The nation’s border areas have now moved center stage, with the Villages, Disadvantaged Regions and Transmigration Ministry determined to turn them into investment-friendly destinations. The ministry is eager to encourage more investment in the areas close to Indonesia’s neighbors by developing them into more investment-friendly destinations.
Presented by Ministry of Village, Disadvantaged Region, and Transmigration, Republic of Indonesia
Indonesia has border areas in 187 sub-districts in 41 districts/municipalities in 13 provinces and there are 10 districts/municipalities that have 92 frontier islands, according to Presidential Regulation No. 78/2005.
The development of border areas and frontier islands is important to ward off the encroachment of Indonesia’s neighbors and protect the nation’s sovereignty.
Indonesia has traditionally embraced two main approaches in the development of underdeveloped border areas: security and wealth distribution. Programs like transmigration to border areas are conducted to prevent expansive occupation by neighboring countries as well as to increase the prosperity of the community living in border areas.
"We had a terrible experience with the Sipadan and Ligitan islands case, as the islands were given to Malaysia in 2002. Despite the international court favoring Malaysia due to the British colonial history, the fact that we did not develop it was terrible," the Ministry’s Director General for Specific Area Development, Suprayoga Hadi, told The Jakarta Post on Monday in his office.
However, as the government tries to cut the budget, the ministry's fund basket continues to get lower. The 2015 revised budget of Rp 9.03 trillion (US$691.16 million) has been lowered to Rp 8.59 trillion in 2016 and according to the latest 2016 budget revision plan, the budget will be cut to Rp 6.51 trillion.
"The Rp 2.08 trillion cut is significant and will affect most of the ministry's programs to develop border and underdeveloped areas," he said.
President of the Republic of Indonesia Joko Widodo, reviewing border post Sei Pancang (Patok 1) Indonesia-Malaysia in Pulau Sebatik, December 16, 2014.
The ministry hopes this year budget cut will be compensated with a larger budget in the future as economic conditions improve. However, it is a seemingly daunting task within a two-year time frame.
Using corporate social responsibility (CSR) funds, such as what is done in big cities like Jakarta, is not possible. This is because companies are tied to their adjacent operational area. For example, Freeport cannot run a CSR program in Sumatra and Chandra Asri cannot run one in Papua. If CSR funds were used in other areas, locals would be disappointed.
"Therefore we need to find a new approach or paradigm for the development of underdeveloped border areas: the 'investment' paradigm," he said.
The new investment paradigm aims to make border areas more investment friendly. Suprayoga claims that border areas have their own potential economic resources.
Sebatik Island of Nunukan District - a border post between North Kalimantan and Sabah, Malaysia – is an example. Many Indonesian palm oil plantation workers from Bugis in South Sulawesi and Banjar in South Kalimantan have brought their families there.
"The father works in Malaysia but the family lives there and the children get an education in Sebatik-Nunukan. The father makes a weekly visit, bringing money from Malaysia to feed his family," he said.
It is difficult for workers’ children to access education in Malaysia due to the high tuition fees, therefore they pursue their education at Indonesian schools near to the border. If more and more households follow suit, with children pursuing proper education, the border post will be home to trained human resources in the future.
To achieve this objective, the minister can collaborate with the Education and Culture Ministry and Manpower Ministry to open schools or vocational education. When the communities are ready to work, investors can enter by opening more productive investment, such as rubber or palm plantations.
Kicking off in early November 2015, the Ministry has released a border area investment potential profile book. In collaboration with Gadjah Mada University, it listed the respective potential sectors of border areas, predominantly agricultural and mineral commodities, available basic investment infrastructure as well as investment opportunities in the border areas located in 41 districts/municipalities across the country.
However, inviting investors into border areas will not be such an easy job. The government still needs to provide basic infrastructure such as sanitation, electricity, and communications technology because investors do not want to have to build the area from scratch.
Despite being unable to build main roads, as that is the job of the Public Works and Public Housing Ministry, the Ministry of Village could build non-status supporting roads. It also could provide a clean water sanitation facility through a reverse osmosis machine that filters filthy water and converts it into drinkable water, particularly in frontier islands. Electricity is also provided through a solar cell system, and telecommunication needs are provided with mini BTS.
After the fulfillment of basic requirements, investors will then look for incentives. Tax holidays, and other non-financial assistance such as import tariff waivers are what investors are looking for.
"We saw a good example in Morotai, North Maluku; after it was declared as a special economic zone for tourism, facilities were provided, then investors started to invest there," he said.
Morotai Island has an area of 245,000 hectares, four times that of Singapore. It has fishing and tourism potential as numerous historic battles took place there, including World War II skirmishes between the US and Japan. General Douglas MacArthur selected the island as his base, and numerous warplanes, ships and artillery sunk in the Morotai Sea, creating many coral reefs.
Giant property developer Jababeka has established PT Morotai Jababeka to develop one of the northernmost islands in Indonesia. The company will further build houses, tourism zones, hotels, a fisheries center, and commercial zones in the area of special economic zone located in the border area of Pulau Morotai District.
Foreign investors from countries such as Taiwan have expressed their interest in joining the project with a required total investment of Rp 6.8 trillion.
“We are currently designing a program for other border areas, maybe not giving them special economic zone status, but at least the facilities for investment will be close to what special economic zone [areas] get,” Suprayoga said.
Looking into past experiences, the ministry is now looking for a more sustainable way to develop border areas.
Other than Morotai, the ministry is also focusing on two more border districts, namely Sabu Raijua in East Nusa Tenggara; and Western Southeast Maluku in Maluku; and also addressed two nonborder underdeveloped districts, namely East Lombok in West Nusa Tenggara, and Sarmi in Papua.
Sarmi and East Lombok have agriculture and fisheries potential, while Sabu Raijua has fisheries potential, Pulau Morotai has fisheries and tourism potensial, and Western Southeast Maluku has potential in mining.
“Western Southeast Maluku, as we know, has oil and gas potential with the Masela block,” he said.
District residents Nanga Badau, Kapuas Hulu, was waiting for transport under a banner that read “We are border citizens, our body and soul for The Unitary State of the Republic of Indonesia (NKRI)". Nangan Badau directly adjacent to the East Sarawak, Malaysia. Photo taken February 16, 2012.
The existence of mineral resources increases the interest of the investors to enter an area of potential resources. However, to develop an extractive industry in an underdeveloped area is risky, especially when dealing with public land.
“Like what happened to Medco group’s wood pellet company PT Medcopapua Industri Lestari in Merauke during 2011, the traditional customary community demanded Rp 65 billion compensation for the rent of their customary land,” Suprayoga said.
It added more costs for the company, and Medco said it could not afford such an amount. With a sudden higher cost of operations along with a decreasing timber price, Medco decided to stop its subsidiary’s operations in 2014.
In light of this, the minister is trying to initiate a more people-based approach. Building prosperity with a more sustainable model that involving the community.
"We designed an agriculture estate for land-dominant areas, adapting plants based on their topology and culture. For the water-dominated areas we designed for aquaculture estate. We are also pushing for secondary industries for making more value added to the potential commodities, as well as further promoting tertiary sectors, therefore the objective is not only for traditional industries but also for tourism and service business," he added.
Other than the border areas and frontier islands, as of 2016, 23 border districts are categorized as disadvantaged regions and seven districts that already graduated from their previous status of disadvantaged regions in 2014 still have to be supported despite their 'disadvantaged area' status having been lifted.
