Investors Briefed on Opportunities in the Riau Islands
Governor Muhammad Sani led a delegation representing the Province of the Riau Islands, Indonesia to Washington, DC on September 20th to familiarize investors, analysts, executives, government officials and other targeted individuals about the benefits of investing and locating industrial and service-related facilities within the Riau Islands its three Free Trade Zones in Batam, Bintan and Karimun.
Strategically located on the Indian and Pacific Oceans -- only 12 miles from Singapore – the Riau Islands represents one of the most attractive industrial, manufacturing and logistical platforms in Southeast Asia. It is also the second most popular international tourist destination in Indonesia. Due to its Free Trade Zone (FTZ) status, strategic location, low cost structure, skilled work force, and tax and other investment incentives, the Province has attracted numerous foreign investors. Prominent names include McDermott International, AT&T, PerkinElmer, Bechtel, Seagate Technology, Babcock & Wilcox, Holiday Inn, Matsushita, Kyocera, Hitachi, Sanyo, Nippon Steel, Hyundai, Sony and Philips.
Highlights of Riau Islands Free Trade Zone Seminar – September 2011
The Riau Islands FTZ seminar was held at the Indonesian Embassy in Washington DC. It was attended by approximately 50 individuals including representatives of major multinationals, government agencies, financial, infrastructure and consulting firms, small to medium-sized enterprises, real estate developers, journalists, analysts and other individuals with an existing or potential interest in the Riau Islands and its Batam, Bintan and Karimun FTZs.
The proceedings opened with welcoming remarks by Benyamin S. Carnadi, Economic Counselor, Embassy of Indonesia in which he noted economic growth in Indonesia and the potential for foreign direct investment in Indonesia and regions such as the Riau Islands. Craig Allen, Deputy Assistant Secretary for Asia, International Trade Administration, US Department of Commerce then briefed the audience on how they might expand their business in Southeast Asia.
Mr. Allen highlighted closer relations between Indonesia and the United States through such vehicles as the US-Indonesia Comprehensive Partnership Agreement and President Obama's participation in the East Asian Summit later this year. He went on to note two-way trade between Indonesia and the US grew by 29% last year compared to 2009, and so far in 2010 has registered an additional increase of 20%. US products represent the 4th largest source of exports into Indonesia after Singapore, China and Japan, totaling $7 billion in 2010, an increase of 36%. In addition, US imports from Indonesia increased 27% last year, totaling $16.4 billion, and US firms have $16 billion invested in Indonesia, the fourth largest country in the world.
Governor Muhammad Sani then addressed the audience highlighting opportunities in the Riau Islands and its three Free Trade Zones. Emphasizing its strategic location, the Governor noted the province is reachable in about an hour by over 100 ferries a day from Singapore or in an hour and a half by plane from Jakarta. Numerous opportunities exist in manufacturing, tourism, energy, fishing and agriculture as well as other sectors and services. This is demonstrated in the 7%+ economic growth realized by the Riau Islands in 2010 -- which significantly exceeds the 6% performance registered by Indonesia as a whole.
Before concluding the Governor urged participants to visit the Province so that they could see the Riau Islands for themselves. He noted unlike the book and movie "Eat, Pray, Love" in which the author had to travel to three countries, the Riau Islands offered the potential to eat, pray and love in a single location.
Keith Rabin, President of KWR International and Advisor to the Province of the Riau Islands then delivered a presentation, which described the one-stop service available in the Riau Islands to facilitate market entry as well as the ability of the Province to allow investors to combine access to the world-class services and infrastructure of Singapore with the cost efficiencies and advantages of the Riau Islands. This explains why many investors invest in the Riau Islands through Singapore-based subsidiaries.
Highlights of this presentation include differentiating parts of the Province including Batam, which has grown from a small fishing village of about 5,000 people in the early 1970s to a thriving manufacturing and tourism center of over one million today. The Province's most developed island, Batam possesses numerous industrial parks dealing with electronics, biotech, semiconductors and other technology applications, oil services, shipbuilding and a wide range of other industrial and consumer products. It is also Indonesia's second largest tourism destination with numerous beaches, resorts, restaurants, hotels and shopping.
Bintan is known primarily for its upscale resorts in the north of the island as well as smaller industrial parks, and Tanjungpinang, the capital city of the Province. Karimun was featured as the least developed of the three FTZ's offering lots of land and opportunities for space-intensive industries such as shipbuilding and agriculture. Oil and gas exploration were featured as the main industries of Natuna and Anambas, which also possess great natural beauty and potential for ecotourism and diving, and Lingaa as a historical center and center for agriculture and cattle, which can be marketed both in Singapore as well as other markets around the world. It was also noted the Province consists of over 2,000 islands so there are many other possibilities for development.
After this presentation a video was shown highlighting the attractions of the Province followed by a panel discussion in which four experts explained their own experiences with the Riau Islands and investing in Indonesia and Southeast Asia.
Noted Indonesia expert James Castle, Chairman of CastleAsia and a Governor of the American Chamber of Commerce in Indonesia, opened the panel speaking about how Indonesia is increasingly recognized as a good investment story and that this has been a year of solid news and improvement as well as improving management and fundamentals. He highlighted opportunities in agriculture and mining as well as the nation's rising consumer sector. It was also noted while Indonesia was vulnerable to potential shocks resulting from events in Europe and China, it was less linked to global supply chains so the effect should not be as much as other markets.
Mr. Castle also highlighted Indonesia's strong foreign currency reserves and the solid state of the banking system, which has only 3% non-performing loans. To emphasize the process of decentralization in which decision-making is being shifted to the provinces, he noted half of banking deposits are now outside of Jakarta and this was a trend likely to grow over time.
Mr. Yasushi Akahoshi, Economic Minister, Embassy of Japan then delivered a presentation about realizing economic growth in Southeast Asia and Japanese investment in the Riau Islands. Mr. Akahoshi noted Japanese firms had accelerated their entry into Southeast Asia in the 1980s following a strengthening of the Yen following the Plaza accords, to lower production costs. While this is still a major driver, Japanese firms today are also looking at the region as a growing source of demand and market for their products. Mr. Akahoshi emphasized the inter-related nature of global supply chains and circulation of parts in the region through FTZ's and manufacturing facilities such as the Riau Islands and that is why approximately 70 Japanese firms are based on Batam and Bintan. Finishing his presentation, Mr. Akahoshi emphasized increasing connectivity in the region, how the middle class in ASEAN (Association of Southeast Asian Nations) is forecast to more than double over the next ten years, and what Japan and Japanese firms are doing to build and take advantage of the ASEAN Economic Community that is now developing.
Wayne Forrest, President of the American Indonesian Chamber of Commerce then told the audience about his own visit to the Riau Islands in 2008, recounting how he had been impressed with the state of development there, believing in some ways Batam resembled Southern California and "this is a model which we hope other areas of Indonesia will emulate". Mr. Forrest spoke about his visits to a semiconductor-part plant and other industrial facilities as well as schools and resorts and his discussions with US and other expatriates operating in the Province. He noted while many people emphasize the ability to commute from Singapore to the islands there were more than adequate facilities to live on the islands themselves. He also noted due to agreements between the US and Singapore, some products made in FTZ's within the Riau Islands qualified as Singaporean under the US-Singapore Free Trade Agreement.
As the final speaker on the panel, Bruce Hatton, Senior Consultant to McDermott International, spoke about the the Batam-based facility McDermott has operated there since the early 1970s as a primary base to manufacture oil exploration equipment. Covering over 270 acres, the McDermott facility has over 670 structure and employs over 8,000 workers. If offers deep-water access and berthing for 300,000 DWT vessels so McDermott is able to manufacture, fabricate and assemble large rig equipment and production platforms that are shipped all over the world to markets as far away as Mexico.
Mr. Hatton closed his presentation noting the reasons McDermott had chosen Batam about forty years ago -- and continues to operate and upgrade its facility there -- include its ability to source and utilize duty-free imports, the excellent work force available within the province, its business-friendly government, excellent transportation infrastructure and proximity to Singapore.
Following this panel discussion, questions were taken by the audience and addressed by Governor Sani and experts on the panel after which the proceedings were adjourned for a working luncheon in which participants had a chance to talk with the visiting delegation and other people in attendance.
For more information about the Riau Islands and its Batam, Bintan and Karimun Free Trade Zones, please visit http://www.riauislandsftz.com or contact Keith Rabin at riaubatam(at)kwrintl.com.
Seminar Agenda and Presentations:
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