Asian Angle | Can Indonesia’s Batam hold its own against Johor-Singapore SEZ?

The Johor-Singapore Special Economic Zone (JS-SEZ) was launched in January with much fanfare. The zone is a swathe of land in the southern Malaysian state of Johor that seeks to attract investment by leveraging its proximity to Singapore and its differing cost structures. Underpinned by tax incentives for skill-intensive activities and easier border procedures, the JS-SEZ has generated interest from the city state’s private sector. Going by past investment trends, southern Johor is particularly attractive for manufacturing-related projects.

But lying just 25km (15 miles) south of Singapore is the northern coast of Batam, the economic motor of Indonesia’s Riau Islands province, and its neighbour Bintan. Both have also sought to leverage their proximity and cost advantages relative to Singapore. Given its similar policy framework, cost argument and greater efficiency for investors, the JS-SEZ poses a threat to Batam, which has long been a source of foreign direct investment for Indonesia.

Batam was first launched as a site for “hi-tech” investment in 1973. Funded by Pertamina, the national petroleum corporation, the island received considerable public funding and was overseen by an elite central government agency, the Batam Industrial Development Authority (BIDA). From 1978 onwards, BIDA was helmed by no less than B.J. Habibie, the former long-serving minister for research and technology.