T

he future of Batam, Riau Islands, was spelled out loud and clear when President Joko “Jokowi” Widodo gave his final say in a Cabinet meeting last December: The mayor of Batam will be the ex-officio head of the Batam Indonesia Free Trade Zone Authority (BP Batam).

When asked by journalists if that the decision was intended to dissolve BP Batam, Coordinating Economic Minister Darmin Nasution replied, “More or less”.

Developing Batam as an industrial enclave was the vision of then-president Soeharto in the 1970s. He wanted to build an exclusive home for world-class industries to support Indonesia’s oil refining business.

With the development of infrastructure facilities in the 1980s and 1990s, Batam evolved into a major industrial site for Indonesia, as well as a centerpiece of the nation’s strategy to leapfrog its way to becoming an industrialized country.

After the downfall of Soeharto in 1998, the Regional Autonomy Law was introduced and Batam Island had its first-ever elected mayor and regional representatives in 1999. From then on, both the city administration and the Batam Industrial Development Authority (BIDA), now BP Batam, have claimed the responsibility to develop the island. This has led to a dualism of authority on the island.

The mayor is elected by the people while the BIDA/BP Batam chairman is appointed by the central government to oversee the development of the Free Trade Zone (FTZ).

For two decades, Batam operated under the strict rules of the BIDA and its officials. The island’s economic growth was supported by infrastructure development funded by Jakarta. Suddenly, it became embroiled in party politics and politicking became the new rule. Bureaucratic red tape become widespread, the quality of public services fell drastically and divergence between the central government (BIDA/BP Batam) and the regional government was unavoidable.

It was the BIDA that turned Batam from a remote and sparsely populated island of some 6,000 people in the 1970s into an enclave with well-developed infrastructure. As an FTZ and thanks to its proximity to Singapore, Batam became known as a low-cost production site among foreign investors eager to expand into Southeast Asia.

But alas, when Batam and a number of surrounding islands broke away from Riau province and became Riau Island province, economic growth began to decline significantly.

According to scholar Francis E. Hutchinson, between 2004 and 2009 investments in Riau Islands province, mainly Batam, reached an average of US$1.8 billion per year among the highest in Indonesia, while over the period of 2010–2015 was only an average of $380 million.

Not surprisingly, exports also decreased from $16 billion in 2013 to $12 billion in 2015. This negative trend led to the change of the chairman of BIDA/BP Batam in April 2016.

The new leadership brought in new dynamics, by introducing online public service systems namely in the issuance of business licenses, land rentals and harbor management. In 2017, for the first time after a long slowdown period, foreign direct investment in Batam rose to over $1 billion, or an increase of almost 100 percent from $519 million in 2016.

Notwithstanding, economic growth of the province was still at its lowest level and the blame fell on the 18-month-old BIDA leadership. The local government claimed that BIDA/BP Batam was incompetent and in October 2017, the central government appointed a new team led by a high-ranking official from the Office of the Coordinating Economic Minister.

Arguably, Batam’s economic growth exceeded 4 percent in 2018, thanks to the increase in investment in 2017.

In December 2018, Jokowi reviewed the development in Batam and believed the argument that the slow progress (low growth) was due to the existence of two authorities, or so-called dualism on the island. He then decided to designate the Batam mayor as ex-officio chairman of BP Batam/BIDA.

Coordinating Economic Minister Darmin Nasution should have implemented the new regulation before the end of 2018. As executing the President’s decision involves the revision of laws and regulations, the year 2018 lapsed with a vacuum in BIDA/BP Batam leadership, and a new official was then appointed by Darmin as head of BIDA/BP Batam. So, BIDA leadership was changed three times in the span of two years (2016-2018). What went wrong?

The writer believes that there are misperceptions about Batam. First and foremost is the perception that even under a normal regional autonomy system, the service standards of the Batam FTZ could compete with other FTZs in neighboring countries, such as in Singapore, Johor in Malaysia, Vietnam and soon Myanmar. The key to a successful free trade or special economic zone is top-notch professionalism in delivering all needed services to
investors.

Since becoming part of a regional autonomy regime, Batam’s quality of services has fallen significantly below standard, particularly with its very low quality of public services coupled by bureaucratic red tape.

Foreign investors in high technology have been pouring into Vietnam and Malaysia because of their excellent services (plus a wide range of incentives) in the last 15 years and hardly look at Batam.

The second misperception is of the availability of human resources. There has been a significant drop in the educational qualifications of migrants coming to Batam from other islands in Indonesia. In the 1980s and 1990s, many fresh graduates from the Bandung Institute of Technology and the University of Indonesia looked for work in Batam. Many had been awarded scholarships for a second degree overseas.

Finally, there is the misperception that as a Special Economic Zone (SEZ), Batam is more competitive. It makes sense if its spatial planning was in a better state, but how would one make clusters of a SEZ when you can no longer separate between industrial and residential areas?

In the view of the writer, should the central government continue to believe that Batam could become a cornerstone of Indonesian high-tech industries, then it should reassume full authority of the island’s development. The 1945 Constitution has an enabling clause (Chapter 18B) that says Batam shall take the form of an otonomi khusus (special autonomy) and the central government shall “designate” the head of the region, whether it is the governor of Riau Islands or the mayor of Batam. The alternative is to uphold Law No. 53/1999, which established Batam as a municipality under the Regional Autonomy Law and withdraw the status of Batam as an FTZ.
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