9 - The Batam, Bintan, Karimun Special Economic Zone: Revitalizing Domestic Industrialization and Linking Global Value Chain

Summary

INTRODUCTION

The Special Economic Zone (SEZ) is not a new concept in economic development literature. Its predecessor takes the form of free trade zone (FTZ) and export processing zone (EPZ) where selected production activities (often manufacturing-related in nature) are permitted within the zone without the encumbrances of cross-border custom clearances and trade-related taxes so that industrial development and international trade can be given a boost.

Popularized by the success of the SEZs in launching China into a new economic powerhouse, many aspiring developing economies are willing to spare resources to develop SEZs to catalyse economic growth. SEZs have evolved with changing international economic trends to take the form of industrial parks (e.g. Vietnam-Singapore Industrial Park; Suzhou Industrial Park in China); science, technology and high-tech parks (e.g. Incheon Science Park in South Korea; Bangalore IT Park in India), and on a larger scale like the “growth triangle” that involves Singapore, Johor (Malaysia) and Batam (Indonesia), and the contiguous economic hub consisting of Hong Kong and Shenzhen in the Pearl River Delta of China.

The 1997 Asian financial crisis (AFC) had dealt a severe blow to the economic development programme in several of the ASEAN economies. Among these countries, Indonesia has perhaps been the most affected. Ten years after the AFC, Indonesia has yet to regain the same vitality and exuberance as before the crisis. The setting up of a SEZ on the islands of Batam, Bintan and Karimun (BBK) is viewed as one of possible positive steps to regain the growth momentum enjoyed by the Indonesian economy in the past.

In the next section, we will review the use of concepts of global value chains (GVC) and global production networks (GPN) in promoting regional economic development. Following that we profile the progress and past efforts on economic reform and industrialization in Indonesia, keeping in mind the resultant impact on BBK. We next consider the stylized economic strategies for development in the globalized world. International trade promotion and attraction of foreign investments have become the main avenues to better economic performance. Facilitating the development thrust is the formation of SEZs and harnessing the capability to be part of the GPN and GVC.