50% of industrial zones closed

Rendi A. Witular, Jakarta

About 50 percent of industrial estates across the country have stopped operating, following the relocation of many manufacturing firms overseas due to a worsening local investment climate and the lack of adequate business infrastructure in the estates.

Indonesian Industrial Estate Association (HKI) chairman Basroni Rizal said due to the slow demand for space, only 100 of the existing 200 industrial estates in the country were still in operation at present.

"Problems with our investment climate in the last five years, coupled with a lack of adequate infrastructure for the business, community have had a severe impact on demand for industrial estates," said Basroni on the sidelines of a seminar on Thursday.

"Many estate owners decided to merge their operations with others in order to survive," he said.

According to Basroni, of the total 25,000 hectares (ha) of industrial estate nationwide in the early 1990s, only 10,000 ha were still properly maintained by the owners, with the remaining 15,000 ha neglected.

However, of the 10,000 ha, only 7,000 ha are occupied by manufacturing companies. About 70 percent of the estates that are still functioning are located in greater Jakarta.

For the last five years, Indonesia, southeast Asia's largest economy, has been losing competitiveness in attracting foreign direct investment due to protracted problems, such as legal uncertainty, security and political instability, labor unrest, unfavorable taxation policies and rampant corruption.

Apart from investment problems, Basroni said, manufacturing companies now preferred to set up their operations outside industrial estates, near seaports or in location where road infrastructure was still in good condition, with low traffic congestion.

"Many companies have left industrial estates due to the poor road infrastructure that links the estates and seaports," said Basroni.

However, the currently slow demand for industrial estates and the fact that many estates are now vacant has not discouraged some businessmen from setting up new facilities.

For example, several businessmen, along with the Bekasi regency administration, plan to establish a new residential and industrial zone, to be called Kota Teluk Jakarta (Jakarta Bay Town), in north Bekasi.

The zone would occupy a total of 30,000 ha, with 5,000 ha allocated for industry.

Another industrial estate costing US$210 million is being built on Batam island. The estate will occupy at least 5,000 hectares of land, according to a report.