Batam (gokepri) – Indonesia is making a calculated push to elevate Batam’s Special Economic Zones (SEZs) as a competitive alternative to Johor-Singapore, its neighbour to the north. The Coordinating Ministry for Economic Affairs has prioritised resolving long-standing land acquisition issues, aiming to position Batam as a prime investment destination.
Susiwijono Moegiarso, Secretary of the ministry, acknowledges the challenge. “Johor has set a high bar, offering investors a range of advantages. Batam must rise to the occasion,” he said during a meeting at the Indonesian Parliament on December 3rd.
Batam has natural advantages. Its location near vital shipping routes makes it geographically strategic—arguably more so than Johor. Yet, these benefits are undermined by infrastructure deficits and bureaucratic hurdles that have historically hampered its potential. Recent government efforts aim to change that narrative.
The ministry has rolled out an array of fiscal and non-fiscal incentives to lure investors. These include corporate tax reductions, exemptions from value-added tax, and significant cuts in local levies. Investors in tourism-focused zones are offered even greater perks, while non-fiscal measures promise streamlined licensing and extended land ownership rights, lasting up to 80 years.
But incentives alone may not suffice. Batam must contend with the stark reality of its regional competitors. Johor, bolstered by its proximity to Singapore, offers a level of political stability, infrastructure quality, and connectivity that Batam has yet to replicate. The challenge is steep, yet not insurmountable.
Geopolitics, however, might lend Batam an unexpected boost. Rising tensions between the United States and China have triggered a search among multinationals for alternative production hubs. Indonesia, with its growing consumer market and relatively stable political landscape, could emerge as a beneficiary. “Geopolitical shifts could be a blessing for us,” Susiwijono remarked, referring to past examples where companies relocated to Indonesia amid global trade disruptions.
Batam’s success will ultimately hinge on execution. Infrastructure development must keep pace with investor expectations, and reforms must address the red tape that has long plagued the region.
Achmad Makruf Maulana, Chairman of the Chamber of Commerce and Industry (Kadin) of Riau Islands (Kepri), has raised concerns about the competitive risks posed by the Johor-Singapore Special Economic Zone (JS-SEZ), a joint project developed by Malaysia and Singapore. According to Makruf, the policy incentives offered by JS-SEZ are attractive to businesses, particularly the 5% income tax rate for 20 years and a 10% incentive for Industrial Building Allowance.
“The 5% income tax is a stark contrast to Indonesia’s rate, where corporate income tax can reach up to 21%,” he said in Batam on Thursday, September 26, 2024. This significant difference, he argues, could undermine the investment climate in Indonesia, especially in Batam, as both Batam and JS-SEZ are targeting foreign investors and are strategically located in the Malacca Strait. Moreover, JS-SEZ has the added advantage of more available land.
Makruf warns that if the situation is ignored, it could erode foreign investor confidence in Riau Islands, particularly in Batam. He has formally reached out to Indonesia’s Coordinating Minister for Economic Affairs, the Minister of Investment, and the Minister of Finance, requesting tax policies that would level the playing field with JS-SEZ.
Rafki Rasyid, Chairman of the Indonesian Employers Association (Apindo) Batam, echoed these concerns, stressing the need for the central government to support Batam’s Special Economic Zones (KEK) and Free Trade Zones (FTZ). “Licensing authority should be transferred to FTZ managers and local governments, without sectoral egos,” he said.
Rasyid also acknowledged the growing challenge posed by the development of KEK in Johor, given Singapore’s significant investment footprint in Batam. “If many investors shift to Johor, Batam’s investments will dwindle,” he explained.
Rasyid further called for improvements in infrastructure, including better roads and port facilities, particularly smaller roads leading to industrial zones, as well as more efficient logistics tariffs. “With these improvements, Batam could compete with Johor and other regional SEZs,” he added.
Johor-Singapore SEZ: A New Economic Hub
A long-anticipated agreement between Malaysia and Singapore to develop a Special Economic Zone (SEZ) in Johor, initially slated for September 2024, is now expected to be signed in December 2024. This new zone is poised to become a key alternative to Indonesia’s Special Economic Zones (KEK), which have long attracted Singaporean investors, particularly in Batam, in the Riau Islands.
Johor’s Chief Minister, Onn Hafiz Ghazi, confirmed the delay during a conference in Singapore on August 29, 2024, attributing it to high-level discussions between the two countries. Despite this, Hafiz remains optimistic that the agreement will be finalized soon, with the details being ironed out by officials from both nations.
“Hopefully, the agreement will be signed in November,” said Hafiz, emphasizing that both sides are working to ensure the project proceeds on schedule. Malaysia and Singapore had signed a memorandum of understanding (MoU) in January 2024 to develop the SEZ. The initiative aims to facilitate the free movement of goods and people between resource-rich Johor and land-scarce Singapore.
In July 2024, Malaysia’s Economic Minister, Rafizi Ramli, confirmed that the agreement, originally scheduled for September 2024, had been delayed. Nevertheless, the Johor-Singapore SEZ is seen as a major catalyst for both countries’ economies. It is expected to create around 100,000 new jobs in Johor and boost Malaysia’s economy by USD 26 billion annually by 2030. BLOOMBERG, BISNIS INDONESIA
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