Indonesia's Batam Losing Its Economic Luster

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It has long been seen as the brilliant new frontier for Singapore companies desperate for space to develop but Batam's economic promise seems to be fading, battered by forces from inside and without.

It has long been seen as the brilliant new frontier for Singapore companies desperate for space to develop but Batam's economic promise seems to be fadingIts ace cards - low cost land, cheap labor, proximity to home base - nonetheless resonate with Singapore firms although without the power of a few years ago.

The rise of other industrial enclaves, whether or not in Johor or China or quick-rising states like Vietnam, have dented Batam's attraction but it's problems closer to home that worry companies more.

"Indonesia should be its pure market however Batam is strictly an export zone and there's a firewall between them. It's a flawed protectionist strategy."

A person identified solely as Mr Tan, a manager at a Singaporean-owned shipyard in Tanjung Uncang, on the western side of Indonesia's Batam Island, shifts uncomfortably in his seat, smiling evasively, when the subject comes up.

No marvel, it's Batam's most touchy topic - the perpetual demand of its raucous and spirited labor force for greater wages. When prodded, Tan, admits: "If there is no such thing as a more wage advantage to stay here, traders may transfer out."

Labor unrest may well develop into the island's Achilles heel, notes Robert Broadfoot, managing director of Hong Kong-based Political and Economic Risk Consultancy.

He notes that the regulatory environment is tilted in favor of labor, which encourages a confrontational situation between labor and management.

Strikes in Batam are becoming an annual affair. "Most of the time, the calls for are affordable and the strikes last a day," says a manager at a firm in Batam.

But late last year, the protest involving thousands of employees from 200 firms turned ugly and lasted three days.

"While they look like isolated incidents and don't detract BBK (Batam, Bintan and Karimun) from its fundamentals, they remind us to be sensitive in managing the native workforce," says Lee Yee Fung, commerce company IE Singapore's regional director based in Jakarta.

The mission to show Batam, a once sleepy fishing outpost with simply 6,000 residents, into a hive of commercial and tourism activity remains intact despite the ructions on the commercial front.

The population is now more than one million, there's a workforce of about 300,000 and one million visitors come yearly, drawn by six "worldwide customary" golf courses 25 industrial parks, 50 hotels & resorts and two marinas. Between 2003 and 2010, apart from 2009, its economy grew over 7 per cent each year.

Greater than 1,200 international companies function there, drawn notably by the proximity to Singapore.

However the place - and the mission itself - needs a turbo-charged jolt.

That got here partly two weeks in the past when Singapore Prime Minister Lee Hsien Loong and Indonesian President Susilo Bambang Yudhoyono renewed the pledge to drive growth in Batam, Bintan and Karimun, which make up one among two free commerce zones in Indonesia.

Singapore's role is essential given its strategic place in the "development triangle" between Malaysia's thriving Johor area and the three Riau Islands.

For tons of thousands of Indonesians who have found jobs on Batam, the largest island within the Riau Archipelago, Singapore has grown to be a lifeline.

"Batam exists due to Singapore," says a local, born in Jakarta and certainly one of about 300,000 who came to the island for work.

In almost all of Batam's growth benchmarks, Singapore sits on the perch. It's the island's largest investor, having contributed $933 million (S$1.2 billion) or 70 per cent of its international direct funding over the primary half of final year. Half of Batam's exports head to Singapore.

It's largely companies from the precision engineering, electrical parts and electronics manufacturing and marine and offshore supporting industries which have set up shop on Batam, says Lee Yee Fung.

The advantages are aplenty.

"Land is cheap; infrastructure is affordable, labor abundant. We save 20 per cent in overall business price," says K. T. Ang, managing director of ASL Marine Holdings, a Singapore-listed shipping firm with a shipyard in Batam which employs 3,000 contract workers, principally Indonesians.

Huge corporations are usually not the one ones flocking to the area.

A lady recognized only as Ms Lo purchased an oceanfront villa on a 328ha island between Singapore and Batam, which is the third favored vacationer spot in Indonesia, after Bali and Jakarta.

She is considered one of an enormous band of hopefuls who've scooped up real property in Batam and neighboring islands banking on their sheer promise.

But that promise, that potential, does not look as shiny as it did just a few years ago.

Rivals like China's southern metropolis of Shenzhen, also as soon as a small fishing village that became a special financial zone about the identical time as Batam, has thrived.

Malaysia has poured billions of ringgit into Iskandar Malaysia in south Johor since 2006, additionally to leverage its proximity to Singapore.

Whereas Shenzhen is an export processing zone, numerous its merchandise are also offered in China.

However Batam, constructed on the concept of an export-oriented industrial area, shouldn't be meant to compete with other industrial areas in Indonesia, which market their merchandise within the country.

"Indonesia ought to be its natural market but Batam is strictly an export zone and there is a firewall between them. It is a flawed protectionist strategy," Broadfoot says.

One other weak hyperlink is connectivity.

"As close as Batam is to Singapore, it is nonetheless a ferry trip away. It is easier for factories in Singapore to move to Johor," says Broadfoot, referring to the two direct street connect between Johor and Singapore.

About 70,000 Singapore passport holders cross the Causeway to Johor a day, significantly more than some 62,000 Singaporeans who visited Batam in January.

There was talk of constructing a tunnel or different land link from Singapore to Batam however the prices as well as the safety and political dilemmas make that extra pie-in-the-sky than viable policy.

"Batam won't ever be near its potential till it makes these basic changes," Broadfoot says.

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