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ndonesian Logistics Association chairman Zaldy Ilham Masita has urged the government to set up bonded logistics centers or hubs that are connected to special economic zones (SEZs) in a bid to attract more manufacturing investors.

Such facilities, Masita argues, would encourage investment in the manufacturing sector in Indonesia because they would facilitate the flow of basic materials. At present many industrial firms keep their basic materials, car, vessel and electronics spare parts and components in bonded storage units in Singapore and Malaysia.

The association'€™s policy recommendation is indeed crucial to reducing logistics costs in Indonesia, which have long been among the highest in the ASEAN region due to poor transportation infrastructure and inefficient seaport and airport handling. Unfortunately, the recommendation that bonded logistics centers be connected to SEZs would most likely take many more years to be realized because of the snail'€™s pace of SEZ development, almost six years after the enactment of the 2009 SEZ Law.

This law received high priority because the SEZ concept has been successful in many countries such as China, Malaysia and India in wooing investors into export-oriented industries. An SEZ is an enclave or special region with streamlined procedures for business licensing and the hiring of expatriates, flexible labor regulations, tax breaks, customs duty exemptions and of course good infrastructure.

In June, 2006, Indonesia and Singapore signed a cooperation agreement in SEZ development to help accelerate preparations for SEZ projects, given the latter'€™s experience in building SEZs in China, Vietnam and India.

Indonesia'€™s SEZs will include various types of economic zone, including free-trade zones, export processing zones and special industrial estates and bonded warehouses or logistics centers. The development of SEZs is considered one of the most effective ways of strengthening Indonesia'€™s economic competitiveness, by establishing islands of competence. The long-term plan will be to connect SEZs to become economic corridors between the major islands.

The theory is that instead of making only incremental progress through an overall reform simultaneously in all areas that could take several decades to accomplish, it is more effective and efficient to start with bold moves in particular areas (islands), selected for their strategic role, to establish showcases of success, thereby building confidence.

But the inevitable poor inter-ministerial coordination and lack of commitment by regional administrations that are responsible for developing and managing SEZs, have hindered SEZ development.

The national SEZ Committee has thus far approved eight SEZs, but only two of them '€” the palm-oil based SEZ in Semangke, North Sumatra and the tourism-centered Tanjung Lesung in West Java '€” are under construction. Furthermore the progress in the completion of these two SEZ projects stands at less than 10 percent.

What is outstandingly missing from the SEZ development is an over-arching inter-ministerial body in charge of coordinating all things related to domestic and foreign trade and foreign investment licensing and operations. This body should serve as the virtual '€œMr Fix-it'€ for any problems encountered in SEZ development, mandated to ask for the cooperation of all other ministries and government agencies, including banks.