The boom may simply be hot air
The demand for developed industrial estates has been increasing sharply over the past two years, reflecting investors’ great enthusiasm for setting up manufacturing production bases in the country.
But the Industrial Estate Developers Association complained last week that its members could not meet such big demand because they had been hindered by the severe, costly burdens of processing the all necessary local permits for land acquisition and factory buildings and numerous other licenses needed for the various aspects of manufacturing operations.
Newspaper reports from Medan quoted North Sumatra Governor Gatot Pudjo Nugroho as saying last week that the Sei Semangke special economic zone, designed to be one of the six economic corridors to be developed under the 2011-2015 Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI), might not be realized due to land problems.
Gatot said the giant consumer products group Unilever, one of the nine major investors committed to placing hundreds of millions of dollars in factories in Sei Semangke, was considering cancelling its investment plan because of the unclear status of industrial estate lands.
The governor said more than one year after the launch of the master plan, the Simelungun district administration had yet to approve the change of the land title in the Semangke zone from the right to cultivate to the right to rent for building.
These problems indicate that what has so far been hyped as a boom in foreign and domestic investment in the country, may turn out to be simply hot air due to the acute shortage of infrastructure and inimical attitude of regional administrations toward investors.
Well-planned and developed industrial estates, or special economic zones, could actually be a breakthrough to speeding up the implementation of investment in manufacturing industries because such facilities would resolve the problems of spatial planning, land acquisition and basic infrastructure for new industrial investors such as waste treatment.
But most of the permits needed for the opening of an industrial estate, such as those related to land acquisition, location, building, public nuisance and environment are under the jurisdiction of regional administrations, while many regional leaders simply do not realize the multiplier impact of industrial estates on bolstering investment and local economies.
Worse still, the central government seems impotent in making regional administrations realize the role of investment in propelling the wheels of economy through job creation and the generation of purchasing power for people and tax revenues for the government to finance public services.
Many regional administrations instead use the licensing authority as a rent-seeking venture to raise local revenues at the expense of broader economic development.
The Deli Serdang administration in North Sumatra, for example, charges almost Rp 73,000 (US$7.60) per square meter as the fee for a building permit in industrial estates. But the Medan municipal administration, located only around 40 kilometers from the Deli Serdang administrative seat, charges only Rp 10,540 for a similar license.
Well-designed and developed industrial estates in major cities like Jakarta, Bandung, Semarang, Surabaya and Medan have shown how such facilities, supported with adequate infrastructure such as easy access to airports or seaports, power, bonded warehouses, training facilities and residential areas have contributed greatly to speeding up the growth of manufacturing industries.
Industrial estates can also be suitable locations for single-industry clusters, for example, in electronics, palm oil, leather or garments, thereby improving supply chain management and decreasing the costs of distribution.
But investors in industrial estate development need all the support of the central and regional administrations because of the many permits required and the long-term payback period of the investment venture.
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