Barun Roy: Little Singapore?

If Indonesia can keep up its political will, a new business centre will emerge in Asia

Business Standard, Barun Roy / New Delhi March 26, 2009, 0:30 IST

If Indonesia can keep up its political will, we're going to see a new business centre emerge in Asia.

One could perhaps call it the slowest-moving development project in Asia, but it’s finally ready for take-off. Last January, ending four decades of foot-dragging, Indonesian President Susilo Bambang Yudhoyono officially launched the island of Batam and its two sisters, Bintan and Karimun (BBK), in the Riau Archipelago, as a free-trade zone that, he hopes, would one day emerge as Indonesia’s own Singapore.

That ambition was first voiced in the 1970s, after Pertamina, the Indonesian oil company, started to use Batam as an exploration base, but a confirmation of the islands’ future as a free-trade zone didn’t come before 1989, and it has taken another two decades to make that intention official. In the Asian context, that’s terrible. During that period, while Indonesia was sleeping, Asia’s other islands have surged far forward. Singapore has become a massive economic power, Penang has emerged as one of Asia’s largest electronics manufacturing bases, Langkawi has gone from a sleepy backwater to a major tourist hotspot, and Phuket has come to be ranked as one of the world’s top five retirement spots, besides being a fabled global tourist destination.

Of course, BBK has made progress, too, but only a snail’s progress. Being only a 40-minute ferry ride from Singapore — to its south, part of a sprawl of some 3,000 islands — some Singaporean business has inevitably washed up on its shores and some foreign companies have followed suit. For them, BBK is a useful alternative, where costs are low and space isn’t a problem. There are factories making electronic components, leather goods, garments, toys, consumer and household products, and quite a few shipyards. In fact, some 1,000 foreign and 10,000 local companies are there on BBK already. But their total investments don’t amount to much. And, though BBK’s year-round tropical weather already draws some 2 million visitors a year, it’s still not considered a mainstream tourist destination.

This might now change. The Indonesian president’s seal on the islands’ future, ending their status as only a bonded area, should remove doubts from investors’ minds. The basic physical infrastructure is in place — seaports (as many as 14), good roads, cable-stayed bridges connecting the main islands, a modern airport with a runway longer than Jakarta’s — and a whole new planned city, called Batam Centrum, is being built as an integrated office-shopping-residential complex just across the sea from Singapore. The development goals are now clearer than ever in the past: Batam as a shipyard and electronic base, Bintan as a textile, leather, and leisure complex, and Karimun as a centre for agricultural and marine products development.

On top of everything, Jakarta has chosen Singapore to play the role of a mentor and guide BBK’s development. For foreign investors, there can’t be a better reassurance. According to an agreement between the two countries, Singapore will help develop special economic zones on BBK, frame investor-friendly rules, screen investment proposals. Singapore has the expertise and the experience. This will surely make people take a serious look at BBK as a manufacturing, trading, services, and tourism hub. The Japanese, Chinese, and Koreans are on the prowl, and of course the Singaporeans and Malaysians too. Batam’s shop-house hotels are giving in to dazzling five-star ones. Italian-based oil contractor, Saipem Indonesia, has got a 70-year land concession to start a massive project on Karimun. In April, work will begin on BBK’s second integrated tourism-cum-business resort — on Batam, the first one being on Bintan — that will cost $193 million to build and will include a 6,000-seat convention centre.

Two kinds of investors, in particular, will take a special interest in BBK: Those from Singapore itself and those who have an operational base in the island republic. For them, especially for Singapore’s manufacturing and service companies seeking to relocate their relatively lower-value activities, BBK is an ideal shunting yard. Links with Singapore are already very close. Half of BBK investors are Singaporeans; 65 per cent of BBK imports come from, and 69 per cent of BBK exports go to, Singapore; 70 per cent of BBK tourists are from there; and thousands of Singapore labourers take the ferry every day to go to work across the sea.

Clearly, Jakarta wants BBK to learn the ropes from Singapore and be an engine of Indonesia’s growth, while Singapore wants its island neighbours to grow as a complementary production facility. The aims of both countries are thus nicely matched. It’s late in the game and too many valuable years have been wasted, but BBK has at last come back on track. If things don’t go terribly wrong and Indonesia can keep up its political will, we’re going to see a new business centre emerge in Asia that has the potential to grow up as Singapore’s little brother. It has the space. Now it’s going to have the momentum, provided mainly by the big brother across the sea.