Don’t Let Batam Become Another Detroit
Workers in Batam, Riau Islands, have been aware for many years that the arrival of managers from India is always followed by a wave of layoffs. The sacking of workers in many factories is carried out as a belt-tightening measure in order to stay afloat.
Many companies in Batam are forced to cut expenses, and such a measure is always handled well by Indian managers. The cost cutting measures are mostly carried out in the shipyard and offshore construction industries that have become the backbone of the Batam economy since 2014. In 2014, the shipping sector employed up to 250,000 people, but that number has since declined to only 20,000 workers.
There are 114 shipyards in Batam, 60 of which are members of the Association of Shipyard and Offshore Industries of Batam. The association’s chairman, Sarwo Edi, said only five members of the association were still able to operate normally, while the rest had suspended their operations.
"Only staff managers and some main workers have been retained," he said. At present, the shipyard industry mainly produces tugs and barges to transport commodities. It also produces a variety of platforms and offshore oil and gas drilling facilities. However, since the prices of oil and mineral commodities have plummeted, and a ban on raw mineral exports has been introduced, orders to shipyards in Batam have fallen significantly.
In addition to shipyards, other industries in Batam have also lost their competitiveness, as most of their products have become outdated and because of a sluggish market. As the result, many factories have had to reduce their numbers of employees.
The sharp cut in the number of workers has caused Batam to lose economic resources from the salaries of the workers of at least Rp 540 billion per month. The loss is much greater if its multiplier effect is included.
The chairman of the Chamber of Commerce and Industry (Kadin) in Riau islands, Ahmad Ma\'ruf Maulana, said the lost value was based only on the wages of laid-off workers. Since 2014, at least 200,000 people have been laid off because of the sluggish economy of Batam. "The number of dismissals could be even greater. Many factories have not reported the suspension of their operations," he said.
The dismissal of 200,000 workers has caused an economic loss of Rp 540 billion per month from the workers’ salaries alone. The value is based on the minimum wage, although workers at shipyards, the industry most affected, can receive up to Rp 8 million per month, far higher than the wages of workers at manufacturing factories who mostly earn Rp 3.8 million a month. The income consists of wages and benefits.
The reduction of the economic value from the workers’ salaries has partly contributed to the slowdown of the Batam economy. This has resulted in a fall in the sales of consumer products. "The layoffs have been going on for years and there is no indication when they will end," Ahmad said.
Overlap
The sluggishness of the Batam economy has been exacerbated by uncertainties resulting from the dualism of authorities between the Batam Industrial Development Authority (BP Batam) and the Batam City administration.
These uncertainties have made Batam, which was known in the past as a "paradise" for the industry, no longer attractive for investment. At present, the overlapping authorities between BP Batam and the Batam City administration affects at least 80 percent of Batam\'s land area.
"The investors have become the victims. As an illustration, as business permits are issued by BP Batam, investors still cannot operate their businesses because the area is under the control of the city administration. “We have asked for a solution for years, but no to avail,” he said.
The vice chairman of the Association of Indonesian Economists (ISEI) in Batam, Gita Indrawan, said the overlapping of authority had led to a high cost economy. In addition, illegal levies are also increasingly prevalent in Batam.
Many government officials have been involved in illegal payments. But the condition continues because of weak law enforcement in dealing with illegal levies. Actually, Law No. 53/1999, the legal foundation for the establishment of Batam City, provides a solution to overcome the dualism of authorities.
Under this law, government regulations can be issued to deal with the dualism.
Unfortunately, the regulation, after nearly 20 years, has still not been issued as of present. According to Gita, Batam, as a base of export production, is highly dependent on global conditions. In fact, the global economic condition has not improved over the last few years. This is compounded because of the absence of policy made to enable Batam to adjust to the situation. Products from Batam, as an exclusive free trade zone, cannot be sold in other parts of the industry.
If they want to sell their goods in other parts of the country, Batam producers must pay a variety of fees and complete a series of procedures. By contrast, with the implementation of the ASEAN Economic Community (EEC), all products from the nine ASEAN countries are no longer subject to import duties. As a result, industrial products produced from factories in Batam are more expensive compared to ASEAN products, if they are sold in other parts of Indonesia.
"We can do nothing to deal with the global condition, but there should be a new policy to enable products from Batam to enter other parts of Indonesia without any duties. Such a policy would help greatly with the sluggish economy in Batam," Gita added.
Meanwhile, the head of the Center for Competitiveness Studies for Special Economic Areas at Batam State Polytechnic, Bambang Hendrawan, said, the government should immediately choose an industry that provides high added value.
At present, many Batam products are assembled with imported components. In the future, Batam should be encouraged to use local components. "Batam should not only act as a tailor with imported components," he said.
If the government is able to identify industrial products that are still in demand, the impact of the global slowdown could be reduced.
Such industries should be prioritized in Batam so they can become the new driving force for Batam. Only with such a policy can Batam avoid the downturn. "If no changes are made, Batam could become another Detroit,” Bambang warned.
For decades, the city in the United States was a symbol of the automotive industry. When the American auto industry collapsed, however, Detroit became a ghost city. The government should give increased support to Batam, which should be an industrial paradise," the chairman of Kadin in Batam, Jadi Rajagukguk, said.