Special Economic Zone of Batam Losing Appeal to Foreign Investors
Sonia Kong, the Chairman of the Association of Korean Businesspeople in Batam, said that the investment or business climate in this Special Economic Zone (SEZ) has become less conducive in recent years. In the past five years, 17 Korean companies decided to move to other countries. Batam (including several surrounding islands) was given the status of SEZ with Singapore in 2007. This SEZ status means that tariffs and value-added taxes for goods shipped between Batam and Singapore are eliminated between 2007 and 2077.
The main reason why the business environment in Batam has weakened according to Korean companies is the higher minimum wage, implying declining profit figures. In recent years, the minimum wage has risen considerably. In 2013, Batam's monthly minimum wage was raised from IDR 1.40 million (USD $122.8) to IDR 2.04 (USD $178.9), a 44 percent increase. But despite this increase, the local minimum wage is still relatively low compared to Singapore or even Malaysia. However, labour protests are a constant risk. Between January and March 2014, there have been 40 labour protests triggered by wage disputes and layoffs.
Currently, 23 Korean companies are still in operation in Batam. Batam is considered an interesting investment destination due to its proximity to Singapore as well as its strategic position on trading routes that cover Australia, Asia, Europe and the Middle East. Being close to Singapore - and with lower labour costs - Batam is interesting for Singapore-based manufacturing companies. Approximately half of Batam's export is directed to Singapore and roughly 70 percent of foreign direct investment (FDI) in Batam originates from Singapore. As such, Batam is in a position to benefit from Singapore's economic expansion.
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