SINGAPORE'S INVESTMENT IN BATAM

Abstract

Batam, a duty-free zone, 20 kilometers southeast of Singapore and only two-thirds our size, have generated much interest in the subject of this academic exercise. This study represents a modest attempt to identify the reasons behind the recent surge of investments into Batam, particularly from Singapore. A theoretical framework is laid out in Chapter I, where literatures on investment cycle, foreign investment and regional economic policy, and locational factors are reviewed. These theories help to explain, why countries invest abroad and hence, the issue at hand. Chapter II focuses on the changes that has been going on in the Singapore and Indonesia economy. The major macro factors such as Singapore's need to restructure her economy and the government's globalization efforts are identified as the push for investment into Batam. On the other hand, Indonesia's deregulation measures since June 1983 and good economic growth have attracted foreign investment into her economy, and in particular, the promotion of Batam Island. The Master Plan for Batam Island up to the year 2006 drawn up by Batam Industrial Development Authority is reviewed in Chapter III. The existing infrastructure and future upgrading plans such as road networks, water supply, etc. are discussed. Datas on the types of Singapore investment in Batam are presented in Chapter IV. In view of the limitations facing Batam Island, an analysis and recommendation on the suitability of Singapore's investment into Batam is attempted. Accounting for the inflow are factors such as, Singapore's land and labour constraints, as well as Batam's strategic location, proximity and, incentives and benefits. Lease rent, land titles and the existing infrastructure are found to be potential problems facing investors. The last chapter looks at the "Growth Triangle'' concept mooted by First Deputy Prime Minister Goh Chok Tong. The Johor-Singapore-Batam partnership is a modest but exciting concept to promote investment projects while offering opportunities for partners to capitalize on comparative advantages, involving capital, labour, land and infrastructure. At the same time, it promotes better relations with our neighbours and hence, regional security. Finally, an analysis as to who will benefit from this partnership is presented.