INTRODUCTION

Batam has an unbeatable business proposition. Situated a mere 20 kilometres from Singapore, linked by logistics networks, and possessing vastly cheaper land and labour, the Indonesian island is ideally placed to absorb investment from its wealthier neighbour. In theory, it should be teeming with investors and populated by factories and workers.

Indeed, this is just what happened during the 1990s and early 2000s. The liberalization of investment regulations, coupled with Batam's well-developed infrastructure and proximity to Singapore, made the island an attractive site for manufacturing operations seeking to escape the city-state's rising costs. During the 1990s, Batam's industrial base grew in size and sophistication, rapidly becoming one of the country's centres of electrical and electronics production. In the mid-2000s, the shipbuilding industry also began to develop on the island. Coupled with the older, more established tourism sector, Batam became a crucial source of foreign exchange for Indonesia. Through these three “motors”, hundreds of thousands of formal sector jobs were created, and the island became one of the country's richest — with its economy often growing at more than 10 per cent p.a.

The Batam Industrial Development Authority (BIDA) was at the helm of this transformation. Established by presidential decree, this agency had high-quality staff, central government funding, and direct access to decision-makers in Jakarta. It also had the unquestioned backing of B.J. Habibie — Indonesia's long-serving Minister for Research and Technology — who saw Batam as the gateway to securing capital and technology. BIDA's commitment to providing investors with advice and expedited approvals, as well as its custodianship of the island's infrastructure, have been a key part of Batam's success — even after Indonesia's far-reaching political and administrative reforms.

The island's economy continues to grow steadily, as do the number of tourists coming to visit its resorts and leisure facilities. However, over the last few years, the success of Batam's export-focussed industrialization model has come under question. Indeed, exports have been decreasing since 2013, and unemployment has spiked over the last two years and is now considerably above the national average. The once-burgeoning ranks of semiconductor, hard disk drive, and component manufacturers have atrophied over the past half-decade, with anchor firms such as Panasonic, Sanyo and NIDEC closing their facilities.

Subsequently, in 2013, the shipping sector, once heralded as Batam's sunrise industry, also began to contract.