Changes in BP Batam oversight could lead to island's SEZ status

Batam has struggled with slowing economic growth and dwindling investment over the past two years. Its economy grew by only 2 per cent in 2016 and last year, lower than the national average of 5 per cent to 6 per cent.
Batam has struggled with slowing economic growth and dwindling investment over the past two years. Its economy grew by only 2 per cent in 2016 and last year, lower than the national average of 5 per cent to 6 per cent. ST FILE PHOTO

The move by Indonesia's President Joko Widodo to place the Batam Development Authority under the control of the Batam city government could finally pave the way for the island to be designated a special economic zone (SEZ), a long-standing ambition of the central government in Jakarta.

Local and foreign businesses, including those from Singapore, which have investments on the island welcomed the move as it would streamline the process of securing investment approvals. But they are seeking clarity in the light of almost a week of confusion since the decision was announced on Dec 12.

The confusion came after some local media reported that the Batam Development Authority, better known as BP Batam, had been dissolved, while others reported that it had been merged with the city government or its leadership had been transferred to the city administration.

Notwithstanding that, however, the Indonesian Chamber of Commerce and Industry (Kadin) hoped that the move to appoint the mayor of Batam as BP Batam head as well would improve the business climate in the country's key export hub, especially by providing more legal certainty and consistent policies for investors.

"Hopefully, there will be no change in rules and policies carried out immediately without prior notice or strong grounds," Kadin's deputy chairman for economic zone development Sanny Iskandar told The Straits Times.

He expected no major change in policies soon in Batam, although few details have been released since the announcement.

The move could lead to more reforms in Batam, said Mr Kurt Wee, president of Singapore's Association of Small and Medium Enterprises, whose members operate businesses in Indonesia.

"There could be opportunities for some of this streamlining, fast-tracking, and we hope it could foster a more seamless process for business," he said. "Hopefully, they will also retain the technocratic capabilities of BP Batam... and integrate it properly."

The decision was intended to end the dualism in Batam's leadership and speed up business licensing, Coordinating Minister for Economic Affairs Darmin Nasution said following a Cabinet meeting in Jakarta last week.

Previously, bureaucratic red tape hampered businesses because of the overlapping authority of BP Batam and the city administration. Obtaining investment permits, for instance, was a lengthy, drawn-out process.

The government in Jakarta is now formulating a regulation to back the decision legally, and it will be formally approved by the Finance Ministry early next year.

Once a poster boy for foreign investors in South-east Asia's largest economy, Batam has struggled with slowing economic growth and dwindling investment over the past two years. Its economy expanded by only 2 per cent in 2016 and last year, lower than the national average of 5 per cent to 6 per cent.

The latest measure by the Jokowi administration was seen as part of a reorganisation of BP Batam that began in 2016.

Batam Mayor Muhammad Rudi, who claimed to have had no prior knowledge of the central government's decision, has previously suggested transforming Batam from a free trade zone (FTZ) into an SEZ. Unlike an FTZ, an SEZ allows the authorities to offer fiscal as well as non-fiscal incentives to investors.

Indonesian Institute of Sciences economist Latif Adam said restructuring BP Batam was vital and timely, but he expressed some reservations about the latest move.

"Investors have been very comfortable with BP Batam under the previous leadership, which they have considered professional," he said. "There is a concern that political considerations will play a bigger role in Batam under the command of the mayor."

A version of this article appeared in the print edition of The Straits Times on December 19, 2018, with the headline 'Changes in BP Batam oversight could lead to island's SEZ status'. Print Edition | Subscribe