BATAM Thread

Minister visits Batam, discusses FTZ status
Fadli and Zakki P. Hakim, The Jakarta Post/Batam/Jakarta

The Ministry of Trade is still assessing solutions to resolve the ongoing debate on the status of the industrial island of Batam, despite the government's previous statement that it was going ahead with the "enclave" free trade zone (FTZ) option.

Trade minister Mari E. Pangestu left for Batam on Thursday for a two-day visit to meet with local authorities and private sector representatives, and also to take a look around the industrial island.

"We are seeking suggestions from locals on what is best concerning Batam's status," she said.

Mari met on Thursday night with some 50 local businesspeople, who are members of the Indonesian Employer's Association (Apindo), the Indonesian Chamber of Commerce and Industry (Kadin) and the Industrial Zone Association.

The closed-door meeting, which went on for about three hours and finished around midnight, was followed by a meeting with local authorities in the morning.

"But we have yet to go into the matter of enclave or whole island FTZs. This is purely fact finding," Mari said.

Riau Islands province's Kadin chairman Johanes Kennedy Aritonang said the minister had promised that the government would come to a decision as soon as possible.

"The uncertainty has contributed to declining investment in the island," he told The Jakarta Post.

According to John, local businesspeople actually prefer the adoption of a whole island FTZ concept.

In January, the government declared that it was going to maintain the previous government's proposal for an "enclave" FTZ on Batam, despite opposition from elements in the House of Representatives.

The government decided that it would limit free trade areas to specific places on the island, despite the House's desire to make the whole island a free trade zone.

The debate between the government and the House started during former President Megawati Soekarnoputri's term, in which both sides failed to reach an agreement on the status of Batam as a FTZ.

But after Vice President Jusuf Kalla took control of the Golkar Party last December, there has been no further opposition from the House. Golkar controls 128 of the House's 550 seats.

Last September, the House endorsed a bill granting FTZ status to the whole of the island of Batam. The bill was opposed by the government.

Without the government's approval, the law cannot take effect, creating further uncertainty for investors on the island, which, since 1978 has been promoted as an industrial bonded zone to attract foreign investors.

Batam has become one of the most attractive manufacturing and industrial locations in Southeast Asia, hosting some 600 foreign companies and absorbing over US$3 billion in foreign investment.

Jakarta Post 23/7/2005

Govt offers 'Bonded Zone Plus'


Zakki P. Hakim and Fadli, The Jakarta Post/Batam

The status of the Batam Industrial Bonded zone, Bintan Industrial Estate and Karimun Industrial Cooperation zone have been upgraded to "Bonded Zone Plus" to give investors more legal certainty, top officials say.

Minister of Finance Jusuf Anwar and Minister of Trade Mari E. Pangestu introduced the governmental regulation and three ministerial decrees through the July Package of deregulation measures here on Friday. The regulations would serve as legal basis for the status upgrade, they said.

The package is expected to address four main legal and investment issues -- the status of assets in the zones, the status of land and spatial plans, the workings of the Batam Industrial Development Agency (BIDA) and the Batam municipality administration, Mari said.

"The package is based on input from various stakeholders. It is expected to provide incentives for investors, including facilitating an easier and faster flow of goods," she said.

Under the package, the government now allows manufacturers in the three areas to import used capital goods for industrial purposes without official permits and surveyor inspections, as long as they were an inseparable part of relocating businesses to the zones.

Several permits and taxes in the zones have also been scrapped under the package.

The policy is also expected to improve export-oriented business performance and sustainability; reduce costs, simplify procedures and maintain consistent policies; give clear distinctions and regulate industrial and residential zones; ensure fair taxation; and maintain an easy and fast flow of goods in the industrial zones.

It would also enable the government to simplify customs procedures by delegating the authorities of the finance ministry or its Directorate General of Customs to the heads of local Customs Service Office (KPBC).

Mari acknowledged that the package might not solve all the problems in zones, "but, at least it could address many problems that have been neglected for years."

The private sector, however, cautiously welcomed the package.

Head of the Indonesian Employers Association Riau Island chapter, Abidin, said although the policies were business-friendly, they were weaker than laws, which would give businesses more confidence.

"We greatly appreciate the July Package, but we still expect that Batam's status be strengthened in a law," he said.

Batamindo Industrial Zone general manager John Sulistiawan said that the package seemed to have returned Batam's status to Free Trade Zone; which was an extremely positive move.

"(However) we still have to see the implementation; will it be as good as the ministers have announced?" he said.

Batam Small and Medium Enterprises coordinator Dorlan Naibaho said the policies seemed to focus more on foreign investors than local SMEs, many of whom still depended on imported goods.

Batam is an attractive manufacturing and industrial location in Southeast Asia, hosting some 600 foreign companies and absorbing more than US$3 billion in foreign investment.

I think BATAM has the potential to be Indonesia's equivalent of Shenzhen, with its proximity to Singapore and all. The governemnt sohuld proactively promote BATAM as an industrial city and major investment destination...
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Jumat, 29 Juli 2005, 21:00 WIB
Presiden: Indonesia Perlu Belajar dari Kota Shenzhen

Laporan -

SHENZHEN, investorindonesia.com

Presiden Susilo Bambang Yudhoyono mengatakan, Indonesia perlu belajar dari keberhasilan kota Shenzhen di Propinsi Guangzhou, China, yang telah berhasil membangun sektor industri sehingga memajukan kota tersebut.

"Saya lihat sendiri dan saya memberikan penghargaan serta kagum atas keberhasilan Shenzhen yang tumbuh menjadi kota besar dan maju," kata Yudhoyono, dalam pertemuan dengan Walikota Shenzhen, Xu Zongheng, di Wuzhou Guest House, Shenzhen, Cina, Jumat malam.

Yudhoyono mengatakan, konsep pembangunan ekonomi dan pembangunan industri di Shenzhen tepat sehingga bisa tumbuh dengan pesat.

Sementara itu, Walikota Shenzhen mengatakan, kotanya, menargetkan pada 2010 menjadi kota modern internasional. Ia menyebutkan bahwa pada 2010 ditargetkan, pendapatan domestik bruto per kapita menjadi 12.000 dolar AS.

Untuk memenuhi target itu, ia melakukan lima langkah, yakni membangun kota dengan teknologi canggih, membangun kota dengan sektor pengangkutan barang yang modern, menjadikan Shenzhen sebagai pusat moneter regional, menjadikan Shenzhen sebagai kota pantai dan wisata yang indah, membangun kota dengan kebudayaan yang maju.

Kota yang terletak sekitar 35 km dari Hongkong tersebut, juga telah memiliki volume perdagangan yang cukup besar dengan Indonesia.

Zhongheng, mengatakan, volume perdagangangan Indonesia dengan Shenzhen, mencapai US$ 1,1 miliar, pada 2004.

Ia juga menyebutkan, banyak perusahaan industri dari Shenzhen yang telah berinvestasi di Indonseia. (ant)

Indonesia's treasure island
By Michelle Janowitz

With many companies engaged in an endless quest to secure successful low-cost solutions for running their business, outsourcing has inevitably developed into one of the more popular ways to drive company costs down. Offshore outsourcing in particular has been gaining ever-increasing popularity through the years, and Asia has become a prevailing offshore outsourcing destination for many US companies.

Southeast Asia alone is home to approximately US$88 billion in US direct investment. It is also the third-largest overseas market for US exports, and annual US trade with the region totals $127 billion. Two years after President George W Bush announced an initiative to create free trade pacts with countries in the Association of Southeast Asian Nations (ASEAN) region (which includes all 10 countries in Southeast Asia), Washington has managed to strike only one deal so far - with Singapore. However, solidified agreements seem to be gaining momentum as a result of the recent US-Thailand free trade negotiations and discussions in Malaysia about a possible free trade agreement.

With regard to low-cost industrial options in Asia, there continues to be a lot of competition between the ASEAN region and China. While it's easy to assume that China is the favored Asian destination for US companies seeking to outsource their manufacturing facilities, there are a myriad of areas in the ASEAN region that offer a viable alternative to low-cost areas in China. "Several years ago many analysts were prepared to almost write off Southeast Asia, believing it would be impossible for these economies to compete in the face of an emerging China," says Keith Rabin, President of KWR, an international consulting firm. "In fact, the ASEAN region has done quite well."

As the largest economy within ASEAN, it would seem Indonesia should be an obvious foreign investment choice, with an abundance of cheap labor and low business costs. However, some people feel that civil unrest in Indonesia has prevented the region from developing into a major player in global outsourcing. A recent report by Accenture, a global management consulting, technology services, and outsourcing company, indicates the window for significant expansion in outsourcing for the region may be closing quicker than expected. However, Al Hirshen, senior advisor to the Acting Governor of the Riau Islands Province of Indonesia, sees a different side: "American attitudes are changing with the election of President Susilo Bambang Yudhoyono [the new Indonesian president]. The US government sees the advantage of a positive relationship with the largest Muslim country ... and understanding is building of how moderate the Indonesians are, and how small a group the terrorists are. Also, the US recognizes President Yudhoyono is serious about fighting terrorists and corruption."

Strategic location
Despite a questionable outlook for the country as a whole, the Indonesian island of Batam seems to have several advantages that exempt it from the pervasive criticism surrounding the Indonesian marketplace. Batam is a small, export-oriented island strategically located 12 miles from Singapore on the Indian and Pacific oceans. It is this convenient access to Singapore that attracts investors who need to be near the region's financial capital. According to Hirshen, Batam can successfully compete with China and other low-cost areas in Asia, with its good workforce, competitive wages, and incentives. Plus, Batam offers the attraction of a warm, beautiful, interesting, and culturally rich place to live.

The Batam Industrial Development Authority (BIDA) has been putting a lot of effort into creating an investment climate that will ensure the island's success. The tangible results of BIDA's hard work are evident in such assets as sprawling, self-sufficient industrial parks and a polytechnic school that assists the island's companies train employees. Currently, Batam is touting itself as "the" place for manufacturing, and many companies stationed in Singapore (especially Singaporean and Japanese ones) are finding that there is an incredible cost advantage to taking their manufacturing operations over to this Indonesian island. The average manufacturing job in Batam pays a wage of around $66 a month, compared to around $95 in many regions of China.

"Singapore recognizes the importance of a strong Batam ... thus they have been very supportive," says Hirshen. "[A company] would come to Batam for the advantage of a foreign trade zone and exporting to ASEAN and beyond. Excellent infrastructure allows fast shipment to just about anywhere in the world. You would not come to Batam to access Indonesian markets, as it is too far away from Java. As costs rise in Singapore, American companies will see the advantage of moving manufacturing to Batam, while maybe keeping their headquarters in Singapore. Compared to other countries with foreign trade zones, and the rest of Indonesia, the labor situation is good, with minimal loss of production due to labor unrest."

One of the island's primary industrial parks boasts billions in foreign investment at present. The park is around 80% occupied, mostly by light, non-polluting manufacturing operations in electronics, pharmaceuticals, and precision parts. There are no textile operations in the park, as there is an issue of water supply; the park's water infrastructure cannot yet fully support the water demand associated with the industries there. The majority of the occupants are Japanese and Singaporean companies, but there are five US and a few European companies in the park as well.

Some speculate that the reason for the dearth of Western companies on the island and in the park is the religious climate of Indonesia and Batam, which is predominantly Muslim. Interviews with various officials reveal that this is a stereotype that the island is trying hard to vanquish, as it seeks to portray itself as more aligned with Singapore than Indonesia. Also, many officials are quick to cite that Indonesia is not a "Muslim" country, but a country with a principally Muslim population. However, one executive interviewed warned not to mention the name of the industrial park he worked for - citing terrorism concerns - preferring to err on the side of caution. Regardless, Batam does appear to be far removed from the instability experienced on some of the other Indonesian islands; many officials and expatriates are quick to reassure that the island is, indeed, quite politically stable - with a thriving business climate.

As Acting Governor Ismeth Abdullah (also the chairman of BIDA) passionately espouses his desire for Batam to become a low-cost hub for the region, it becomes clear he is a staunch proponent of the island's capacity for success. However, Abdullah is also realistic about what the island needs to do to become more competitive, citing the need to improve the financial incentive situation as one of the ways the area can become more of a contender in the Asian marketplace. The island is actively trying to diversify investments coming into the area from Singaporean companies. Toward that end, Batam is currently in the process of negotiating with India, and has established a regional office in Japan.

This article was originally published in Business Facilities magazine.