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Industrial estate business still promising

Jakarta | Wed, August 10, 2016 | 09:32 am
Industrial estate business still promising Bread making: Nippon Indosari Corpindo, the producer of Sari Roti bread, operates one of its factories in the Jababeka industrial park in Cikarang, West Java. (JP/-)

The global economic slowdown has become a big issue that is influencing the growth of the domestic economy. The economic downturn in Indonesia’s main export destinations will no doubt affect the country’s industrial sector, including industrial estates.

The development of industrial estates boosts the economy of surrounding areas. However, the global economic slowdown has discouraged investors from expanding or increasing investment in their businesses and this unfavorable situation has hurt the sale of industrial land.

If we refer to the sales target of 700 hectares set by the Industrial Estate Association (HKI) for this year, then ideally in each quarter, there should be at least 175 ha of land in industrial estates being sold to meet that full-year target.

The chairman of HKI, Sanny Iskandar recently estimated that the sale of industrial land would be only about 100 ha in the first quarter, far below the initial target.

According to him, the sale of land in industrial zones remains weak because many investors are still refraining from developing and constructing their production facilities. “There are many investors who have not yet built their plants in the industrial estates,” he said in Jakarta in April.

Through a number of economic policies launched by the government in recent years, investors have been enticed to invest their money in Indonesia. Sanny is optimistic that the slow growth of the industrial estate business in the first quarter will be offset in the next quarter. He hopes at least that in the second quarter of this year there will be a pickup in land sales in industrial zones.

Sanny’s optimism is based on progress made by a number of industries such as automotive components, food and beverages, and consumer products to start the process of construction of their production facilities in industrial zones. “Some large automotive companies usually purchase approximately 100 ha of land at once to build a factory,” he said.

That optimism has convinced him not to revise the growth target of industrial estates this year. “We are still aiming for growth in industrial estates of 700 ha in 2016, double last year’s 350 ha. With such expected growth, per quarter sales this year will be about 200 ha,” he said.

Meanwhile, based on data from the Investment Coordinating Board (BKPM), until the end of last year there were 99 industrial estates across the country. Of the 99 industrial estates, some 50,254 ha have been developed as sites for industrial production plants, while another 29,076 ha are still at the construction stage.

Advantages

The presence of industrial estates provides an attraction for investors. The reason being that an industrial estate, based on the definition cited in Government Regulation No. 24/2009, is a zone in which industrial activities are centered and equipped with facilities and supporting infrastructure, developed and managed by an industrial estate company. 

With the availability of infrastructure and facilities in an industrial zone, investors no longer need to bear the cost of infrastructure development. The government also benefits as it is easier to prepare the supply of electricity, gas and other facilities as the industries operate in one location.

The next advantage is that the industrial estates also assist the government in regulating the growth of specific industries in one zone, so the industry grows in an orderly arrangement and not sporadically, through the master plan of industrial zones approved by the local government.

Aside from that, the development of industrial zones in a region creates focus and efficiency in the provision and operation of infrastructure and facilities. This is true since each developer of an industrial estate is obliged to build, manage and maintain the infrastructure facilities along with the industrial activities in the park.

“With the availability of infrastructure and facilities in the industrial parks, investors no longer need to bear the cost of infrastructure development. The government also benefits as it is easier to prepare the supply of electricity, gas and so on as the industries grow in one united zone,” Sanny said.

So the administration of Gresik regency in East Java expects investment funds coming into the region will continue to grow, as it has developed a number of industrial zones in its territory. This was expressed by the Gresik Regent Sambari Halim Radianto, who has claimed the contribution of investment in the region will continue to grow until 2019, triggered by among other things the presence of several industrial estates in Gresik. 

“The continuous development of industrial zones in Gresik, like JIIPE and others will elevate the investment figures for Gresik,” said Sambari as quoted by surya.co.id.

If we trace the development of industrial estates in the early growth period of 1970-1989, this sector was actually started by a number of central and local government-owned companies. The industrial zone development in the period began with studies in the Industrial Zone Development Plan in Cilacap, Central Java, in 1969. 

However physically, the development of industrial zones in fact began in Jakarta, with the construction of the Jakarta Industrial Estate in Pulogadung covering an area of 500 ha, which kicked off in 1970. 

The Pulogadung Industrial Estate is a business entity that is 50 percent owned by the central government, in this case the Finance Ministry of Finance, while the other 50 percent is owned by the Jakarta administration.

This was followed by the development of seven industrial estates owned by the central and local governments plus one more underway. They were PT Surabaya Industrial Estate Rungkut in Surabaya, East Java; PT Kawasan Industri Cilacap, Central Java; PT Kawasan Industri Medan, North Sumatra; PT Kawasan Berikat in Jakarta and PT Krakatau Industrial Estate in Cilegon, Banten. In Lampung the local provincial government is currently working on the development of an industrial park at the Register I Waypisang, Ketapang, South Lampung regency.

The development of industrial estates by private companies started to bloom in the period of 1989-2009, after the issuance of Presidential Decree No. 53/1989 concerning industrial zones, which offers the opportunity to the private sector to develop industrial parks. “This period was called the era of the rise of industrial estates,” said Fahmi Shahab, executive director of the Indonesian Industrial Estate Association (HKI).

Batam as a free trade zone (FTZ) is one region with a large number of industrial estates. Based on recent data, there are 21 industrial estates now in operation in Batam. 

Currently Batam’s status is being prepared to be transformed from an FTZ to becoming a special economic zone (SEZ). 

Along with the plan to change the status, the entire industrial estate space listed in the Batam Indonesia Free Zone Authority (BIFZA) will become part of the SEZ. The number could continue to grow depending on need, allowing for the SEZ to be expanded.

Optimism

Now, in the era of the leadership of President Joko “Jokowi” Widodo, the development of industrial zones seems to be experiencing a new era of optimism, following the issuance of a number of economic policy packages to support their growth. There is optimism among people for equitable growth in the regions, given that the development of industrial estates generates a huge multiplier effect for the surrounding area.

Before the policy packages were launched by the government, companies engaged in the development of industrial estates in Indonesia often complained about licensing issues, which were still considered an obstacle and a burden. While in some countries one-stop service licensing authorities have been established, such as in Thailand with its Industrial Estate Authority of Thailand (IEAT).

Responding to complaints from businesspeople about licensing, the government moved quickly by accelerating the licensing process to only three hours. BKPM has pledged to continue improving service 
for the three-hour investment licensing process. 

When it was launched on Oct. 26, 2015, only three permits were available under the accelerated licensing services, namely Taxpayer Identification Number (NPWP), Deed of Company Establishment and Land Booking Certificate.

 At the end of 2015, the three-hour service expanded to eight permits plus the Booking Land Certificate. The five additional permits under the three-hour service are the Company Registration Permit (TDP), Importer Identification Number (APIP), Customs Office Identification Number (NIK), Foreign Workers Recruitment Plan (RPTKA) and Expatriate Work Permit (IMTA).

The BKPM is also preparing to include construction permits and investment licenses. This policy breakthrough aims to provide ease for industrial estate investors. 

According to BKPM head Franky Sibarani, industrial estate investors who have obtained an investment permit from the investment board either in Jakarta or the provinces can begin the construction of their factories without having to wait for construction permits from provincial administrations.

Another regulation that will push the growth of industrial estates is the government’s plan to remove the requirement to obtain a permit based on an environmental impact analysis (EIA/AMDAL). 

This plan was revealed by Minister of Environment and Forestry Siti Nurbaya last March. She said the government would reduce permit requirements for companies who wanted to operate in industrial estates, part of which is the removal of the EIA permit.

Earlier this year the government enacted Government Regulation (PP) No. 142/2015 concerning Industrial Estates as a revision of the PP 24/2009, which in some circles was considered a “luxury” facility for the development of industrial estates and companies operating in them. This is because the PP enacted on Dec. 28, 2015, granted tax incentives in accordance with the grouping of Industrial Development Zones (WPI).

WPI are grouped into four regions, namely developed WPI covering Java; developing WPI including southern Sulawesi, eastern Kalimantan, northern Sumatra except Batam and Karimun, as well as southern Sumatra. The more developed a WPI, the smaller its tax incentives and shorter its period. 

On the other hand, investors in WPI Potential II or WPI Papua and West Papua will receive the largest tax incentives with an even longer period. The statutes related to the size of incentives will be regulated in a Finance Minister Regulation (PMK), which is currently being finalized.

Article 41 of the regulation states that the provision of tax incentives is determined by the Finance Ministry. Article 42 says the ease of construction and management of electricity is set by the Energy and Mineral Resources Ministry. Article 43 covers granting regional incentives, such as reduction or exemption of local government taxes like Fees for the Acquisition of Rights to Land and Buildings (BPHTB), Tax of Land and Building before being transferred to an industrial enterprise, Street Lighting Tax (RPM) and others.

The new policy also states that the Issuance of Principle Permit, Industrial Zone Permit (IUKI), and Industrial Zone Extension License will not be charged, in contrast to the old regulation, which does not explain such provisions.

100 cities

Jababeka is one of the most prominent industrial estate developers in the country. Through its founder, Setyono Djuandi Darmono, the company has decided to develop at least 100 new townships, based on the development of industrial parks in a number of provinces in Indonesia.

The company, which was established in 1989, is the first developer of industrial estates to go public in Indonesia, as it was listed on the Jakarta and Surabaya Stock Exchange in 1994. The company’s core business is to develop industrial zones that are supported and enhanced with infrastructure and township management services. The key to the company’s strategy is to create businesses that produce a “critical mass” so that they can create other businesses. Jababeka Group runs its businesses through three pillars, namely Land and Property Development, Infrastructure and Services and Leisure & Hospitality.

One of the major works of Jababeka can be seen in Kota Jababeka in Cikarang, Bekasi, West Java, covering an area of 5,600 ha. Kota Jababeka in Cikarang now has grown from a plain land into a bustling city with a thriving community. Located 35 kilometers east of Jakarta, strategically situated along the corridor of Bekasi-Cikampek, Kota Jababeka has been filled with a number of either light, medium, or automotive industrial companies.

Today, with a population of more than 1 million people, Kota Jababeka has turned into an independent city with a complete and self-sufficient industrial park, comprising of 1,700 national and multinational companies from 30 countries that employ more than 700,000 workers and 4,300 expatriates. Some tenants that call Kota Jababeka their home base include Loreal, ICI Paints, Mattel, Samsung, Unilever, United Tractors, Akzo Nobel and Nissin Mas.

After the success of Kota Jababeka in Cikarang, Jababeka is also developing an integrated township in TanjungLesung called Tanjung Lesung SEZ, which serves the tourism industry, and caters to hospitality and leisure. TanjungLesung is located about 180 kilometers southwest of Jakarta.

Next, through its expansion into Central Java, the company works closely with Indonesia Sembcorp Development Pte. Ltd., a subsidiary of Sembcorp (Singapore) in developing Kendal Industrial Park called Park by The Bay, located approximately 21 kilometers west of Semarang In Kendal. Together with Sembcorp, PT Jababeka Tbk. plans to develop a special textile industry cluster zome that is integrated from upstream to downstream as part of the Kendal Industrial Park. Based on the plan, the zone will be a pilot project of the first fashion township in Indonesia.

Chairman of Jababeka, Setyono Djuandi Darmono, said that the development of Kendal “fashion city” is expected to begin in 2016. Later the “fashion city” will also boast centers of textile design and technology with the provision of cheap textile raw materials. A bonded logistics center is also planned to be built.

In the first phase, the project will use 100 ha of land out of the total Kendal Industrial Park area of 2,700 ha. While the total accumulated investment required is estimated at Rp20 trillion (US$1.53 billion) after taking into account the price of land, infrastructure, and investment incurred by potential tenants.

Besides Cikarang, Tanjung Lesung and Kendal, Jababeka through its subsidiary Jababeka Morotai is also entrusted to develop Morotai Special Economic Zone (SEZ) in Morotai, North Maluku.

Based on Government Regulation No. 100 of 2012 on the amendment of Government Regulation No. 2/2011 on the Implementation of Special Economic Zones, no later than 90 days after the enactment of Government Regulation No. 50/2014 dated 1 July 2014 on Special Economic Zones of Morotai, the Morotai Island regency administration has to establish a business entity as the developer and manager of the Special Economic Zone in Morotai. 

And through the local regent’s decision, Decree 538.3/191/PM/2014 was signed on Sept. 18, 2014, 
which stipulates that Jababeka Morotai is the business entity that will develop the Morotai SEZ.

Currently, the company continues to assess investor partners who can participate in developing the Morotai SEZ, which has been included in the Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI). To develop the Morotai SEZ, Jababeka is ready to disburse Rp 6.8 trillion, which will be used to develop a 1,200 ha area.

Besides the required infrastructure, an industrial park, residential estates, business areas, resorts, a logistics center, as well as agriculture, fisheries and tourism industries will be developed. To build the industry of fisheries and agriculture, the company will implement an integrated system of fish farming, so that the fishermen can catch fish efficiently and at the same time they can keep the freshness of the fish longer.

In addition to fisheries, Jababeka Morotai will also implement Taiwanese technology to develop agricultural products such as edamame, shitake mushroom and Japanese rice, demand for which is currently on the rise.

 

***

The writers are observers of industrial estate development. This is the full version of an article that appeared in The Jakarta Post’s Indonesian Infrastructure Outlook on Aug. 8

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.

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