Indonesia industrial park to spearhead bid to lure China supply chains

Indonesia plans to build one of its largest industrial parks on the north coast of Java island in a renewed drive to attract manufacturers relocating out of China, Reuters reports.

The opportunities Southeast Asia’s biggest economy aims to exploit as it comes out of a Covid-19 lockdown. But Indonesia must overcome decades-old hurdles including red tape, rigid labour laws, and poor infrastructure to be able to move up the value chain.

This time, in its quest to emulate rivals such as Vietnam, the government has shown serious intent in bringing about change and is aiming to pass an ambitious omnibus bill later this year to address some of the pressing foreign investor concerns.

Lin Neumann, managing director of the American Chamber of Commerce Indonesia, welcomed any incentives the park and new infrastructure offered but highlighted the importance of passing the bill, as well as opening up more protected sectors to foreign investment.

“The omnibus bill should impact the entire economy. That means the investment climate could change nationwide,” said Mr Neumann.

At the same time it is pushing ahead with plans for a 4,000- hectare (9,884-acre) industrial park, an area equivalent to more than 5,000 football fields, in Brebes, Central Java – mainly targeting supply chains relocating out of China.

“This is a pilot project for Indonesia on how we can attract global investors heading out of China,” said Ahmad Fauzie Nur, chief operating officer of PT Kawasan Industri Wijayakusuma.

The area’s low minimum wage – US$1,200 – a month is another selling point, said Mr Fauzie Nur, who believes the park can compete with Vietnam and Thailand, the region’s winners in attracting investors during the US-China trade war.

In a bid to avoid problems securing land, the state-owned company avails itself of a law to acquire land cheaply and ensure low rents at the park.

Taiwan’s Foxconn Technology Group had reportedly been interested in building a factory in Indonesia in 2014 but scrapped plans due to land issues.

The proposed park is located 270 kilometres east of Jakarta in an area dotted with fish and shrimp farms and already has a road link to the capital and two nearby ports.

An official at Indonesia’s investment and maritime affairs ministry estimated the park’s first phase would cost IDR3.8 trillion (US$135.1 million).

In recent years, Indonesia has attracted foreign funds in mainly resources, tech and other sectors such as warehousing and logistics, but not so much in manufacturing.

President Joko Widodo last year told his cabinet “we have a problem” with our investment climate, citing an internal World Bank report that out of 33 companies relocating from China, 23 had chosen Vietnam while others picked Malaysia, Thailand and Cambodia. None came to Indonesia.

In response, President Widodo has prepared a flagship “omnibus” bill to replace around 80 overlapping regulations hampering business, and improve the overall investment climate, but the pandemic has slowed parliamentary deliberation.