What will happen?
Indonesian authorities want to expand benefits towards businesses by reclaiming about 8,000 hectares of idle or confiscated land in Batam, and develop it into enclaves of special economic zones. These enclaves would serve as an alternative shipping and manufacturing hub, with projected investments worth around US$60 billion.
According to Indonesia’s Ministry of Industry, Taiwan’s Pegatron Corp has announced an investment partnership with local electronics manufacturer PT Sat Nusapersada, while Apple Inc. plans to open a new developer academy in Batam.
What are the implications?
The Batam free trade zone has grown in importance as an investment destination for foreign companies, given its location in one of the busiest shipping channels, cheap labour and tax breaks. Companies operating within the free-trade area are exempted from value-added and luxury taxes, as well as import duties.
Gazetting the land for productive uses would be a boon for not only Indonesian companies, but also for foreign companies including Singaporean firms. Firms with Indonesian operations like Gold Kili, Ha Li Fa and Glints would benefit from lower operational costs and improved business access to the Indonesian market, and attract other Singaporean business to move into the Indonesian market.
Indonesia’s President Joko Widodo’s administration is seeking to boost exports to help curb a widening current-account deficit, which is a key risk for the economy. It is also one of the reasons why investors sold off the currency amid a sell-off of emerging-market currencies in 2018.
Recently, Batam saw the launch of the Nongsa Digital Park, which was coined by the Singapore Economic Development Board (EDB) as “a valuable digital bridge across the region, Singapore and Indonesia”. There are also plans to improve the infrastructure at Batam’s Hang Nadim International Airport, with works slated to commence in 2019. These initiatives would alleviate the problems faced with the worsening current-account deficit.