President Susilo Bambang Yudhoyono has officially launched the much-delayed free trade zone for Batam, Bintan and Karimun in Riau Islands.
The launching, ending five years of legal uncertainty for businesses, was marked Monday with the issue of government regulations on customs, tax and duties for goods entering the three islands.
Companies operating in the islands will no longer pay value-added tax (VAT), import duties and luxury tax, spurring hope that more foreign businesses will invest in the islands to tap low production costs.
“All necessary legal supports are now there to turn the islands into a free trade zone,” said Yudhoyono, accompanied by Trade Minister Mari Elka Pangestu and Investment Coordinating Board chairman Muhammad Luthfi.
“If you hear there are still obstacles to doing business here, including illegal fees, please informed me directly. I will take stiff action against those who dare to disturb the business community here.” he said.
President Yudhoyono also inaugurated eight projects in the manufacturing sector worth US$604 million, three in the tourism sector valued at Rp 250 billion (US$22.3 million) and one port project worth Rp 1.2 trillion, as well as two hotel expansion projects worth $30 million.
These projects will create more than 12,000 new jobs.
Riau Islands governor Ismeth Abdullah said that legal uncertainties for foreign investors, who had been reluctant to come in before, were now settled.
Ismeth said investment in the Riau Islands now exceeded $11 billion from more than 1,150 foreign companies.
Riau Islands attracted in 2007 about $1 billion in new investment, more than double the $484 million received in 2006. Karimun alone attracted $700 million last year.
“We are upbeat that with all the legal hurdles cleared, foreign investment will significantly rise,” he said.
Batam, Bintan and Karimun are just 30 minutes from Singapore by ferry. Indonesia and Singapore have already signed a deal for massive investment in the three islands.
However, Singapore businessmen had been hesitant to invest heavily in the islands until they were sure of clarification of past uncertainties concerning governance, administration and management of the free trade zones.
Under new government regulations, loading and unloading of all imports and exports can only be in five ports; Batu Ampar, Kabil and Sekupang in Batam, Loban in Bintan, and Parit Rompak in Karimun.
“Exports and imports done outside these ports are illegal,” said Riau Islands custom chief Nasir Salim, adding goods entering the islands were not allowed to be sold in other parts of Indonesia unless they paid necessary taxes.
“We have prepared patrol boats that will guard the islands 24 hours a day. We will specifically monitor loading and unloading activities outside the five ports. And believe me the sanctions will be harsh,” he said.
Batam’s main industries are electronics, manufacturing and shipbuilding. Bintan, with its garment and electronics manufacturing industries, measures 4,063 square kilometers. Karimun, renowned for its deep-sea port, covers an area of 8,000 square kilometers.
Chairman of the Indonesian Chamber of Commerce and Industry for Riau Islands chapter Johannes Kennedy Aritonang said there would need to be much work in the field to ensure all the government’s promises were met.
“We will now see implementation in the field. Will the islands become more attractive as planned or not?” said Johannes.