Improving Connectivity in Indonesia: The Challenges of Better Infrastructure, Better Regulations, and Better Coordination

This paper presents and discusses the main challenges that an archipelago like Indonesia is facing in improving its connectivity. Distinguishing between intra‐island, inter‐island, and international connectivity is essential in order to understand the nature of the challenges and causes behind the bottlenecks. High domestic shipping costs are identified as one key challenge. The Government of Indonesia has identified improved connectivity as a key issue in promoting economic growth, especially in the manufacturing sector, now that Indonesia can no longer rely on commodities as a driver of growth. Better infrastructure, regulations, and coordination among stakeholders are crucial components in promoting improved connectivity for manufacturing growth. Promoting investment in infrastructure is necessary, including both hard and soft infrastructure. However, Indonesian experience highlights that without regulatory reform and improved policy coordination, infrastructure investment will continue to lag behind. There is a need for an improved and empowered governance structure to turn investment plans into reality.