THE DEVELOPMENT OF THE NATIONAL CONSTRUCTION SECTOR
Construction sector development is one of the important and strategic public agendas considering the rapid developments in the context of globalization and liberalization, poverty and inequality, democratization and regional autonomy, as well as damage and natural disasters. In addition, the development of the construction sector cannot be separated from the context of the transformation process of other sectors, as well as the ongoing politics, culture, economy, and bureaucracy.
Based on the data from the Statistics Indonesia (BPS), growth in the construction sector until the end of Q3/2021 is much better than 2020. Based on its movement, VISI predicts that Q4/2021 will experience positive growth of 4.26%.
By looking at the quarterly growth, in 2021 the construction sector is predicted to increase by 2.49%. Meanwhile, in 2022, it will grow by around 9%. This is based on the progress of economic recovery in the midst of the pandemic and also the recovery process of several business sectors on the property side that will require construction services. And, the resumption of projects that were delayed in 2020.
Even so, along with hopes for a recovery in Indonesia’s infrastructure sector in 2022, the number of Covid-19 infection cases has soared in recent months and regional restrictions are still a barrier.
In addition, no matter how good the potential of the construction sector in the future, as long as the construction market is mostly controlled by SOEs, small and medium-sized companies will continue to struggle to develop.
CONSTRUCTION COMPANIES JOINED IN THE ASSOCIATION OF INDONESIAN NATIONAL CONSTRUCTION CONTRACTORS (GAPENSI) BASED ON COMPANY CLASSIFICATION
The Covid-19 pandemic that emerged in early 2020 dealt a major blow amid the unfavorable condition of the construction sector. Because of this, many players in the sector have experienced a decline in performance and construction project acquisitions.
Based on data from the Association of Indonesian National Construction Contractors (Gapensi), in 2020, there was a decrease in the number of construction companies by 4,297 companies or around 14% of the number of companies in 2019. The largest decrease occurred in companies with a K1 work classification (Companies with capital ranging from IDR 50 million to IDR 500 million and the maximum value per project is IDR 300 million) which is 2,307 companies or about 54% of the total decrease. There are various reasons for the decrease, such as the company temporarily closing, permanently closing, going bankrupt, and other problems.
BUILDING AND CONSTRUCTION PROJECTS IN INDONESIA
According to the Indonesian Construction Association (AKI), the private sector develops up to 65% of all construction projects. The next few years will be a tremendous opportunity for most market players in this sector as the Indonesian government targets to launch several major infrastructure projects. Information from the Oxford Business Group shows that these projects include 2,600 km of roads, 5,500 km of railways, 49 dams and 24 seaports, 1,000 km of toll roads, and a power plant with a total capacity of 35,000 MW.
Above all, under the master plan for the acceleration and expansion of economic development (MP3Ei) for 2011-2025, the Government of Indonesia estimates that IDR 2.55 trillion (USD 181.8 billion) is earmarked for infrastructure investment. This investment will boost economic growth under the six new economic corridors across Indonesia. Major infrastructure projects include:
- Trans-Sumatra toll road
- Cibitung-Cilincing toll road
- Halim–Soekarno Hatta high-speed train
- Trans-Sulawesi train
- 10 new airports
- Kali Baru Port, Bitung Port, and Cimalaya Port
NATIONAL CEMENT INDUSTRY
The annual national cement production capacity in Indonesia continues to increase even in the midst of the Covid-19 pandemic. Based on data obtained from various sources, cement production capacity increased by 3.44% or increased by 3.83 million tons/year. Even in 2021, the production capacity will be increased again to 116 million tons/year. The increase was based on the optimization of factories from several cement producers in Indonesia.
However, this has become a chronic problem in the cement industry sector where annual consumption cannot keep up with the increase in production capacity. Based on its growth, in 2020, there was a decrease in cement consumption by 5.68% or as much as 4.32 million tons. Increased production capacity when national consumption has decreased due to the pandemic has caused an already large oversupply of cement.
Over Supply of National Cement Products
In 2020, there were 43.52 million tons of excess supply of cement produced in Indonesia. The excess increased by 23.04% or by 8.15 million tons.
Based on CNBC Indonesia, oversupply in the cement industry is estimated to continue at least until 2030. This makes the condition of the cement industry not conducive where many cement products are not absorbed by the market. This is also exacerbated by the issuance of new cement factory permits in East Kalimantan, which makes the market currently occupied by 15 cement producers, having to be divided again with new players. Despite his commitment, this new player will not sell most of the cement production locally.
Chairman of the Indonesian Cement Association, Widodo Santoso in an interview with CNBC Indonesia TV, explained that several problems in the domestic cement industry will have an impact on the sustainability of the cement industry in the country if not addressed.
(Source: CNBC Indonesia)
By looking at its development, the industry projection in 2025 will still be oversupply of 27 – 30 million tons. Assuming consumption growth of 4% annually, so that the manufacturer’s utilization rate is still in the range of 76%.
National Cement Sales in 2020
Based on the development of sales, in 2020 there was a decrease in domestic sales by 8.73% or to as much as 11.50 million tons. Meanwhile, exports were on the contrary where there was an increase of 9.1% to 3.6 million tons. The volume is predicted to continue to increase in line with improving economic conditions during the pandemic.
With government projects returning to normal to support the development of the country’s infrastructure, sales of building materials, especially cement, are expected to soar, and optimism for cement companies in Indonesia remains positive.
NATIONAL STEEL INDUSTRY
A number of steel issuers remain optimistic in 2021 because they believe that their business will improve in line with the recovery of the national economy. This is based on the prospect of industries that are consumers of steel products such as automotive, shipping, construction, manufacturing, which in 2021 have started to recover and most of them have resumed operations.
On the other hand, Worldsteel released that short-term projections for October 2021 for 2021 and 2022. World steel demand will grow by 4.5% in 2021 or by 1,885.4 Mt, after growing 0.1% in 2020. In 2020. 2022, world steel demand is expected to continue to rise by 2.2% to 1,896.4 MT. This estimate is based on the assumption that vaccinations are widespread throughout the world and that the new Covid-19 variant does not have a more damaging impact than previous variants.
The recovery in steel demand in 2021 is faster than previously thought. Based on these facts, Worldsteel expects steel demand worldwide to recover as it was before the pandemic, except in China. (Source: https://www.iisia.or.id/)
In 2020, the stock of steel in Indonesia was 18.60 million tons, while for its own consumption it was 15.10 million tons. There was a decrease in productivity and steel consumption below 5% due to the impact of the Covid-19 pandemic. Steel stocks in Indonesia are not fully produced in Indonesia, but are imported from abroad.
Based on data from various sources, in 2020, Indonesia imports up to 5.6 million tons of steel and competes with local products in the domestic market. This is also an obstacle for the domestic steel industry where some of its potential market is taken by imported products.
As can be seen from the graph besides that for 30.11% of the total demand for steel in Indonesia (national consumption = 18.60 million tons), local products must be able to compete with imported products that have more competitive prices and quality.
National Steel Sales in 2020
In steel product sales, it was noted that there was a 5.03% decrease in sales to 15.10 million tons in 2020. The details of these sales were 11.50 million tons for the domestic market and 3.60 million tons for export to several countries (23.84% of total sales).