Batam prospering during crisis

Dadan Wijaksana, The Jakarta Post, Singapore

While Indonesia still reels from falling foreign direct investment (FDI), investors flocking to Batam helped push the tiny island's economy up by an impressive 7.7 percent last year, far above the national growth rate of 3.32 percent.

According to Batam Industrial Development Authority (BIDA) Chairman Ismeth Abdullah, investors still see the island as an attractive place to invest in, not only because of its sound infrastructure facilities, but also its probusiness policies.

"Not only do we have a one-roof-policy for investment applications, but we also provide a fast and efficient customs service for imports and exports at seaports and airports.

"Batam also offers attractive tax incentives, such as exemptions from import/export taxes, value-added tax and sales tax on luxury goods. Beside, foreign investors have options of having 100 percent ownership," Ismeth said here last week.

He was speaking at a one-day seminar on investment in Batam in Singapore.

Unlike other parts of the country where direct investment has been rare, the island remains the country's growth engine by attracting more and more investors.

After absorbing a staggering US$15.4 billion of FDI in 2000, the country experienced a sharp decline last year, with only $9 billion worth of foreign investment coming in.

Of last year's figure, some $3.4 billion went to the island, with Singaporeans making up some $1.2 billion.

Batam has become the country's main center of industry, where 70 percent of the economic growth is contributed by an export- oriented manufacturing sector, with 100 percent of its products exported to international market.

The total value of exported goods from the island last year reached US$ 5.7 billion, or accounted for some 14 percent of the country's total non oil and gas export revenue.

Today, there are .... from 34 countries doing business on the island, investors from Singapore being largest group, with a total of 266 companies active in various industries, services and the tourism sector.

With such a significant figure, it is thus crucial for the island's authority to sustain the flow of investment from Singapore.

To attract more investors, it was revealed in the seminar, BIDA is planning to implement various measures to accommodate the needs and requirements of future investors.

Ismeth said the new commitments were designed to provide world-class support and treatment for potential investors, and also to provide service for all actual foreign investors in Batam.

First, the establishment of the Foreign Investors' Center to ensure a prompt and comprehensive service. Secondly, a Charter for Foreign Investors as a formal public pledge to meet or exceed specific service standards in BIDA.

The third would be the setting up of an office of the investment ombudsman as an independent institution, to be responsible for investigating and resolving difficulties faced by investors.

Ismeth said the program would be launched at the same time as the official launching of the Free Trade Zone (FTZ) status of Batam, which he expected to be soon.

The government plans to grant Batam long-anticipated FTZ status, with the FTZ draft law currently being debated in the legislature.

FTZ status would enable companies on Batam to import goods without paying customs duties and taxes, pending their eventual processing, transshipment, or reexport.

Batam, located in the Riau archipelago, some 20 kilometers south of Singapore, was initially declared an industrial bonded zone in 1978 to attract foreign investment and bolster export competitiveness.

When asked about the impact of the deteriorating relationship between the governments of Indonesia and Singapore on the flow of investment from Singapore to the island, Ismeth said he had yet to see such an impact.

He said he was convinced that Singaporeans would still perceive Batam to be as attractive as ever in term of investment, regardless of what happened between the two neighboring countries.

"So far, it has had no effect at all. Investors are still flowing, traffic between the two islands is as busy as ever. There is nothing serious in terms of investment, business and trade," he said.

His comments came at a time when political tension between the two ASEAN countries has been on the rise, following remarks by Lee Kwan Yew, Singapore's senior minister, saying that Indonesia had done little to combat terrorists.

He even said Indonesia was believed to be a hiding place for those linked with international terrorists.

The remarks have drawn fire from Indonesians, with the government and certain groups in society asking for a clarification of the issue.

Thus far, there has not yet been any official settlement of the row in any form.

Apparently sharing Ismeth's view, chairman of the Singapore Confederation of Industries Robin Lau suggested that investors look at other angles.

He urged businessmen not to back down from investing in the island just because of the issue.

"As businessmen, we should look at opportunities. Batam is indeed close to Singapore and has plenty of competitive advantages; why don't we seize that opportunities?" he told the seminar.

Rather than backing down, he added, investors should instead move on by relying on the essential business principle: the higher the risk, the higher the gain.