The Malacca Strait is an international trade route, well known by traders worldwide since ancient times. Today, it is among the busiest strait in the world, dubbed as the Top 10 Strategic Strait in the World. Galang Batang Special Economic Zone (Galang Batang SEZ) is ready to take part into the hype. Its strategic location on Bintan Island, The Riau Islands, opens many business opportunities. It has direct access to the Malacca Strait and the South China Sea.
The Galang Batang SEZ was established through Government Regulation No. 27 Year 2017, and it has been operating since December 2018.
The investment potential and value
Indonesia’s bauxite production can reach 40 million tons in one year. Processing bauxite into aluminum will add more value, about 5-13 times. The Galang Batang SEZ, an area of 2,300 hectares, focuses on processing bauxite into alumina or aluminum.
The bauxite processing industry has an estimated investment of IDR36.25 trillion by 2027. Moreover, it opens 23,200 employment opportunities. Coordinating Minister for Economic Affairs Airlangga Hartarto projects that the investment value can increase to USD5.5 billion or around IDR77 trillion. Until the end of 2020, the Galang Batang SEZ is considered as the most significant investment realization with approximately IDR11 trillion investment and absorption of a workforce of 3,500 people.
Currently, the Galang Batang SEZ is housing one smelter company with more than IDR13 trillion or USD910 million investment. With the help of experts from China, the smelter company has built a Steam Power Plant (PLTU). It buys local bauxite from Bintan, Lingga, and Karimun Islands, to reach the target of processing one million tons of bauxite into alumina, and exporting it to Malaysia by mid-2021. Up to today, the company continues to increase factory capacity to produce aluminum.
In addition to processing bauxite, the Galang Batang SEZ has prospects for the textile industry. Airlangga explained it as a unique approach for the SEZ. “Men work in steel factories, while the ladies can work in textile factories,” he said.
Special facilities and incentives
Airlangga stated that 15 SEZs are now operating in Indonesia and open to investment in the manufacturing industry, tourism, and other sectors. This SEZ investment potential is available to tenants, developers, and infrastructure providers. The government will provide special facilities and incentives, both fiscal and non-fiscal.
Fiscal incentives include tax holidays in the form of 10, 15, or 20 years of tax exemption for tenants with a minimum value of USD6.9 million of investment. The government will also provide tax allowances to each industry, exemption from Value Added Tax (VAT), and luxury goods tax on the delivery and service of taxable goods.
Non-fiscal incentives include no export obligations. Zero percent duty is imposed on products with a minimum of 40 percent local content, and it applies to all industries. The government will provide special immigration procedures for foreign workers, special acceleration procedures for land certification, usufructuary rights, and building rights title for up to 80 years.
Ministry of Investment/Indonesian Investment Coordinating Board (BKPM) arranges licensing facilities through the Online Single Submission Risk-Based Approach (OSS-RBA), effective from July 2, 2021. It is a significant reform in Indonesia, cutting the long bureaucracy in business licensing to be easier, faster, and more integrated. Through OSS-RBA, business licenses are issued based on assessing the “business risk level” determined by the scale of hazards it can potentially create.