Indonesia Considers Revoking SEZ Status For Underperforming Zones

The Indonesian government, guided by President Joko Widodo‘s directions, is currently examining their SEZs. These zones are special areas where business and trade laws differ from the rest of the country, typically to encourage investment and economic growth. 

The evaluation is focused on understanding how these zones are performing, especially in terms of attracting investments.

If an SEZ doesn’t show significant progress in investment, the government plans to take away its SEZ status. This decision isn’t taken lightly because being designated as an SEZ is a significant privilege, involving complex processes and high-level approvals. 

However, revoking the SEZ status doesn’t mean shutting down the industries there. Instead, these areas might be converted into National Strategic Projects, which also play a crucial role in the country’s economic development but under different regulations and incentives.

Presently, Indonesia has 20 SEZs, divided into 10 Industrial and 10 Tourism zones. These include zones like Arun Lhokseumawe, Batam Aero Technic, and Bali Kura-Kura. 

The country has seen some success with these zones, with investments reaching Rp35.71 trillion (about 25% of the total target) and generating over 31,000 jobs just in the third quarter of 2023.

To assess these zones more effectively, the government is using four key indicators:

• The value of investments made,
• Employment generated,
• The overall economic impact of the SEZ, and its
• Multiplier effect, which means understanding how the SEZ benefits the broader economy.

This broader view is crucial because not all SEZs are the same; for example, a zone focusing on education will have different impacts compared to one centered on manufacturing.

The review is particularly focused on SEZs in Eastern Indonesia. The government hopes to see new investments flow into these zones to meet their targets. If targets aren’t met, they will reconsider the SEZ status. 

Establishing an SEZ is a complex process that requires government regulations and a Presidential Decree, so the decision to revoke this status is not made lightly.