30 June 2017
Indonesia Looks to SEZ Programme to Develop Tourism Infrastructure
Developing nationwide tourism infrastructure is one of the key priorities of Indonesia's nascent Special Economic Zone strategy, with the country hoping to have 25 such zones either operational or under active construction by 2019.
With tourism a high priority for Indonesia, it is no surprise that the sector has long been integrated into the country's Special Economic Zone (SEZ) programme. In line with this, investors in a number of tourism-related sectors have been offered a series of incentives to support a new SEZ currently being constructed in Banten province's Tanjung Kelayang district.
Scheduled to be completed by 2019, the 3.24 sq km Tanjung Kelayang SEZ is the latest addition to Indonesia's network of nine SEZs. It is also the third SEZ, following the Tanjung Lesungsite in Banten province and the Mandalika facility on the island of Lombok, to focus exclusively on the tourism sector.
In order to fully develop the Tanjung Kelayan site, the government is looking to secure about IDR20 trillion (US$1.5 billion) in investment by 2025. This will go towards funding the beachside hotels, resorts, private residences, organic farm, international airport, new road network and the solar, water treatment and power plants outlined in the plans for the site.
By 2022, the government hopes the new SEZ will have delivered 24,000 jobs, with a number of these stemming from community-based schemes with a focus on sustainable tourism. At present, prospective investors are said to include the Sheraton and Sofitel hotel chains and the China Harbour Engineering Company.
At present, all of Indonesia's SEZs come under the auspices of the National Council for Special Economic Zones. Established by presidential decree in 2010, this body has been charged with developing and implementing the country's National SEZ Masterplan. In line with this economic blueprint, nine SEZs are already operational or under development, with that number set to rise to 25 by 2019. Of these, 10 will be solely devoted to tourism.
By using the SEZ model as a means of delivering a high standard of tourism infrastructure across the country, Indonesia hopes to be in a position to welcome 20 million overseas visitors a year by 2020. This is in line with government aims to substantially increase the GDP contribution of the services sector, while boosting employment and rebalancing the economy away from its reliance on the oil, gas and manufactured exports sectors.
In order to deliver on this, since November 2015, investors in Indonesia's SEZs have benefitted from income-tax discounts of 20-100% for up to 25 years, while also having 30-year land-owning rights within an SEZ, with a 10-year extension option. In addition, VAT exemptions are in place for imported raw materials, as well as on manufactured goods actually sold within Indonesia.
In addition to Tanjung Kelayang, Tanjung Lesung and Mandalika, six other SEZs have been approved:
- Sei Mangkei (North Sumatra)
Inaugurated in January 2015 by President Widodo, this has a primary focus on the industrial palm oil derivatives and rubber sectors, as well as biodiesel, biogas and logistics.
- Palu (Central Sulawesi)
Planned as an integral part of the Sulawesi Economic Corridor, this has attracted a substantial number of investors, including companies active in the logistics, automotive manufacturing, agro-business, concrete, iron and zinc processing, food packaging, base and precious metals sectors.
- Bitung (North Sulawesi)
This was established to capitalise on the region's existing strengths in seafood and coconut product processing, as well as in distribution and logistics.
- Morotai (North Maluku)
This has a focus on building on the Maluku Islands' strength as Indonesia's primary fisheries zone.
- Maloy Batuta Trans Kalimantan (East Kalimantan)
This is up and running as an industrial manufacturing, export production and logistics hub.
- Tanjung Api-Api (South Sumatra)
This is looking to attract investors with strengths in locomotive manufacturing, export processing, logistics or energy. Its prime location gives it access to many of the country's vast rubber and palm plantations, as well as the sites of both Indonesia's second-largest coal deposit and about 10% of the country's gas reserves.
At present, Indonesia is still at a relatively early stage with regard to developing its SEZ strategy. As more and more SEZs are approved and come online, however, a clearer picture is expected to emerge as to the likely scale and scope of the required investments, as well as the economic benefits expected to accrue to the various regions of Indonesia.
Despite this, a number of the country's large-scale SEZ investments are already making headlines. Earlier this month, it was reported that an unnamed Russian investor was preparing to inject up to $11.2 billion to develop an oil refinery, storage tanks and a petrochemical refinery in the country's Tanjung Api-Api region. This comes on top of the $900 million Indorama, a Singapore-headquartered chemical company, is already said to be considering investing in an Indonesian regasification plant.
Geoff de Freitas, Special Correspondent, Jakarta