Since the start of the Covid-19 pandemic, Indonesia has reported 50,187 infections and 2,620 deaths, and in order to contain the virus spread, the government has taken various measures since mid-March, including social distancing measures, a ban on religious and social events, travel restrictions, and the closure of all non-essential businesses. Construction activities too have been disrupted. The government had plans to begin infrastructure work related to the capital city relocation project in the second half of 2020, and had announced in March that the project work was on track; it has also allocated IDR85bn ($5.4m) just for creating the master plan of the project. However, this triggered widespread criticism due to the government’s priorities amid the pandemic. Following this, in April, the government announced that the project will be put on hold and some of its budget will be diverted to the pandemic relief efforts. The development on project is expected to resume in 2021, subject to an improvement in economic conditions.

In 2019, the president approved plans to relocate the country’s capital city to East Kalimantan, a province on the island of Borneo, due to overpopulation and traffic gridlock in Jakarta. The current Indonesian capital is sinking by 25cm annually, making it one of the fastest-sinking cities among the world’s coastal megacities. It is estimated that 95% of North Jakarta will be submerged by 2050. The cost of the project is officially estimated at IDR482.4tn ($33bn), and it is expected to take a decade to complete. The plan is to move 1.5 million government civil servants to the new bureaucratic centre by 2024.

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The progress on other large projects could also be delayed as the government is re-directing a large portion of its budget funds towards mitigating the impact of the pandemic. The government re-allocated 20.4% of its 2020 budget – IDR24.5tn ($1.7bn) – to Covid-19 relief measures. Owing to travel bans, the country is expected to lose IDR56.8tn ($4bn) in tourism revenue, severely affecting the commercial segment. Moreover, up to 5.2 million Indonesians could lose their jobs due to the pandemic, according to government estimates, which will weaken the demand for new housing and curtail investments in the residential market.

The Covid-19 crisis had already impacted the construction industry in the first quarter of 2020. According to the Badan Pusat Statistik, growth in the industry’s value-add at 2010 constant prices slowed to just 2.9% year on year in Q1 2020. This was preceded by an annual growth of 6.1% in 2018 and 5.8% in 2019.

The impact of the Covid-19 crises on the country’s economy and construction industry will be negative. With Indonesia’s economy forecasted to contract by 1.2% in 2020 according to market consensus in June, the construction sector is expected to suffer from the economic fallout of the virus outbreak. Owing to recent disruption and the weaker outlook for economic growth, GlobalData expects the construction industry in Indonesia to grow by only 0.5% in 2020 and regain growth momentum in 2021. The downside risks to the short-term outlook also reflect ongoing disruption to major projects, particularly for projects under China’s BRI. The Jakarta-Bandung high-speed railway project, which is being carried out by the Chinese nationals, was delayed by two weeks amid the pandemic.