S'pore funds pivotal to Batam: PERC

S'pore funds pivotal to Batam: PERC

The Jakarta Post, Jakarta

Indonesia should capitalize on Singapore's abundant financial
resources and provide investors in Batam with better access to
the Indonesian market in a bid to boost development of the island
and turn it into the country's main engine of growth, a leading
consultant said.

Political & Economic Risk Consultancy Ltd (PERC) said Batam
had many advantages over other industrial centers in Asia in
attracting multinational companies. However, if Indonesia does
not move fast to take the opportunities, other places in the
region will overtake the island.

"The timing is right for the Indonesian government to
proactively promote Batam as an engine for economic growth for
the country and as a catalyst for positive change.

"However.. if the government does not take advantage of the
opportunities that are available now, it could be much more
difficult to do so at a later date," PERC said in a report made
available to The Jakarta Post on Wednesday.

The report was made based on the Executive Investment Forum in
Batam held on May 27 and May 28. The forum, organized by PERC,
brought together nearly 30 senior executives from 16 of the
world's leading multinational companies, top Indonesian
governmental officials, including Coordinating Minister for the
Economy Dorodjatun Kuntjoro-Jakti, and a number of academics from
the region.

During the forum, the report said, participants underlined the
importance for Indonesia to create "better integration" between
Singapore and Batam given the latter's abundant financial
resources.

Due to land, labor and resource constraints, Singapore's
economy will remain very externally focused. Cost considerations
will also force it to develop strategic relationships with lower
cost regions like Batam.

However, if Indonesia fails to create various partnering
arrangements between Batam and the city state, Singapore is most
likely to look for other places to invest its abundant financial
resources.

The report said China remains the most attractive investment
destination in the region.

"Within Asia, they (multinational companies) are still
focusing on China but not so exclusively. Companies will not want
to put all their eggs in one basket. They will continue to invest
heavily in China, but they will also be looking at alternative
locations to place a second or third facility," the report said.

In the so-called "China plus One" or "China plus Two"
strategies, Batam is competing with other investment zones in
Asia such as Subic Bay in the Philippines, Ho Chi Minh City in
Vietnam and Johor in Malaysia to become the plus one or one of
the plus twos.

Batam could excel if it is able to attract the huge potential
investment from Singapore and if the government gives the
island's investors better access to the Indonesian market. The
government should also better integrate the island with
neighboring parts of the country so that the entire region
benefits from the respective parts.

Today, Batam functions as a bonded zone where manufacturers
can only export their products.

Thus far, many investors feel happy investing in Batam because
of the efficiency of its port and airport systems; its adequate
infrastructure like power, water, telecommunication facilities
and waste disposal systems; the tax incentives provided by the
government; the rule allowing 100 percent ownership rights; and
the liberal immigration and employment rules.

The island has attracted US$9 billion in investment since it
was declared a bonded zone in 1978.

However, existing investors are still worried that the
government might suddenly change the island's current tax and
"free-trade-zone" benefits. After decades of operation, Batam is
now more like a free trade zone than a bonded zone.

Indonesia thus needs to issue a law making Batam's status as a
free trade zone more permanent, the paper said.

The House is currently debating the government-proposed bill
that will change Batam's status from a bonded zone into a free
trade zone.

Batam's contribution to RI's economy

-- Batam contributes Rp 900 billion (US$109 million) a year in
tax revenue.
-- Batam provides employment for more than 170,000 people in the
formal sector and far more than that in the informal sector. Most
of these workers come from other parts of Indonesia, with the
majority coming from Java. These workers are some of the best
paid in Indonesia and they transfer at least Rp 140 billion a
year to their families via postal checks to villages throughout
Indonesia.
-- Batam's exports amount to more than $5 billion a year, which
is equal to about 10 percent of Indonesia's total exports.