Indonesia reviews free-trade zone as growth stagnates (The Straits Times)

Centralisation of control considered in move to get things back on track

INDONESIA is reviewing the Batam, Bintan and Karimun Free Trade Zone (FTZ), citing its lack of competitiveness as well as high costs six years after it was officially launched.

Among other things being considered is centralising control over the FTZ.

“An evaluation is being conducted by the Finance Ministry and other agencies,” Coordinating Minister for the Economy Sofyan Djalil told The Jakarta Post, adding that he expected the findings to be ready by the end of the year.

Mr Sofyan, citing Batam, noted that its competitiveness had been eroding for the past 10 years. It was previously one of Indonesia’s export centres, but this is now significantly less so, he said.

“In the future, the island should focus on just five or six sectors where it is competitive,” he told The Jakarta Post.

Mr Purnomo Andiantono, the Batam Indonesia Free Zone Authority’s (BIFZA) investment and marketing director, agreed with the minister, telling The Straits Times that an overview was necessary to take stock of what needs to be done to rejuvenate the zone.

Singapore is the dominant foreign investor in Batam, which is not surprising since it lies just 20km – or about an hour’s ferry ride – south-east of Singapore.

There are 410 Singapore firms on the island, followed by 52 from Malaysia and 23 from Taiwan, according to data from BIFZA.

The zone held much promise as its proximity to Singapore meant that companies could base themselves there with lowered manufacturing costs while they shipped to Singapore to tap its financial services and links as a major air and shipping hub.

The review is seen as a move to put the FTZ’s focus back on track. One idea being considered is to centralise the zone’s management, with Indonesian Trade Minister Rachmat Gobel as overseer.

Once hailed as a model for Indonesia, the FTZ comprising the three islands has seen its growth stagnating amid rising labour unrest between militant labour unions and local governments.

Some companies have pulled out from Batam because of concerns over rising costs and a less-than-conducive investment climate. They have gone to China, Vietnam and other places where costs are relatively cheaper.

Costs have outpaced growth in Batam, for example.

In 2009, Batam’s economic growth was 4.65 per cent, with inflation at 1.88 per cent, according to data on the BIFZA website. By last year, growth was 5.83 per cent, but inflation was at 7.61 per cent.

Last year, there was only a marginal increase in new investments, which reached US$156.5 million (S$207 million), or just US$1.3 million more than in 2013. When the zone was officially launched in 2009, investments in Batam totalled US$196.7 million.

One bright spot is the property sector, which has grown over the years. A recent survey by Kompas daily showed that there were 20 new property developments in the past few years, consisting of hotels and apartments. Developers say they see a market for meetings and exhibitions.

Mr Purnomo insists all is not lost for Batam.

“It remains attractive. Current demands are driving us to build large infrastructure, such as two deep-water container ports and one passenger ferry terminal over the next few years to the long term,” he said.