From Financial Times http://www.ft.com/cms/s/0/5aff26c6-557b-11dc-b971-0000779fd2ac.html

Indonesian hub seeks place on map

By John Aglionby in Jakarta

Published: August 28 2007 18:01 | Last updated: August 28 2007 18:01

The signing last week by Susilo Bambang Yudhoyono, Indonesia’s president, of regulations creating a special trade zone covering the is­land of Batam and enclaves on nearby Bintan and Karimun marked the realisation of a three-decade-old vision.

But officials admit it will probably be five years before the area some 20km south of Singapore becomes a world-class manufacturing hub, although an existing industrial zone on Batam has attracted 930 foreign companies and $5bn of investment over the past decade.

Business people are even more sceptical, warning that until Jakarta addresses overbearing labour laws, poor infrastructure and corruption in the bureaucracy, the initiative is unlikely to thrive in its 70-year run.

That is in spite of strong support from Singapore, which sees the free trade zone as a complementary endeavour to its own efforts to attract foreign capital.

Ismeth Abdullah, the governor of Riau Islands province, which encompasses the zone, is hoping to attract $15bn in investment over the next five years. In August, 20 companies signed agreements worth a combined $1.8bn to invest in the zone, he said. They included Dubai Drydocks World, which intends to build a $500m yard in Batam, and Bintan Resort Cakrawala, which wants to develop a $200m complex on Bintan.

Mari Pangestu, Indonesia’s trade minister, said the initial aim was to “synergise” with Singapore. “We can develop industries and services that need more land,” she said. “It’s complementary but will eventually be competitive, because we’d like to become an industrial hub like Singapore.”

Investors will start reaping the benefits in a few months but it will take a couple of years to establish all the services and infrastructure, Ms Mari said. “It will probably then take up to three more years to make them world class.”

Thong Pao-Yi, the co-ordinator for the free trade zone at Singapore’s Economic Dev­elopment Board, is confident the initiative will succeed.

“The environment in Indonesia is that it takes time to change the regulatory framework for the entire country but it’s possible for them to do it in showcase experiments,” she said. “Batam is a known name, it’s on the investment map and it does have an audience of international investors.”

Mark Wong, the president of the Singapore Association in Indonesia, is less bullish: “[To succeed], the government must demonstrate its political will to show that the outstanding issues are being addressed.” Those include implementing a one-stop investment centre, enacting a new investment law, curtailing lab­our activism, reforming the bureaucracy and changing land rights.
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