The Jakarta Post
Central Java Governor Ganjar Pranowo’s ambition to turn his province into a new base for labor-intensive manufacturing is now one step closer to being fulfilled.
The government has decided to develop a 4,000 hectare integrated industrial estate in Batang, which lies on the province’s northern coast, with the assistance of more than six state companies.
President Joko “Jokowi” Widodo and several ministers visited Batang on Tuesday as parts of the city will be further developed to accommodate plants relocating from China.
Investment Coordinating Board (BKPM) chairman Bahlil Lahadalia said the board had succeeded in convincing seven foreign investors to relocate their factories from China to Indonesia. Three are to be built in Batang. Seventeen other investors in China are reportedly finalizing plans to relocate their facilities to Indonesia.
Industrial parks in major cities such as Jakarta, Bandung in West Java, Surabaya in East Java, Medan in North Sumatra and Batam have shown that well-planned industrial estates — supported by adequate infrastructure such as easy access to airports and seaports, power, warehouses, training facilities, residential areas and commerce — can attract manufacturing investors.
Potential investors should be especially attracted to Central Java because the price of land there is much lower than in Jakarta, and the province’s minimum wage is among the lowest in the country. Although Jakarta and the surrounding West Java and Banten industrial zones are better connected to global supply chains, their ports and roads have become increasingly congested.
Another crucial factor is Ganjar, who has gone the extra mile in his efforts to expedite permits and land acquisition.
State-Owned Enterprises Minister Erick Thohir said last week that at least six state companies would help develop infrastructure for Batang. But we wonder how much more those firms could prudently borrow as they are overburdened by debt.
We also wonder why the government has chosen Batang, which is currently less prepared to accommodate manufacturing relocated from China than the more developed Brebes Industrial Estate (KIB) or Kendal Industrial Park (KIP).
About a month ago, Industry Minister Agus Gumiwang Kartasasmita said during a visit to several factories in Brebes, “We are now seriously negotiating with 21 United States and European pharmaceutical firms in China that intend to relocate their plants to Indonesia, and we will direct them to Brebes”.
We are afraid that without concerted efforts and extraordinarily good coordination between state companies, the big talk about the plant relocation to Batang could end up being hot air.
The company to develop Batang has yet to be incorporated. In fact, the three state companies that will directly develop Batang signed a memorandum of understanding on a joint venture only last Tuesday. They are PT Perkebunan IX, the owner of the land, PT Pembangunan Perumahan and the Semarang-based PT Kawasan Industri Wijayakusuma (KIW).
It may take more than two years to develop the industrial park and all the supporting infrastructure within the Batang estate. But that may be too long for investors intending to relocate their plants. We are in a rush and should compete with other Southeast Asian countries.
Bahlil said the main reason for selecting Batang was land acquisition problems in Brebes. He argued there would not be any land problems in Batang because the 4,000 ha area was owned entirely by state plantation company PT Perkebunan IX.
Bahlil said investors could sign a long-term land lease in Batang at a very low price, while the land prices in industrial estates developed on private land could sometimes be between Rp 3 million (US$206) and Rp 4 million per square meter, compared to only Rp 1 million in Vietnam.
KIW, the developer of the Brebes industrial estate, which is located on the northern coast near the border area with West Java, is also a state company.
It is up to investors to decide which industrial estate to use for their plants, Bahlil said.
But it is uncertain why the three foreign companies chose Batang, which has yet to be developed, and not the much more developed KIP, which has been in operation since 2016. Both Batang and Kendal are similarly close to Semarang’s Ahmad Yani airport, Tanjung Emas seaport and the Transjava railway and highway networks.
“Land price is not the only or the most important factor considered by investors in choosing the location of plants,” said Juliani Kusumaningrum, Kendal’s head of sales and marketing.
The 2,700-ha KIP has been developed since 2012 by the Indonesian company Jababeka and the Singaporean company Sembcorp. Jababeka is the developer of the large Jababeka estate in Bekasi, West Java, and the Tanjung Lesung tourist estate in Banten. President Jokowi has designated both the KIP and Tanjung Lesung special economic zones (SEZ). Sembcorp has experience developing industrial parks in Batam, Bintan, Vietnam and China.
The availability of trained workers is another caveat for Batang. It is inevitable that relocated plants would initially hire many skilled foreign workers at the supervisory level until enough locals can be adequately trained.
But it is not yet certain how the BKPM and the Manpower and Transmigration Ministry will prepare trained workers for the incoming plants from China and how they will nurture the understanding of local trade unions.
Demonstrations held over the past few weeks against two Chinese steel and nickel companies in Southeast Sulawesi for bringing in 500 licensed technicians from China could scare away potential investors.
Senior editor at The Jakarta Post