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SEZs develop at snail's pace amid lack of investor interest
On track: Aerial view of street circuit development in Mandalika, Central Lombok, West Nusa Tenggara on Oct
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n track: Aerial view of street circuit development in Mandalika, Central Lombok, West Nusa Tenggara on Oct. 10. Mandalika is among the government’s planned special economic zones for the tourist industry, as it will host the world’s premier motorcycle racing class, MotorGP, in 2021. (Antara/Ahmad Subaidi)
The development of special economic zones (SEZs) in Indonesia is progressing at snail's pace as investors remain reluctant to open factories in the designated areas despite promised government incentives.
Coordinating Economic Minister Darmin Nasution said on Oct. 10 that realized investment in the country’s 13 SEZs totaled only Rp 21 trillion (about US$1.5 billion), or only about 25 percent of the total investment commitment of Rp 85.3 trillion.
In line with the low investment, the SEZs have also disappointed in terms of job creation, with only 8,686 people currently employed in the areas.
Darmin acknowledged that the number of SEZs that had begun operating was also below the government’s target. “Compared to our expectations, the number of SEZs we have is still [low],” he told the press in comments on investment realization and employment of the SEZs.
Under the 2015-2019 National Medium-Term Development Plan (RPJMN), the government targets to have a total of 17 SEZs. So far, however, it only has 13 SEZ, namely eight industrial SEZs and five tourism SEZs.
The 13 SEZs are Sei Mangke, Tanjung Lesung, Palu, Bitung, Morotai, Maloy Batuta, Tanjung ApiApi, Mandalika, Tanjung Kelayang, Sorong, Arun Lhokseumawe, Galang Balang and Singhasari. The government is preparing for another four SEZs, namely in Kendal (Central Java), Nongsa Batam (Batam), Likupang (North Sulawesi) and Batam.
Darmin said the development of the SEZ was initially intended to attract investment in downstream industries in regions that are rich in minerals and other natural resources. However, there was an apparent lack of interest from investors to enter and build factories in the SEZs, despite a number of facilities provided by the government.
“It is not always easy to invite industries, for example, to open up a rubber processing plant in a SEZ in North Sumatra. Many would still think the right place to open a rubber processing plant is Java rather than North Sumatra,” he said.
In its evaluation, the Office of the Coordinating Economic Minister has also identified other impediments to SEZ investment. Complicated land procurement, a shortage of skilled workers and overlapping regulations as well as poor infrastructure and utility services are among the problems discouraging investors from opening factories in SEZs.
“There is also a regulation that has multiple possible interpretations. We have changed the regulation, but businesspeople do not know about those changes yet. Thus, we are working with the Indonesian Chamber of Commerce and Industry (Kadin) to explain the regulatory changes to investors and businesspeople” said Darmin.
The government renewed its partnership with Kadin regarding SEZ development for another five years on Thursday. Through the partnership, Kadin is expected to help the government encourage businesspeople to open factories in the SEZs.
Kadin chairman Rosan Roeslani said the association would provide input and advice for the government to devise investment-friendly regulations to make SEZs more attractive to investors.
Rosan said the government had provided many incentives for doing business in the SEZs, but investors were still unable to benefit from them because of the lack of clear regulations for providing the incentives.
“Along with the business associations, we will help disseminate regulations among businesspeople and prospective investors, so they understand how to invest in SEZs the easy and simple way. We will also keep in touch with the minister to [clarify regulations], as clarity is important for investors,” said Rosan.
Darmin, on the other hand, said the government would also simplify rules to provide tax incentives to investors. For example, companies with investment of above Rp 20 trillion would be eligible to get a corporate tax break for 20 years.
With the partnership with Kadin and with a number of changes in regulations, the government is hoping to attract Rp 726 trillion of investment into SEZs by 2030.
As of today, progress on the development of the SEZ is quite slow. The Tanjung Lesung SEZ on the 500-hectare lot of land is only 11.4 percent completed. Meanwhile, in the Sei Mangke SEZ, only 10.6 percent of the total area of 2,002 ha have been developed, while in the Bitung SEZ, only 2.3 percent of the area of 534 ha has been developed.
