A new leadership team in Indonesia’s Riau Islands has bold plans to steer the region back into growth, after a gruelling year fighting the Covid-19 pandemic. If they play their cards right, they are in it with a fighting chance.
Located just a short distance as the crow flies from sunny Singapore, Indonesia’s Riau Island province has like most regions been hard hit by the Covid-19 pandemic. But some slivers of light are breaking through the gloom, and the region’s new political team is keen to nurse the region back to growth.
The Riau Islands province, or also known locally as Kepri, has been inextricably linked to the Republic, predominantly in the economic sphere. The archipelagic province has been an investment destination for Singapore-based firms since the 1990s. Given its export orientation and strong economic ties with Singapore, Kepri’s economic performance closely reflects the economic situation in the island republic. Affected by the pandemic, the province’s GDP contracted by 5.0 per cent last year — three percentage points higher than the national average.
The province, which sits just 20km from Singapore, comes second after Bali in terms of the number of international visitors to Indonesia. In 2019, around 2.6 million foreign tourists visited Batam and Bintan, two main islands in the province. Around half were visitors from Singapore.
Due to the pandemic, foreign tourist visits to the Riau Islands declined by 85.6 per cent last year. This caused a 46 per cent contraction in the tourism and hospitality industry. The pandemic also hit other sectors badly such as construction trade, and transportation.
In a recent interview with the author, Ansar Ahmad, newly elected governor of the Riau Islands, shared his plans to improve the economic performance of the province. Ansar, a Golkar politician, and his running-mate Marlin Agustina won the regional election in December 2020.
The good news is that Jakarta has given a strong political commitment to the new leadership to promote the province’s attractiveness as an investment destination. Despite the pandemic, there have been glimmers of hope. Governor Ansar said that the region has bagged a US$3 billion investment from Saipem, an oil and gas engineering construction company, and a US$1.4 billion investment from China to build an aluminium smelter industry in the Galang Batang Special Economic Zone (SEZ). Last year, Jakarta approved two other SEZs in Batam, Nongsa Digital Park and Batam Aero Technic.
Said Governor Ansar: “We will give our best efforts to support investors … we will provide the infrastructure to improve Kepri’s attractiveness as an investment destination.” The launching of the Batam Logistics Ecosystem (BLE), which is a pilot project of the National Logistics Ecosystem (NLE), is part of a national effort to improve connectivity in Kepri. The BLE will provide an integrated digital platform for companies operating in sectors such as transportation, shipping, ports, warehousing and depots. It is expected to cut short the processes for licensing, truck ordering, checking, and transporting. The overall goal is to lower logistics costs from 25 per cent to 17 per cent of GDP by 2024.
In line with the BLE, the Batam Indonesia Free Zone Authority (BP Batam) has officially implemented an Auto Gate System at Batu Ampar Port. This is expected to reduce queues at Customs and Excise checkpoints. Jakarta has also tasked BP Batam to expedite the revitalisation of the port, which is Batam’s main port. This year, BP Batam plans to develop the north pier, which faces Singapore.
The effective implementation of the BLE system requires competent human resources in the logistics sector. In addition, the integrated logistics ecosystem needs clear regulations concerning data management and protection from all stakeholders to work efficiently. This requires many agencies to work together harmoniously – something which Indonesia notoriously lacks. High sectoral ego — a euphemism for agencies bunkered in a silo mentality — has often hampered coordination. Governor Ansar said that one of his new team’s biggest challenge is to break this bureaucratic logjam.
Thankfully for Governor Ansar, Jakarta has given strong support to Kepri’s government to restart the critical travel and tourism industry. Specifically, the Ministry of Tourism and Creative Industry and the regional government have been preparing Nongsa and Bintan Lagoi – only about a 45-minute ferry ride from Singapore – to be part of safe travel corridors that will bring in tourists from Singapore.
According to the Indonesian tourism Minister, Sandiaga Uno, the Covid-19 infection rate in Kepri has flattened out and stabilised. This makes the province a fitting pilot for implementing a safe travel corridor. But Singapore remains cautious and does not appear to be lifting its travel restrictions anytime soon. The Republic’s rationale: infection cases in Indonesia remain a concern; moreover, progress in the vaccination programme is necessary but not sufficient given the uncertain nature of the new coronavirus. As such, the local authorities need to continue to curb the spread of Covid-19 — including testing, social distancing and the wearing of masks —before both countries can introduce travel corridors.
Jakarta has lent strong political support to remove Kepri’s investment barriers and create regulatory certainty for doing business. Nevertheless, Kepri’s new leadership still needs to play a more active role in ensuring synergy and effective implementation of various central and regional programmes.
As the recovery of the tourism industry will take some time, the best bet to revive Kepri’s economy lies in the manufacturing sector, which has shown some resilience amidst the pandemic. The sector recorded a positive growth of 5.2 per cent last year. Specifically, machinery and equipment, electronics and electrical products, textiles, as well as chemicals and pharmaceutical industry recorded robust growth.
To stimulate the manufacturing sector, the central and local governments must provide critical infrastructure support — a key constraint to boost the sector’s exports. While Jakarta has sought to expedite the revitalisation of Batu Ampar port, the plan has been hindered by several factors, including the chaotic condition of Indonesia’s submarine fibre optic cable and gas pipelines. It remains to be seen if the Ministry of Maritime Affairs and Investment’s upcoming regulation will be able to expedite the revitalisation of the port infrastructure in Kepri.
“The toughest challenge for an archipelagic province like Kepri is maintaining a balance of development between regions,” said Governor Ansar. Currently, the financing need for economic recovery is so huge, while our capacity is limited. We are tightening our budget, rearranging development priorities, and seeking new investments.”
Overall, Jakarta has lent strong political support to remove Kepri’s investment barriers and create regulatory certainty for doing business. Nevertheless, Kepri’s new leadership still needs to play a more active role in ensuring synergy and effective implementation of various central and regional programmes. It should avoid the risk of political capture and maintain its integrity and good governance.
In the past, high-cost election campaigns have tempted some politicians to abuse their power and commit graft in their attempts to pay back their supporters. They should have learned from precedents of abuse of power and graft involving regional heads, including two of Kepri’s former governors who were jailed for corruption. Given such a chequered past, it behoves Governor Ansar and his team to keep their noses clean as they work to revitalize the region’s fortunes.
[Editor’s Note: Governor Ansar Ahmad spoke to the author via Zoom on 15 April. The author would like to thank Access Indonesia’s Gloria Tan and Riatna Jeo for facilitating the interview. Access Indonesia assists foreign firms seeking to enter the Indonesian market]
Siwage Dharma Negara is Senior Fellow and Co-coordinator of the Indonesia Studies Programme, and the Coordinator of the APEC Study Centre, ISEAS - Yusof Ishak Institute.