Indonesia is a country with great opportunities. It is an emerging economy, a moderate and peaceful country offering business and investment friendly atmosphere to the potential investors. Indonesian government is successfully pursuing and implementing the policies of Special Economic Zones (SEZs) since 2014. As of 2022 there are 19 Special Economic Zones, of which 12 are in operation and the remaining in the construction phase. Through the SEZs, Indonesia aims to attract over US$ 50 billion in foreign investment in the next decade. The SEZs are designed in a way to maximize the ready availability of local resources and serve specialized primary industries. Further, through these SEZs, the government hopes to drive economic growth away from Island of Java, which currently contributes 60% of Indonesia’s GDP and 60% of the total Indonesian population. For foreign investors Special Economic Zones and taking full advantage of what they offer requires a long-term outlook. Having this long-term outlook will allow the foreign entity to benefit from Indonesia’s unique advantages, competitive labour cost, huge domestic market, and continuously expansion of SEZ land, a constraint many businesses are experiencing in other ASEAN members.
Out of these 12 Economic Zones, eight are designated for tourism with the rest for manufacturing and processing. As of 2021, Indonesia’s SEZs have attracted just over US$ 5 billion in investments, and employed over 28,000 workers. The SEZs serve as a hub for selected activities from logistics to export processing activities to tourism. They are designed in this way to maximize the ready availability of local resources and cater to upstream and downstream industries. Arun Lhokse Umave SEZ, located in Aceh province, has its primary activities surrounding petrochemicals, oil and gas and paper production. The Manalika SEZ located on the scenic Islands of Lombok, is being pushed as an SEZ that supports eco-tourism and the Agro-industry. The Kendel SEZ has its primary activities in manufacturing, particularly garments and textiles, automotive, furniture, electronics, food and beverages. The SEZ is found in Central Java province, one of Indonesian manufacturing hubs. Within an SEZ, the following activities can be undertaken: -
i) Production and Processing
ii) Logistics and distribution
iii) Research, digital innovation
iv) Tourism
v) Energy development
vi) Education
vii) Sports
viii) Financial Services
ix) Creative Industries
x) SEZ development and management
xi) Procurement of SEZ infrastructure
Investors operating in Indonesia’s SEZ, will find they are supported by well-integrated infrastructure from highways, drainage systems, high speed internet and communication systems, ports and airports. More ever the Indonesian government has prepared an array of fiscal and non-fiscal incentives, such as easier immigration process, corporate income tax reduction, exemptions on import duties and excise duties, among many others. Following is the list of Special Economic Zones in Indonesia: -
i) Arun Lhokseumave SEZ ii) Sei Mangkel SEZ (iii) Nongsa SEZ (iv) Batan Aero Technic SEZ v) Galong Batang SEZ (vi) Tanjung Kelayang SEZ vii) Tanjung Lesung SEZ (viii) Lido SEZ ix) Kendal SEZ x) Gresik SEZ xi) Singhhasari SEZ xii) Mandalika SEZ xiii) Maloy Batatuk Trans Kalimantan SEZ xiiv) Palu SEZ xv) Likupang xvi) Bitsung SEZ xvii) Morotal SEZ xviii) Sorang SEZ xix) Tanjung Api-Api SEZ
Java is supported by a strong consumer base since the Island accounts for approximately 60% of Indonesia’s total population making it the most populated Island in the World with over 141 million people. Java also accounts 60% of Indonesia’s GDP. Java also has the most developed services sector in Indonesia and more than half of the country’s 100 or 80 Industrial states are located on the Island. After Java, the biggest contributions to Indonesia’s GDP is the Island of Sumatra with 21% of total, followed by Kalimantan and Sulvesi, eight and 6% respectively. Bali and Nusa Tenggara contribute three percent of GDP while Maluku and Papua, the remaining 2%.
Under the dynamic, able and committed leadership of President Joko Widodo and his government has emphasized a regional development strategy with a focus on investing in roads, ports, railways, and power plants, spearheaded by the development of special Economic Zones. In his second term, the president plans to spend more than US$ 400 billion until 2024 on a variety of infrastructure project that will help to integrate the country more effectively.
The development of Indonesia’s Special Economic Zones will be vital in pushing the country’s 4th Industrial Revolution (4 IR) roadmap. This aims to add 10 million jobs for country’s youth.
The Industry contributed the largest GDP at 17.34 % in 2021. The Indonesia’s 4th IR roadmap focuses on five key sub sectors of manufacturing. These are: -
i) Food and beverage to be food and beverage power house in ASEAN
ii) Textile and Apparel to be leading producer of functional clothing
iii) Automotive to become a leader in the export of internal combination engine vehicles and electric vehicles
iv) Chemicals to become a leader in bio chemical manufacturing
v) Electronics to nurture domestic industries to be globally competitive these five sectors accounts for 60% of the country’s GDP, 65% of total exports, and employ some 60% of Indonesia’s workforce.
To be Continued