Indonesia and Singapore to make Batam and Bintan Competitive again

INDONESIA AND SINGAPORE TO MAKE BATAM AND BINTAN COMPETITIVE AGAIN

Indonesia and Singapore today marked the first step in renewing investor interest and confidence in Batam and Bintan with the signing of the “Framework Agreement on Economic Cooperation in the Islands of Batam, Bintan and Karimun”.

The deal was inked today by Singapore’s Minister for Trade and Industry, Mr Lim Hng Kiang and Indonesia’s Coordinating Minister for the Economy, Dr Boediono.The signing ceremony was witnessed by PM Lee Hsien Loong and Indonesia’s President Susilo Bambang Yudhoyuno.

Conceived by the leaders of both countries, the Framework Agreement cements the Singapore-Indonesia partnership to establish special economic zones (SEZs) in Batam, Bintan and Karimun. The SEZs will lay the groundwork for both islands to become investor-friendly and cost-competitive manufacturing zones that can attract international flows of foreign direct investments.

Singapore’s Minister for Trade and Industry, Mr Lim Hng Kiang, said at the signing ceremony: “Batam and Bintan already have the pre-requisites for a successful SEZ project like established infrastructure, a pool of skilled labor and strong name recognition among investors. Both countries can thus move quickly to make them a model for the other SEZs that Indonesia plans to establish. Singapore is pleased to cooperate and share our expertise on SEZs with Indonesia, our close neighbour. I look forward to working closely with Indonesia on this significant project.”

Singapore and Indonesia’s cooperation projects in Batam and Bintan started in the late 1980s.Over the subsequent decade, the cooperation projects transformed the islands into manufacturing engines of the Indonesian economy, generating more than 200,000 jobs, and at one point accounting for 14% of Indonesia’s non-oil domestic exports (NODX). The projects were a success as they combined the complementary strengths of Indonesia and Singapore into a package that was competitive and attractive to investors.

However, over the past 5 years, Batam and Bintan have faced increasing competition from other emerging markets like China, India and Vietnam. Foreign direct investments to these markets have grown steadily, whereas investments into Batam and Bintan have plateaued.

The Framework Agreement aims to revitalise investor confidence and interest in Batam and Bintan in the face of increasing competition. To successfully develop Batam and Bintan as SEZs, the Framework Agreement spells out seven key areas where both countries will cooperate to ensure that business, regulatory and labor conditions in Batam and Bintam are favorable to investors. These are: investment, finance and banking, taxation, customs & excise, immigration, manpower and capability development.

The Framework Agreement establishes a Joint Steering Committee (JSC) appointed by the leaders of both countries to supervise these efforts. The JSC will be co-chaired by Mr Lim Hng Kiang and Dr Boediono.

In 2005, Singapore was Indonesia’s third largest trading partner, while Indonesia was Singapore’s fifth largest trading partner. Two-way trade reached S$54.2 billion, up 11.5% from 2004.Singapore was Indonesia’s top investor in 2005, with investments totaling US$3.9 billion.

MINISTRY OF TRADE AND INDUSTRY

SINGAPORE

25 JUNE 2006

Fact Sheet on the

Framework Agreement between Indonesia and Singapore on

Economic Cooperation in the Islands of Batam, Bintan and Karimun 

1.The Framework Agreement on Economic Cooperation in the Islands of Batam, Bintan and Karimun will be signed on 25 June 06 in Batam.

2.The Framework Agreement formalizes the aim of Indonesia and Singapore to develop economic cooperation in special economic zones (SEZs) in Batam, Bintan and Karimun, so as to promote and enhance economic growth in these islands by attracting foreign investment, creating employment, enhancing productive capacity, and increasing trade in goods and services.

3.The Framework Agreement outlines seven key areas that Indonesia and Singapore will cooperate in to ensure that business, regulatory and labor conditions in these islands are favorable to investors. The seven areas are:

(i) Investment - Indonesia and Singapore are to cooperate on promoting, for mutual benefit, international investment into Indonesia

(ii) Finance and Banking – Indonesia and Singapore are to cooperate on taking steps to actively facilitate the availability of, and access to capital and banking services

(iii) Taxation – Indonesia and Singapore are to cooperate on adopting measures to ensure clarity and transparency in tax administration procedures

(iv) Customs and Excise – Indonesia and Singapore are to cooperate on simplifying the procedures and documentation processes to achieve efficient flow of goods between the two countries, in particular the flow of goods within, and in and out of the SEZs

(v) Immigration – Indonesia and Singapore are to cooperate on adopting measures to facilitate the flow of business persons, specialists, and tourists between Singapore and Indonesia, including the simplification of visas

(vi) Manpower – Indonesia and Singapore are to cooperate on implementing appropriate laws applicable to persons working in the SEZs, so as to achieve and maintain internationally competitive manpower resources and harmonious industrial relations

(vii) Capability Development – Indonesia and Singapore are to cooperate on enhancing capability development through initiatives such as the training of the industrial workforce and SEZ administrators.

4.The Framework Agreement also details that through dedicated and effective administration(s) with authority to ensure that the SEZs will be internationally competitive, economic cooperation on the SEZs will be guided by the following principles:

(i) Developing an effective institutional framework, including implementing appropriate rules, where necessary, for the SEZs to be internationally competitive

(ii) Ensuring clarity and consistency in the policy framework of the SEZs

(iii) Streamlining regulatory procedures to ensure clarity and transparency in the implementation of policies

(iv) Creating and sustaining a competitive and stable business environment to enhance the development of the SEZs

(v) Developing and maintaining a well-planned, competitive and efficient industrial infrastructure

5.A Joint Steering Committee (JSC), responsible for the implementation of the Framework Agreement, is to be established. The JSC will comprise relevant ministers and other representatives from Indonesia and Singapore, appointed by the President of the Republic of Indonesia and the Prime Minister of the Republic of Singapore, to whom the JSC will report. The JSC will supervise the action plan for the development of the SEZs in Batam, Bintan and Karimun, and promote and adopt market oriented proposals.

Ministry of Trade and Industry

Singapore