Indonesia’s new capital city will only contribute an additional 0.02 of a percentage point to the country’s economic growth, and the impact will also be short lived, according to Institute for Development of Economics and Finance (Indef) research.

The research estimates that in the short run, the new capital city will contribute 0.17 of a percentage point to total investment, 0.02 of a percentage point to total exports and imports and 0.05 of a percentage point to total employment rates.

“This is because the new capital city is about moving the government and not businesses," said Indef economist Rizal Taufikurahman at law firm Dentons HPRP's discussion forum on the future of doing business in Indonesia on Wednesday.

Moreover, the new capital city was estimated to increase the total short-term output growth of the construction industry by 0.15 of a percentage point, mineral and steel industries growth by 0.1 of a percentage point and leather and sea transportation industries by about 0.07 of a percentage point, among other things.

The new capital city, to be developed in a 256,000-hectare (ha) area in the North Penajam Paser and Kutai Kartanegara regencies in East Kalimantan, will therefore bring about little economic impact, Rizal reiterated.

The capital would likely cause East Kalimantan's inflation rate to increase slightly by nearly 0.1 of a percentage point in the short term and by 0.04 of a percentage point in the long term.

The government estimated that the development of the new capital city would cost Rp 466 trillion ($34 billion). For the funding, out of the total Rp 466 trillion, 54.4 percent would come from public-private partnership schemes, 26.4 percent from the private sector and 19.2 percent from the state budget.

The Japanese conglomerate Softbank Group has offered to invest between US$30 billion and $40 billion in the development of Indonesia's new capital city.

"We want to move the capital because a city is important in spurring economic growth," said National Planning Agency (Bappenas) regional development deputy Rudy Prawiradinata. (dfr)