Indonesia has almost a quarter of a billion people and almost as many cell phones. And, those phones can make a difference. One look at Indonesia and you can tell why cell phones might be important. The country is a collection of over seventeen thousand islands spread across thousands of miles. But even if we only pay attention to the largest most significant islands, Java, Sumatra, Kalimantan, Papua and Sulawesi, the distances are still great and the islands far apart.
The electric grid is old and most developed on Java. The main grid on Java is largely powered by coal and electricity on the outer islands is mostly serviced by localized systems powered by small diesel plants. Power outages are less frequent than they were in past decades, but they still occur on all islands. The Indonesian government and managers of the state run electric company, PLN, are committed to reforms designed to improve efficiency of operations. Unfortunately the rehabilitation process happens slowly and runs into political conflicts and regulations that hamper progress.
Studies by outside consulting firms consistently see vast opportunity for growth in Indonesia. There is a growing middle-class, which expanded from approximately 38% of the population in 2003 to 57% of the population in 2010. The potential for consumer sales and services are substantial, but Indonesia’s infrastructure, and government corruption hold back most improvements.
For example, there have been two attempts to legislate an open utilities program in Indonesia that would allow outside electric companies to come in set up power generation facilities and sell their electricity. These programs would continue to use the electrical power lines that are currently in place, but newcomers would be allowed access. Both legislative attempts at change were eventually revoked after they had been passed into law. Reading between the lines, its seems government officials who take bribes would lose their source of income if these reforms were actually carried out. Apparently so they go along with change while it is in the public eye and then undermine those changes once they are in place.
Another example of Indonesia’s lack of will to carry though change of their infrastructure shows up in the construction of new facilities. There are two fast-track programs in place right now, 2014, to construct new power generation plants. When they started, the first program was scheduled for completion by 2010, but by the end of 2012 only 48% of the power generation expected from this program was actually available. The second fast-track power generation project is scheduled for completion by 2016, but is already well behind projected completion due to technical difficulties and lack of access to sites where the plants are designed to be located.
The extent to which Indonesia’s lack of infrastructure hobbles growth is apparent even for the poorest parts of Indonesian society. Cocoa farming is widely practiced on remote islands and 38% of Indonesia’s GNP is generated from agriculture. Indonesia is the third largest exporter of cocoa in the world, so these remote farmers produce a significant cash crop. Most of these farmers make about $2000 a year from their cocoa crop, and most of them have cell phones. There are lots of ways farming information could be shared among these farmers to improve crop yields and market delivery, but short-term capital is needed for most of those improvements. These farmers use cash in all parts of their businesses. Banks are now targeting these farmers as potential new account holders who they could teach to use a financial system.
Many of the private consulting firms that do studies about business opportunity in Indonesia are also looking to sell services, just like the banks. This private avenue to professional services looks like a way forward towards middle-class development, but it has not yet taken hold. Without the underlying infrastructure, like widely available, dependable power generation, Indonesia remains locked in a development trap that is not easily assisted by outside private professional services. Cocoa farmers who lack credit and don’t borrow money aren’t likely to trust outside professionals even though when they are surveyed they agree that bank accounts would be convenient.
Farming cooperatives are a different direction for agricultural development. With the use of cell phones there are good communications links. What is missing are trainers and leaders who can gain trust among local farmers and teach them methods of crop improvement and business growth. Some of the existing cooperatives are involved with international labor organizations who are training the trainers. In cooperation with local government officials, there are improvements being realized in crop yields.
The biggest impediment to Indonesian development is geography. A collection of islands is difficult to administer evenly. Java is the main island at the center of Indonesia and where the countries national government is located in the city of Jakarta. As long as the central government has corruption problems the outer islands are ignored. The electrical grid development is a visible indicator of the relationship between the central island and the outer islands. The most developed grid is on Java and the other islands, four of which are large, have far less developed electricity generation. The uniqueness of a nation of islands demands a unique development program. So far, Indonesia’s central government hasn’t found the will or the leader to establish that unique government and private professional businesses that offer analysis are not able to help without a more successful central government. Indonesia continues to look for the leadership that will move it forward. In the meantime technical developments like cell phones and farming cooperatives attempt to improve targeted, isolated problems.