarta – Senior economist from the University of Indonesia (UI) Faisal Basri on Thursday gave his response to Tempo on the government's incentives offered to investors of the New Capital City of Nusantara.

He argues that a corporation will only commit to investing if the new capital – which will be relocated from Jakarta to North Penajam Paser, Kalimantan – can guarantee that the new capital will have a minimum of 5 million population in the next 10 years.

"No company wants to see a loss. Everyone knows that it will only be economical if the population for 10 years there is 5 million, only then it will be economical, and international investors will enter," he said to Tempo, on October 20.

The economist elaborated that the most important guarantee in this business is the population. "Which Kopi Kenangan would you like to go there, which Starbucks would you like if you weren't forced to? Does Tempo really want to move there?" he said.

Faisal also said that if 60 thousand civil servants (PNS) eventually get relocated to the new capital, the government would not need to build hotels. Likewise, if only civil servants are projected to live in North Penajam Paser, he proposes that every meeting be held at the hotel because it does not enter the scale of the economy.

The signs that investors are reluctant to invest, according to Faisal, can be seen in how Softbank CEO Masayoshi Son resigned from the government's ambitious project. "Masayoshi said the Indonesian government cannot guarantee 5 million people in 10 years, quit," he said.

The Vanderbilt University graduate stated that this population density requirement was actually mentioned to him personally by an official at the SOEs Ministry. The official, according to Faisal, had read the terms and conditions previously submitted by Softbank.

"That's the information I got from them. I wouldn't make things up. Why would [reveal this detail] to me? Because he knows, I will convey what he said to the public," said Faisal. "There will be no bank willing to finance a company to expand to a new capital city."

Previously, the government stated that it would provide relaxation or incentives to ease permits to attract investors into the New Capital City of Nusantara. The new capital's Head Authority, Bambang Susantono, said that the government is finalizing a draft government regulation that would include relaxations for these investments.

Source: https://en.tempo.co/read/1648665/new-capital-city-investment-depends-on-population-density-says-senior-exper