To develop the industrial zone, the government has established a team comprising the Investment Coordinating Board (BKPM) the State-Owned Enterprises Ministry, the Industry Ministry, the Public Works and Housing Ministry and the Transportation Ministry.

State-owned construction company PT Pembangunan Perumahan (PP), state-owned toll road operator PT Jasa Marga and toll road developer PT Waskita Toll Road will also join the team.

BKPM investment promotion deputy Ikmal Lukman said on July 7 that the team aimed to complete the park’s development plan this month as the BKPM wanted construction to finish in just six months.

The government is pushing forward the development to speed up the recovery of FDI inflow, which was down by 9.2 percent year-on-year to Rp 98 trillion (US$6.8 billion) in the first quarter of 2020.

With many companies looking to relocate from China to other countries, Indonesia is also rushing to bring investment to the archipelago after failing to do so last year.

Jokowi announced in late June that seven foreign companies had confirmed plans to relocate production facilities, mostly from China, to Indonesia. For investors who had not yet procured land for their facilities, he offered Batang Industrial Park as a location.

“We will provide around 4,000 hectares of land here, and in the first phase, there will be 450 hectares,” he said during a visit to the park.

The relocation is estimated to bring an investment of $850 million to the country and potential employment for 30,000 workers, according to the BKPM.

The location

Batang Integrated Industrial Park, which is dedicated to industrial development and manufacturing, will sit on a 4,368 ha of land owned by state-owned plantation holding company PT Perkebunan Nusantara (PTPN) IX in Gringsing district, Batang regency.

It is located around 64 kilometers, over a one-hour drive, from Semarang, the capital of Central Java, connected by the 75-km long Semarang-Batang toll road, which has been operating since 2018.

Batang Integrated Industrial Park is expected to benefit from its proximity to the trans-Java toll road and railway. Tanjung Mas Port and Ahmad Yani International Airport in Semarang will also support transportation to and from the park.

Aside from Batang Integrated Industrial Park, the government is also planning to develop a 3,976-ha industrial zone in Brebes regency, also in Central Java. However, due to land issues, the government decided to develop the Batang industrial zone first.

 

Low minimum wage

The possibility of lower labor costs is expected to be attractive for investors and companies looking to relocate to Batang. As BKPM head Bahlil Lahadalia put it on July 9, Batang regency offered a “competitive wage”.

The regency set its 2020 minimum wage at Rp 2 million per month versus around Rp 4.5 million in Bekasi, West Java, which is currently home to several large factories. Despite being relatively low compared to Bekasi, Batang’s wage floor is actually higher by 18.3 percent than that of Central Java province.

However, the relatively low provincial minimum wage has not translated to outside capital for Central Java, which booked $321 million in foreign capital inflow from January to March, lagging behind other provinces. Jakarta booked the largest amount of foreign investment at $915.2 million, followed by West Java ($914.5 million) and North Maluku ($768.5 million).

West Java, for instance, recorded a higher foreign capital inflow, although its monthly minimum wage, which stands at Rp 1.8 million, was higher than that of Central Java.

Bhima Yudhistira, an economist at the Institute for Development of Economics and Finance (Indef), a think tank in Jakarta, said Friday that West Java had more FDI because the province offered more skilled labor than Central Java.

In 2019, West Java residents aged 15 years or above spent on average 8.79 years at school, slightly higher than Central Java residents who spent 8.03 years at school.

“A low minimum wage means nothing if there is a skills gap, which may affect many things, such as product quality,” Bhima told The Jakarta Post in a phone interview on July 10.

Out of seven companies recently committed to relocating from China to Indonesia, one is planning to invest in Subang and two in Bekasi, all in West Java.

Only American lighting manufacturer Alphan Lighting is planning to develop its business in Central Java. The company is expected to invest $14 million and create 3,500 jobs in an industrial zone in Semarang, which is operated by state-owned developer PT Kawasan Industri Wijayakusuma.

Jokowi said in late June he wanted to “create as many jobs as possible” by developing Batang Industrial Park.

But a skills gap may lead companies to bring in skilled labor from their home country to handle the construction of their plants in the industrial district, according to Bhima.

Land security

Jokowi said land acquisition “had always been our problem”. On that basis, the industrial park is expected to provide land for companies facing difficulty securing space elsewhere.

“[Companies] do not have to do anything. The BKPM, with help from the governor and regent, will do everything for you,” said the President during his visit to the park.

Land issues led some investment to stall for up to six years, according to the BKPM. The total value of stalled investment was Rp 708 trillion. As of June, the agency had completed the realization process of over half of the investment.

With PTPN IX owning the land for Batang Industrial Park, Bahlil expected the land price to be lower than Rp 1 million per square meter.

“This is a very competitive land price compared to other locations in the ASEAN region,” he said.

Indonesia’s land prices averaged at Rp 3.1 million per square meter, higher than regional peers Thailand, the Philippines, Malaysia and Vietnam, according to data compiled in June by the agency.