Editorial: Big talks about growth centers

The Jakarta Post | Mon, 02/08/2010 10:31 AM | Opinion

Over the past few weeks the government propagated three seemingly different manufacture-based development policies which could, at a glance, confuse businesspeople, but boil down to the same concept-building natural resource-based growth centers through a special economic zone.

In mid January, Coordinating Economic Minister Hatta Rajasa said the government would offer to Japanese investors two economic corridors for development into manufacturing centers. One of them connecting eastern Sumatra and northern West Java focusing on palm oil, rubber and coal, and the other — linking northern Java and East Kalimantan — will center on textiles, food products and transportation equipment.

Then late last month, as part of the action program during the first 100 days of the administration, Hatta and several other economic ministers made the ceremonial announcement of plans to develop palm oil-based clusters of industries in North Sumatra and Riau and natural gas-based industrial clusters in East Java and East Kalimantan.

Again last week, Hatta talked about the same concept but used a different term — the special economic zone (SEZ).

He said the government is wooing big investment for the development of three agriculture-based SEZs. Two SEZs in Medan (North Sumatra) and Dumai (Riau) will focus on palm oil-based industries and the other one in Merauke (Papua) on food crops, notably rice.

The economic corridors and cluster of industries are part of the SEZ development concept that essentially calls for the development of enclaves or islands with streamlined licensing procedures, good physical infrastructure, flexible labor regulations, superior logistical efficiency, efficient tax administration and customs and immigration service.

A SEZ may include various types of development areas such as free trade zones (FTZs), export processing zones and special industrial estates or single commodity-based clusters of manufacturing industries. SEZ also can enhance the development of economic corridors through economic linkages with other SEZs.

A palm oil-based cluster of industries, for example, can generate localization economies arising from specialization and integrating of manufacturing operations. Industrial clusters could reduce the costs of transportation and significantly improve supply chain management. This in turn would decrease the costs of distribution and other logistical arrangements.

Such a grouping of manufacturing operations also enables assemblers and big retail chains to gain maximum cost savings by rationalizing when and where they want to procure products and how they organize production.

Unfortunately, though, all the big talk about the development of SEZ has not been supported with real action, notably inter-ministerial coordination and cooperation on the part of regional administrations, to build up the legal, institutional and physical infrastructure.

It is already five months after the enactment of a law on SEZ last September by the House of Representatives, but the government has yet to issue regulations as the technical directives for the enforcement of the law.

Yet more challenging is physical infrastructure.

Given the long time needed for the building of basic infrastructure, SEZ development certainly should give top priority to regions that already have fairly adequate infrastructure, easy access to international trade and whose local governments, including local legislature, have strong commitment to support such a “liberal” concept of development.

Related Article:

Govt to set up three SEZs for agribusiness