Indonesian President Joko Widodo has signed government regulation on special economic zones (SEZ), aiming to attract over US$50 billion investment into those zones in the next decade - Photo by KPPIP

JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo has signed government regulation on special economic zones (SEZ), aiming to attract over US$50 billion investment into those zones in the next decade. The development of SEZ in Indonesia is progressing but investors remain reluctant to open factories in the designated areas despite promised government incentives.

“The President has signed government regulation number 1 of 2020 concerning the implementation of special economic zones on 6 January 2020,” the secretary cabinet said on Wednesday (01/22), adding the government deems it necessary to stipulate specifically in accordance with developments and legal needs in society.

Indonesia has 12 SEZs now and the government eyeing to attract over $50 billion investment into those zones in the next decade, coordinating minister for maritime and investment affairs Luhut Binsar Pandjataian has said. However, realized investment in the country’s 12 SEZs totaled only Rp21 trillion ($1.5 billion), or only about 25 percent of the total investment commitment of Rp85.3 trillion in 2019, Pandjataian said.

To achieve it, the government deems it necessary to specifically stipulate rules on SEZ. According to rules, the zones operation includes proposing the establishment, establishment, construction and operation, management and evaluation management of the zones.

In article 3 of this rule, the locations that can be proposed to become SEZs are new areas, existing zone expansion, all or part of the location of the Free Trade Zone and Free Port, referred to Batam, Bintan, and Karimun as those zones established under the law governing before or after the stipulated time period expires.

The location proposed to be an SEZ, according to the rule, must meet the following criteria: in accordance with the regional spatial plan and not potentially disturbing protected areas; support from the provincial and/or district/city-regional government; located in a position that is close to an international trade route or close to an international shipping lane in Indonesia; and have clear boundaries.

“Regional government support as referred to in article 5 includes a commitment to the plan to provide incentives in the form of exemption or relief of regional taxes and regional user fees and facilities; and delegation of authority in the field of licensing facilities,” said article 7 of the rules.

The formation of zones can consist of export processing, logistics, industry, technology development, tourism and energy, creative industry, education, health and sports, financial services, and/or other economies established by the National Council.

The zones formation can be proposed by the business entity; regional government, state-owned enterprises, cooperative, private business entity in the form of a limited liability company, and joint venture or consortium. In certain cases, the government can designate an area as an SEZ which is carried out based on the proposal of a ministry or non-ministerial government institution. The SEZ proposal is submitted in writing to the Zone National Council.

“The National Council shall conduct a study of the proposed SEZ formation in a maximum period of 45 working days from the receipt of a complete written proposal and the required documents,” said article 21.

The National Council then proposes the establishment of SEZs to the President, if approved, stipulated by government regulation, to carry out the SEZ development that has been set up to be ready to operate for a maximum of 3 years.

“The government regulation comes into force on the date of promulgation,” reads article 61, which was promulgated by the minister of justice and human rights Yasonna H. Laoly on January 8, 2020.

US$1=Rp14,000

Written by Lexy Nantu, Email: lexy@theinsiderstories.com