T

he electronics manufacturing industry in Batam will be on the verge of a collapse in the next few years due to uncontrollable wage increases, an analyst has warned.

Suyono Saputra, who studies Batam'€™s economy, said that rising wage rates in the aftermath of the minimum wage riots in 2011 and the exploitative attitude of local politicians toward foreign investment were among the reasons why the region was being abandoned by investors.

If the problems persisted Suyono warned that the electronics manufacturing industry in Batam could collapse in a couple of years.

'€œThe government is always vowing that they will control the increasing wages in the next year, but the truth is that they are only getting higher. Tripartite talks [including investors] should be held to find a win-win solution to this issue, but talks are frequently deadlocked and nothing much else is done beyond that,'€ Suyono told The Jakarta Post on Saturday.

Batam'€™s monthly minimum wage stood at Rp 1,180,000 (US$102) in 2011, and rose by Rp 220,000 to
Rp 1,402,000 in 2012; the largest increase in Indonesia.

The size of the increase was seen as appeasement of rioting workers, who had vandalized Batam'€™s mayoral headquarters, by the government,

The current national minimum wage stands at Rp 2,422,000.

'€œThe electronics industry is reliant on cheap labor. Since every year workers demand higher wages, the investors are the ones taking the hardest blow,'€ Suyono said.

He added that Batam'€™s workers'€™ unions had already laid out plans to demand a Rp 3 million minimum wage next year, which Suyono described as '€œfrightening'€.

According to him, local politicians are not helping the situation by taking advantage of the high wages in order to secure electoral gains from the working classes.

'€œIt'€™s becoming visibly clear that the politicians are abandoning investor sentiment for their own personal political gains, such as securing more votes for the legislative elections,'€ Suyono said.

Recently, Japanese electronic-motor manufacturing company PT Nidec Seimitsu Batam (NSB) announced that it was relocating its factory operations from Batam to more cost-efficient Vietnam in response to the higher
production costs.

NSB General Manager Iwan Syahferi previously told the Post that the company'€™s factory would close indefinitely on July 25, and would be relocated to Saigon Hi-tech Park in Vietnam.

'€œIf we compare production costs between Batam and Vietnam, then Vietnam is the better option, but I cannot comment about it further because the matter is still complicated,'€ Iwan said.

'€œNSB is the last company in Batam owned by Nidec to be relocated to Vietnam. This relocation is not the first for Nidec. As a public firm, this decision was made [...] due to purely business reasons,'€ he added.

Signs that Batam has begun to shift its industrial focus were noted by the Coordinating Economic Ministry, which deduced that the investment climate in the Batam Special Economic Zone (KEK) had been stagnant since 2009.

Batam'€™s development progress has also been regarded as lacking guidance due to the absence of a master plan which would focus on infrastructure.

As a production hub, Batam is currently being directed in favor of developing the heavy-machinery and shipbuilding industries, while slowly abandoning the electronics industry.

According to data from the Batam Free Trade Zone, 588 foreign companies currently operate in Batam, and a majority of them are electronics manufacturers, 410 companies originate from Singapore, with 52 companies from Malaysia, 23 from Taiwan and 19 from South Korea, among others. (dyl)