However, a few decades after its establishment, the FTZ has to face the hard reality that it is losing its charm as a number of companies have pulled out their investment.

In 2015, 54 companies shut down their operations in the FTZ and another 62 companies have followed suit, according to data from the Office of the Coordinating Economic Ministry.

The trend continues in 2017, with 53 companies closing down their operations so far this year.

While Batam’s economy expanded by 5.45 percent in 2016, growth was below 2 percent in the first half of this year.

Dualism in leadership and other issues, such as land procurement, add to the burden that the zone shoulders.

Amid such challenges, the central government has stepped in, overhauling the top management team of the Batam Indonesia Free Zone Authority (BP Batam) in a move that may help restore investor confidence in the FTZ.

It has appointed Lukita Dinarsyah Tuwo, the Office of the Coordinating Economic Ministry’s secretary, as BP Batam’s chief to replace Hatanto Reksodipoetro, who held the top position for only 18 months. The government also installed new deputies.

During the inauguration of the new executives on Thursday, Economic Coordinating Minister Darmin Nasution expected the new management team could, among other things, address conflicts of assets, focus on serving investors instead of generating more revenue and solve frictions relating to the dual leadership held by BP Batam and Batam municipal government, in a bid to accelerate the regions growth.

“We expect the new BP Batam management team will enhance Batam’s competitiveness and restore economic growth to 7 percent in two years,” Darmin said.

He acknowledged the task to recover Batam’s economy would not be easy as the competitive edge of the Batam FTZ, set up in 1973, had gradually dwindled since 2010 when the ASEAN free trade agreement came into full effect. Under the agreement, ASEAN members scrapped import duties for all goods purchased from their neighbors.

This means a factory outside the FTZ could also buy raw materials and intermediary goods without any import tariffs and this consequently eroded the benefits of establishing a production facility in the FTZ.

Furthermore, a factory located in the FTZ must pay export duties when selling their products to the domestic market as it was designated to incentivise export-oriented manufacturers.

That prompted a number of companies to ship their goods to neighboring Singapore and then send them back to Indonesia to enjoy zero duties.

“Batam needs to transform the Batam FTZ into a special economic zone (SEZ) as instructed by the president,” Darmin said.

According to prevailing rules, a region must have clear land allocation and spatial planning in order to become an SEZ.

At present, land ownership is one of the major issues that the Batam FTZ grapples with and the new management team is set to deal with it.

Overlapping authority between BP Batam and the municipal government over business licensing and management is another key challenge in the FTZ.

Following his inauguration, Lukita said the new management team would concentrate on revitalizing the FTZ’s assets and improving communication with respective stakeholders, including the municipal government. He added his side would also be prepared to fight against land brokers, commonly dubbed as “land mafias.”

“We are ready to face the land mafias,” he said.

The chairman of the Batam chapter of the Indonesian Chamber of Commerce and Industry (Kadin), Djadi Rajagukguk, welcomed the new management team, hoping it could simplify business permits and forge better coordination with other parties.

“In Batam, there is the municipal government and the regional house of representatives [DPRD], so BP Batam cannot work alone,” he said.

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