Future expansion of special economic zones (KEK) in Indonesia should be located outside Java to boost industrial development in regional areas and eventually trigger greater economic growth, according to a minister

Minister says KEK too focused on Java

The Jakarta Post, Jakarta | Business | Fri, June 20 2014, 12:13 PM

Future expansion of special economic zones (KEK) in the country should be located outside Java to boost industrial development in regional areas and eventually trigger greater economic growth, according to a minister.
The expansion of the KEK to areas outside Java is also a logical response to dwindling land supply in Java.
“There are only around 31,000 hectares of land in the country that can be used for industrial purposes, 26,000 hectares of which have been sold. Around 70 percent of that land is located in Java, thus limiting the prevalence of industrial development nationwide,” Industry Minister MS Hidayat said at the Indonesian Industrial Estate Association (HKI) national working meeting at the Le Meridien Hotel in Jakarta on Thursday.
The minister said that in order to fairly distribute the benefits of industrial development in the country, the government needed to address problems related to land availability and develop infrastructure in regions outside Java.
Hidayat said that KEK in Java contributed 57.9 percent to the national gross domestic product (GDP) in 2013 and constituted 71.95 percent of the industrial sector’s earnings in the same year.
“Hopefully by 2035, we can see a 45 percent contribution [towards industrial sector earnings] from KEK outside of Java,” he said.
In order to address the issue, the minister said he had written a letter to President Susilo Bambang Yudhoyono recommending that the government issue decrees to address concerns aired by investors interested in developing industries outside Java.
“For example, you have places like the Bintuni industrial zone in West Papua. Petrochemical companies that have shown interest in investing there have been asking about gas supply. There needs to be a presidential decree to ensure that these areas receive enough gas resources,” he said.
He also recommended that the Finance Ministry incentivize foreign industrial investment in areas outside of Java, particularly for infrastructure development.
Indonesia has aired hopes to add four KEK by the end of 2014; Sei Mangkei in North Sumatra; Tanjung Lesung in Banten; Palu in Central Sulawesi; and Bitung in North Sulawesi.
Three planned economic zones are currently awaiting presidential approval, including Tanjung Api-Api in South Sumatra; Mandalika in Lombok; and Morotai in North Maluku.
An additional 60 KEK scattered across the archipelago are included in the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI).
Hidayat said that if regional infrastructure problems were addressed by more investment in infrastructure, the country’s industrial sector could see double digit growth in 10 years.
“That kind of growth is possible because we are seeing high levels of enthusiasm from foreign investors who want to invest in our industrial sector,” he added.
Meanwhile, the Committee for the Expansion and Acceleration of Indonesian Economic Growth (KP3EI) administrative division secretary, Dodi Riyadi, said that with an improved transportation infrastructure, an expansive broadband network and more competent logistical services, the government would be able to reduce logistics costs by 3 percent by 2015, and 4 percent by 2020. (dyl)
Indonesia’s logistics costs are currently one of the highest in the Asia-Pacific region, amounting to 27 percent of GDP. The weaknesses are due to the lack of ports and airports in regional areas and an unintegrated transport system. The country currently ranks 59th in the 2012 World Bank’s logistics performance index. (dyl)