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.