The government is gearing up to force the movement of manufacturing industries to industrial parks, while some lament the lack of infrastructure in such places.

The Secretary General of the Industry Departement, Agus Tjahajana, says that new rules requiring manufacturers to relocate to industrial zones are currently being formulated. It is planned that companies will be given from three years (for new firms) to ten years (for established firms) to make the move. He says:

At the moment the proposed rules have already reached the Law & Human Rights Department [for review].

The proposed changes in the law will for the first time include the matter of sanctions for non-compliant companies, sanctions which include the cancellation of business permits. As compensation for the costs involved in moving tax breaks are expected to be given and a body will be set up to oversee prices charged by industrial park owners. Currently there are 83 industrial parks in Indonesia covering a total of 27,245 hectares.

Of these 27,000 odd hectares of industrial park land available only 42% is made use of, according to Fahmi Shahab, the Director of the “Himpunan Kawasan Industri”. He adds that since 2001 the rate of growth in the creation of park space has slowed to 150 hectares per year, down from 500 hectares in the time before the onset of the Asian economic crisis in 1997.

Fahmi Shahab believes that one important reason why industrial park space is under-utilised by business is the lack of infrastructure in place, a view echoed by Jefri HM Sirait, the marketing manager for the “Kawasan Industri Medan” (KIM), the Medan Industrial Park in North Sumatra. Sirait complains that his job, promoting the park, is a difficult one given that most foreign companies much prefer to locate in Batam, given the superior infrastructure environment on that sunny island, in particular in the area of gas and electricity supplies. He cites one example of a lost “sale”.

There is joint venture company based in Malaysia which has already done a survey [of KIM]. They know that gas and electricity supplies are very limited so they chose to invest in Batam.

Of those companies which are already located in the Park, of which 297 are Indonesian concerns and 25 foreign, Sirait says that steel, rubber gloves, and crude palm oil manufacturers are those which are most affected by the weaknesses in energy supplies. Health Care Glofindo, a rubber gloves maker located in the KIM, is operating at well below capacity at the moment due to gas shortages.

Under normal conditions they need 500 to 850 cubic metres of gas per day to operate their 17 machines. At the moment only nine machines are being operated.

Sirait says that the shortage in gas and electricity will not be solved until at least 2008, when the state electricity company, PLN, plans to have new facilities online.

Meanwhile, on the government’s bold relocation plans, the Asosiasi Pengusaha Indonesia, Indonesian Businessmen’s Association, has registered its objections. Sofjan Wanandi, its chairman, says the policy is inappropriate, and will be too costly. What’s more, he said, the times now were difficult for business and more burdens were irrational, and he pointed out that most manufacturing companies presently were located in places other than industry parks, at a ratio of 70 to 30.

Benny Soetrisno of the Asosiasi Pertekstilan Indonesia, Indonesian Textiles Association, agreed and added that the policy was of an anti-competitive, monopolistic nature, and that it would create a rent-based economy. Only 5% of his Association’s 1030 members used industry parks.

Another official from the same textiles organisation, Ernovian Ismy, added that if the facilities in industrial parks were adequate then businesses would move there of their own accord. By facilities he meant security, water supply, workforce training areas, hospitals, homes for workers, shops, and such like. Presently industrial parks were sorely lacking in these areas, he said.