Indonesia’s capital Jakarta, with a population of around 10 million, has been suffering from extreme land subsidence for decades, with nearly 40% of the city already below sea level, which represents an increased risk due to rising sea levels. Since the early 2000s, the city has been trying to protect itself from rising sea levels with a sea wall, which is currently being developed in two phases. The first phase would rebuild and expand the dam wall, while the objective of the second phase is to create a 10,000-hectare artificial island which would block storm surges, as well as housing offices, homes, a reservoir, highways and railways, and recreational facilities.
The situation is exacerbated by the lack of adequate drinking water supplies and the pumping of groundwater from Jakarta, some of which is pumped through illegal wells. By 2011, the Indonesian capital was estimated to have used 64% of its groundwater resources. The capital’s mayor, Anies Baswedan, had previously announced a major plan to expand the drinking water network by 2030, but the work is not progressing as planned.
Indonesian President Joko Widodo announced the Nusantara plan in 2019 to ease pressure on a congested and increasingly polluted Jakarta. The plan aims to create a global smart, green city on the island of Borneo that can act as a hub for government, industry, business and education. According to the Indonesian government, only 20% of the project will be completed with public funds by 2045. The project is expected to cost around USD 30–35 billion, to be financed by the national budget, state-owned companies and private investors. According to the government, the United Arab Emirates, China and South Korea have expressed interest in investing.
President Joko Widodo is looking to leave behind the new capital, located on a 921-hectare development site, as a legacy after his mandate ends in 2024. To this end, the relocation of the capital was enacted into law in 2022, ensuring that the Nusantara plan remains on the agenda after President Widodo’s mandate expires in 2024. Following delays caused by the pandemic, the first phase of the project is scheduled to start in the second quarter of 2023 and is expected to conclude in 2024. The first phase will see the construction of 184 apartment blocks, which will house 14,500 public, military and police employees. Designed by Indonesian studio URBAN3 for a population of 500,000, Nusantara — which will take over the functions of Jakarta’s capital — will also contain the state palace, the house of representatives, government offices and housing for civil servants. According to the mayor, the construction of the Nusantara State Palace could be completed by 2024. According to plans, the new capital to be completed by 2045 will create 4.8 million jobs in the areas of technology, petrochemicals and renewable energy.
The opportunities of overpopulated Jakarta were not the only things taken into consideration in choosing the geographical location of the new capital. Nusantara lies along the Makassar Strait, which can serve as an alternative route in case of disruption to the Strait of Malacca, one of the busiest waterways in the world. Moving Indonesia’s economic centre of gravity to Nusantara could not only boost its local economy, but also benefit several ASEAN member states such as neighbouring Brunei, Malaysia and the Philippines through increased trade flows. With the construction of the new economic hub, Indonesia hopes to join the ranks of high-income countries. To this end, companies setting up in the new capital would be granted, among other benefits, a 30-year tax remission, which would also apply to Nusantara residents.
The author is an international adviser at Magyar Nemzeti Bank, the central bank of Hungary