Regional plans for transport well under way in Indonesia

The year 2015 is a landmark one for South-east Asia, with the much-anticipated arrival of the ASEAN Economic Community (AEC) due by the end of the year. This event will have far-reaching consequences across a whole range of economic, political, social and cultural fields, with the impact on the transport sectors of ASEAN member states also likely to be profound. Given its key strategic location within the association, as well as its status as the most populous member, ASEAN founder Indonesia will be a key part of the market liberalisation and heightened regional integration that is set to follow, as the AEC takes off.

Bigger Picture

It was back in 2007 that the association’s 10 members – Malaysia, Singapore, Thailand, Myanmar, Cambodia, Vietnam, Laos, the Philippines, Brunei Darussalam and Indonesia – agreed to move ASEAN towards an economic community. Since then, the path has been a bumpy one, as efforts to implement the AEC Blueprint have encountered technical, bureaucratic and political challenges. Yet the enormous opportunities economic integration presents have kept the process moving forward.

According to the most recent statistics from ASEAN, preliminary figures for 2013 show a total population of 625m across the bloc’s 10 member states, with a combined GDP of $2.4trn. GDP growth averaged 5.2% that year, with GDP per capita at current prices standing at $3832 – more than double the $1640 of 2005. ASEAN also accounted for $2.5trn in international merchandise trade in 2013, along with $122bn in foreign direct investment. The AEC promises to boost that, via the free flow of goods, services, investments, capital and skilled labour within the bloc.

The Plan

The AEC Blueprint recognises the importance of transport infrastructure development. “An efficient, secure and integrated transport network” is defined as a goal, recognising transport’s role in increasing intra-ASEAN linkages, as well as ties to North-east and South Asia. A series of ASEAN Strategic Transport Plans (ASTPs) are being implemented, with the 48 different measures of the 2005-10 ASTP since supplemented by the 2011-15 plan. This set out among its targets the implementation of an open skies policy, developing an ASEAN Single Aviation Market by the end of 2015. This entailed fully adopting four of the nine “freedom rights” for open skies under the 1944 Chicago Convention and partially adopting two others. These moves would then be developed to phase out remaining airline ownership controls by 2020 and all nine freedoms would take effect by 2022-23.

In addition, the full ratification and implementation of the Multilateral Agreement on the Full Liberalisation of Air Freight Services, the Multilateral Agreement on Air Services and the ASEAN Multilateral Agreement for the Full Liberalisation of Passenger Air Services were planned to go into effect by year-end 2015. Liberalisation of air auxiliary services was also included, along with the enhancement of private sector involvement, eco-friendly improvements to aviation, and air transport agreements with China, India and South Korea.

Laying a Foundation

In the maritime sector, 47 ports throughout ASEAN were given “designated” status under the 2005-10 plan, with 14 of these in Indonesia. These ports form the backbone of the regional maritime transport system. The 2011-15 plan goals include: boosting these 47 ports’ performance; realising a single shipping market for ASEAN by 2015; establishing efficient and reliable shipping routes between mainland and archipelagic ASEAN; creating a series of cruise corridors, linking cruise tourism between member states; developing and implementing Near Coastal Voyage regulations with regard to International Maritime Organisation standards; enhancing search and rescue facilities; and developing human resources and training programmes for the shipping sector.

On land, seven areas and projects were prioritised. Of special significance for Indonesia is the completion of the ASEAN Highways Network. This entailed the upgrading of around 141 km of Indonesian roads deemed below Class III standards, while over 2000 km of “missing link” roads would also have to be brought above Class III. Other targets include: the installation of a common road sign and route numbering system; a feasibility study on bridging mainland and archipelagic countries; the formulation and implementation of a 2011-20 regional road safety plan; and an inland waterway development plan, among many other things.

Ambitious Goals

In May 2015 an ASEAN task force and senior transport officials from the 10 member states met in Melaka, Malaysia, to determine a successor to 2011-15 ASTP programme. Clearly, not all the goals of that document have been achieved, although there has been considerable progress. One of the challenges has been the different speed at which states have moved towards the targets. Open skies is illustrative in this regard, with countries such as Malaysia forging ahead, while the Philippines has expressed reservations. In Indonesia, airlines have been gearing up for implementation, with five airports in Soekarno-Hatta in Jakarta, Medan, Bali, Surabaya and Makassar to be opened for this, with an expectation among carriers that the move will see passenger numbers surge.

Indeed, open skies is expected to provide a major boost to the aviation sector and the economy. According to a study by engineering consultancy Mott MacDonald, implementation would generate an extra $2.7bn in direct GDP and around 16,000 more jobs by 2025. If indirect benefits are factored in, these numbers grow to $5.7bn and 29,000, respectively. Yet immediately, Indonesian airlines have raised concerns that the country is not ready for open skies, due to what Sunu Widyatmoko, AirAsia Indonesia’s president-director, termed the lack of a “level playing field” in December 2014. He cited higher taxes and fuel costs, and airport inefficiencies as factors that make it difficult for the country’s aviation sector to compete with other ASEAN rivals.

Similar objections have been raised in the maritime sector. There, the creation of a single ASEAN shipping market has also run up against policies designed to help domestic operators. While liberalisation has taken place in terms of the export of shipping services across borders and consumption abroad, the country still has restrictions on the entry of foreign shipping services and equity limits on foreign ownership of Indonesian shipping agents. Customs brokerage also remains on the negative investment list. Another issue here is in the lack of a single, recognised qualification for working in the shipping auxiliary industries, although Indonesian qualifications are now recognised in Malaysia. The country also has infrastructure barriers that some other members do not: congestion at ports and insufficient draughts to handle the largest vessels. These challenges lead to Indonesia’s dependence on Singapore and Malaysia as trans-shipment hubs, adding to costs. Infrastructure constraints are a major concern in land transport, too, with Indonesia heavily dependent on road haulage for cargoes given the lack of a major railway infrastructure. This also affects the country’s ability to meet its single market challenges.

The new government in Jakarta is highly aware of these challenges, however, and is taking measures to address them. The new ports strategy aims to ease congestion as well as expand capacity, with President Joko Widodo aiming to transform the country into a global maritime hub. Focusing government infrastructure roll-out should see Indonesia able to take a more competitive stance in the future AEC. Meanwhile, the clock is counting down to the December deadline, with many issues still unresolved. Yet ASEAN has a long history of agreement and consensus building, and the potential benefits of the AEC will likely keep the members on the path.