Indonesia seeks to attract $6.4b in investment into Kendal, Singhasari, Likupang SEZs

News Desk

The Jakarta Post


The government is seeking to attract Rp 89.6 trillion (US$6.4 billion) in investment into three special economic zones (SEZ) in Java and Sulawesi as it aims to promote industrial and tourism development to stoke growth amid a cooling economy. 

The secretary to the coordinating economic minister, Susiwijono Moegiarso, said on Monday that Rp 70 trillion in investment was expected to go to a range of industries such as automotive and food and beverage within the Kendal SEZ in Central Java.

Up to Rp 12.5 trillion is expected to be invested in Singhasari, East Java, in the digital and tourism sectors, among other sectors. The remaining Rp 7.1 trillion will go to tourism development in the Likupang SEZ in North Sulawesi, one of the government’s five super priority tourism destinations.

“This [the three SEZs] is part of the government’s efforts to encourage investment and to grow the economy, especially in the regions [outside Jakarta],” Susiwijono said at the handover ceremony of the presidential decrees on the establishment of the three SEZs.

The projects are expected to begin in 2021 and complete by 2024 or 2025. The SEZ status of Kendal, Singhasari and Likupang could be revoked if they fail to meet the investment targets, he added. This is the first time the government has set an investment target for SEZs, driven by the lack of investment realization in some of Indonesia’s 11 existing special zones.

"We are also discussing targets for existing SEZs, as we did not set any when they were established," Susiwijono said.

SEZ development has been progressing at snail’s pace with a little more than a quarter of investment commitment being realized in 2019. Only 8,686 jobs were created by the end of 2019 with investment worth Rp 22.2 trillion, versus the government’s Rp 85.3 trillion target. Of the 15 SEZs in Indonesia, nine are industrial zones and six are tourism zones.

The government previously banked on SEZs to stoke growth in Indonesia’s industrial development, which has seen its share of gross domestic product (GDP) steadily decline over the past few decades. This is against the backdrop of weakening domestic economic growth, which has slowed to the lowest level in more than two years.

If all investments materialize in the Kendal SEZ, it is expected that 20 thousand jobs will be created in the area, which will host automotive, electronics, textile, furniture and food and beverage industries, said Susiwijono. The Kendal SEZ has secured investment commitments from 61 companies, 12 of which have started operating.

Kawasan Industri Kendal (KIK), a joint venture between Singaporean developer Sembcorp Development Ltd and publicly listed local industrial estate developer Jababeka, is in charge of the project.

Exports from the Kendal SEZ alone are expected to reach $500 million while production of import-substitution materials is projected to be valued at $250 million, he added. The country’s trade deficit sits at $3.1 billion due largely to oil and gas imports, according to Statistics Indonesia (BPS) records. 

Meanwhile, the Likupang SEZ, which is located in North Minahasa regency and will be developed by Sintesa Group’s Minahasa Permai Resort Development (MPRD), will focus on tourism and is expected to create 65,300 jobs. 

The government is also planning to develop meeting, incentives, conferencing and exhibition (MICE) as well as entertainment facilities in Likupang, which is expected to attract 400,000 tourists, a document from the Office of the Coordinating Economic Minister shows.

"The Likupang target is interesting. The 65,300 jobs are expected to come both directly and indirectly [from the investment] because it relies solely on tourism," said Susiwijono.

In the Singhasari SEZ, state-owned tourism complex developer Indonesia Tourism Development Corporation (ITDC), the Malang regency administration and PT Intelegensia Grahatama (IGT) will develop the tourism and digital economy sectors.

Technology heavyweights such as Amazon, Apple, Google and IBM, as well as universities across the world, are expected to help shape the Singhasari SEZ. It is expected to contribute Rp 135 billion to Malang regency's economy and create 6,863 jobs.

"The limited scale of job creation in [the Singhasari SEZ’s] is due to its focus on the digital economy," Susiwijono said.

President Joko “Jokowi” Widodo has ordered his Cabinet to prioritize investment and manufacturing, with the government currently finalizing omnibus bills on job creation and taxation to attract investors. The President has also issued new regulations to speed up SEZ developments in Central Java and East Java.

In addition to red tape, infrastructure bottlenecks pose a challenge to the government’s plans to develop the economic zones. 

Intelegensia Grahatama president director David Santoso told reporters that unstable broadband was a hurdle to digital economy development in the Singhasari SEZ. 

"If uploading work takes up to two days, how can we compete [with other countries]?" he said.

Centre for Strategic and International Studies economic department head Yose Rizal Damuri told The Jakarta Post that a supportive ecosystem was needed for the development of an SEZ for the digital economy sector, including access to capital, a 5G network and sufficient talent.

"Investment requires infrastructure. If the economic zone is special, the infrastructure must be special too," Yose said. The government should also provide special regulations on imports, exports and labor for companies that operate in the SEZs, and not rely solely on tax incentives to lure investors, he added. (dfr)