Amid the economic doom and gloom, businesses in Indonesia’s Batam Island have something to cheer about after a top investment council gave the nod to the development of two special economic zones (SEZs) worth 2.2 trillion rupiah (S$2.1 billion).

The first site is at Nongsa Digital Park, in the island’s upscale north-eastern Nongsa area, which will be dedicated to digital economy and tourism, and the second is at Batam Aero Technic, Lion Air Group’s facility dedicated to aircraft maintenance, repair and overhaul.

The National Special Economic Zone Council, chaired by Coordinating Minister for Economic Affairs Airlangga Hartarto, made the decision during a virtual meeting of ministers and senior officials on July 10, where they concluded that both sites had the potential to create employment and boost economic growth, among other things.

“We have agreed to grant them the Special Economic Zone status as they have fulfilled all the requirements,” said Mr Airlangga in a statement posted on the council’s website.

The Straits Times understands that the council has submitted its recommendation to President Joko Widodo, who is set to approve it via a government regulation.

An hour by ferry from Singapore, Batam together with Bintan and Karimun islands form what is collectively known as the BBK free trade zone (FTZ).

Already beleaguered with stagnant growth and falling investments in recent years, the coronavirus pandemic has further battered businesses there, which are heavily dependent on Singapore.

Indonesian Ambassador to Singapore Ngurah Swajaya said the SEZs are “good news especially for Singapore businesses because BBK has a special meaning for Singaporeans”.

The hope is that this will spur international as well as Singapore businesses to “seriously consider” investing in Batam.

“With this SEZ status, of course there will be a lot of incentives, benefits, and there will be some sort of special treatment,” he said.

An enhanced SEZ status for the two zones would offer additional fiscal incentives related to trade and investments, such as tax breaks, to businesses and income tax relief for workers. An FTZ offers only non-fiscal incentives to investors.

Mr Marco Bardelli, senior executive director of Nongsa Digital Park, has welcomed the “great news”.

The technology park, touted as a digital bridge between Indonesia and Singapore, has around 100 technology companies hiring more than 1,200 employees in the vicinity. It is also in talks with five data centre developers.

“Data centres are investments worth tens of millions of dollars. It will be favourable to incentivise them since they are very much needed in the expansion of digital economy across Indonesia,” Mr Bardelli told ST.

As many of the smaller digital companies are not capital intensive, he hopes the government would be able to provide incentives that could help lower set-up costs for them. Although the coronavirus pandemic prompted some companies to cut their manpower, it also spurred others to hire more as the demand for online services soared.

Businesses and potential investors told ST that they had chosen Batam for its safe geographical location away from earthquake fault lines, and its proximity to Singapore. Its designation as a SEZ has cemented their confidence in investing in Batam.

Mr Tan Tong Hai, executive director of SEAX Global, a Singapore-based submarine cable connectivity services wholesaler which has a cable route between Singapore and Batam, hopes the SEZ would provide clarity on rules such as corporate tax, income tax on business travellers, and data ownership.

“We do hope that with the establishment of the SEZ, Nongsa Digital Park plans will take off and we can also ride with the growth to provide more connectivity services to our customers,” he said.

Etisalat, a telecoms group based in the United Arab Emirates, is looking with interest at the digitalisation of Batam, said the company’s head of Asia, Mr Dino Civitarese.

He said: “With more connectivity between Batam, Singapore and the Middle East, data flow will only increase. And better infrastructure such as state-of-the-art data centres in Nongsa will also help to accommodate the increasing demand for content storage in the region.”

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