The construction of Indonesia's new capital is poised to create significant opportunities for growth in the eastern region of the countryIn the first quarter of 2024, East Kalimantan demonstrated an impressive economic growth rate of 6.17%, surpassing the national average of 5.11%. Only the Maluku and Papua Islands outperformed it with growth rates of 12.15% and 6.35% respectively, making East Kalimantan the third fastest-growing region in IndonesiaAccording to Amalia Adininggar Widyasanti, the acting head of the Central Statistics Agency of Indonesia, this remarkable growth is closely linked to the ongoing development of East Kalimantan, which has been designated as the future site of Indonesia’s new capital city, Nusantara.

Covering an area of around 743,330 square kilometers, Borneo, known as Kalimantan in Indonesia, is the third-largest island in the world and is shared by three nations: Indonesia, Malaysia, and Brunei

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The northern part of the island comprises the Malaysian states of Sabah and Sarawak, with Brunei nestled between themThe Indonesian territory includes approximately 539,460 square kilometers, which is divided into five provinces: East, South, West, North, and Central Kalimantan.

Indonesia officially announced its plan to relocate its capital in 2019, moving from the bustling metropolis of Jakarta on Java Island to East KalimantanThis initiative was further solidified in 2022 with the passage of the New Capital LawThe new capital, named Nusantara, is strategically situated in the North Penajam Paser and Kutai Kartanegara districts, which are geographically located at the center of IndonesiaThis decision stems from various challenges Jakarta faces, including severe congestion, pollution, and overpopulation.

Java Island has historically been the political, economic, and cultural heart of Indonesia, with Jakarta located in the northwest of the island

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Notably, Java is one of the most densely populated islands globally, encompassing approximately 138,800 square kilometers—about 6.6% of Indonesia's total land area—with over 145 million inhabitantsThis accounts for more than half of Indonesia's population, creating an astounding population density of 1045 individuals per square kilometerDue to this overwhelming concentration of population and economic activity, Java's provinces collectively contributed to over half of Indonesia's Gross Domestic Product (GDP), reaching 57.05% in 2023.

In recent years, however, Indonesia's policy focus has shifted towards enhancing development outside of Java, leading to marked growth in other regionsBy 2023, areas beyond Java, including Kalimantan, Sulawesi, Maluku, and Papua, exhibited economic growth rates surpassing the national average, excluding Sumatra, Bali, and Nusa TenggaraThis trend was further reinforced in the first quarter of 2024, as investment in Indonesia soared to approximately 401.5 trillion Indonesian rupiah, constituting 24.3% of the annual investment target, and reflecting a year-on-year increase of 22.1%. Notably, actual investments in regions outside Java reached 201 trillion Indonesian rupiah, representing 50.1% of total investments during this quarter.

The development phase of Indonesia's new capital is projected to span around 30 years, with an estimated total investment of 33 billion USD

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Incremental relocation efforts are slated to begin in 2024. Data from Indonesia’s Ministry of Public Works and Public Housing indicates that the government has already allocated nearly 80 trillion Indonesian rupiah for the initial phase of Nusantara's development between 2022 and April 2024, focusing on constructing essential government office facilities.

In the short-term, significant infrastructure investments are expected to catalyze economic growth in the new capitalThe Indonesian government’s initiative to prioritize the usage of localized products aims to foster inter-regional trade and stimulate the growth of various sectors, ultimately creating new employment opportunitiesAs extensive construction projects unfold, East Kalimantan's economic structure is anticipated to gradually transition from a reliance on primary industries to a greater emphasis on the tertiary sector.

Looking ahead, the establishment of Nusantara is not just about relocating the capital; it represents a pivotal opportunity for the eastern regions of Indonesia to rise economically and can serve as a new engine for growth

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The government plans to develop an overarching economic corridor around Nusantara, known as the “Nusantara Ring Economic Corridor,” which aims to function as an “economic superhub.”

This economic corridor will stretch around the northern part of Java, the southern portion of Sumatra, the southwestern areas of Sulawesi, and East KalimantanNorth Java is already home to numerous industrial clusters in locations such as Bekasi, Karawang, Purwakarta, and Batang, which have established themselves as major industrial hubsMeanwhile, the rapid economic expansion in South Sumatra and southern Sulawesi also presents promising opportunitiesThe provinces of South and North Kalimantan will further extend the area around the new capital, while Central Kalimantan will play a significant role in the implementation of the government's food plantation initiatives, positioning the Nusantara Ring as a strategic facilitator in ensuring Indonesia's food security.

Moreover, the economic superhub’s impact will manifest through the creation of six strategically innovative economic clusters, including clean technology, comprehensive pharmaceuticals, sustainable agriculture, eco-tourism, chemical products, and low-carbon energy