Industrial boom in Greater Jakarta and inclusive development

Published in the Jakarta Post on 9 March 2013

Just a year ago, Pamela Cox, the World Bank’s vice president for East Asia and the Pacific, stated that in this time of continuing global recession, Indonesia was considered one of the investment bright spots in the world generating more jobs and growth.

However, there is a fundamental question as to whether this growth is going to be an inclusive one that will eventually benefit Indonesian society at large and future generations.

Indonesia’s resilient growth has accelerated the economic restructuring and globalization of the industrial sector in Jabodetabek (Greater Jakarta Area) and, to a lesser extent, the service sector.

In 2011 alone, the Investment Coordinating Board (BKPM) recorded 317 new foreign direct investments (FDI) related to manufacturing industries in the metropolitan area — compared to 75 domestic investments.

Since the beginning of the 1990s most formal manufacturing has been located outside Jakarta. Jakarta’s share of manufacturing employment has decreased by 15 percent. In contrast, the suburbs (Bodetabek or Bogor, Depok, Tangerang and Bekasi; Serang and Karawang) have experienced a rapid influx of manufacturing industries, where employment has increased by 159 percent during the last 15 years.

In the last decade, the suburbs (Bodetabek) have attracted most FDI in the manufacturing, real estate and infrastructure sectors (BKPM, 2010). From 1998 to 2009, the contribution of the suburbs to these sectors stabilized at 84-87 percent.

About 50 percent of the FDI in these secondary sectors in Jabodetabek was captured by Bekasi regency alone.

As an illustration, the seven industrial parks in Cikarang, Bekasi have a potential export value of up to US$15.1-30.56 billion, or about 46 percent of the national non-oil and gas exports of $66.428 billion (2005).

Clearly, large-scale private land development has become a major feature of industrialization in Greater Jakarta.

Since the late 1980s, the development of private industrial parks in suburban Jakarta has followed, or at least corresponded to the development of, inter-city highways.

This industrial land development has extended the traditional boundaries of the metropolitan area from merely Jakarta and its surrounding municipalities and districts (Bodetabek) toward Serang and Karawang districts.

This extended mega-city region now covers a total area of 9,016.43 km2. There are more than 35 industrial parks in this region with a total area of over 18,000 hectares. The size of industrial parks ranges from 50 to 1,800 hectares, while the average size is about 500 hectares.

There has been a shift of manufacturing industrial location from unplanned and sprawling industrial zones toward planned concentration in these industrial parks. In 1995 the industrial parks attracted only 300,000 jobs (28 percent of the total).

However, the number rose by 66 percent in 2010 to almost 500,000 (40 percent of the total). In view of these trends it can be suggested that, if they continue, it is likely that a polycentric spatial structure will emerge in the region.

This changing spatial structure can be seen as an opportunity to promote a better planned metropolitan area. However, with an absence of adequate planning framework and institutions, the active roles of foreign investors and big private developers in industrial transformation may potentially strengthen social segregation.

For example, industrial towns in Cikarang have per capita income almost twice as high as that of Jakarta. Meanwhile, their neighboring villages have only a fifth to a tenth of that figure. The figures imply that the formal industrial development has grown at the expense of regional cohesion.

This high income inequality has raised security issues among members of the upper- and middle-class society. It has resulted in the congregation of gated communities in the forms for private towns and clusters around the industrial parks. The socioeconomic segregation in such new towns recalls the racial separation of the colonial age.

Theoretically, a large concentration of industries in one location may create economies of scale, thus increasing economic efficiency through, for example, sharing responsibilities of infrastructure provision. Interestingly, in major locations of industrial agglomeration in Greater Jakarta, this sharing has not been the case.

Each industrial park tends to build its own urban infrastructure and facilities, such as a road network, telecommunications network, wastewater treatment plant, and clean water treatment plant, without clear coordination.

As a result, the infrastructures built by different industrial land developers tend to be disconnected from each other.

It is widely evident that the role of the government has been relatively modest in the process of large-scale industrial development, focused on ad hoc facilitation of the private-sector driven initiative. Building more robust linkages with the local economy and small-scale industries, a more direct role of the government might be expected in the future by, for example, promoting the existing industrial park’s agglomeration through integrated special economic zone plans.

In order to be attractive, the plan should be built on clear government entrepreneurial ambition and long-term vision.

There is also an urgent need to improve the capacity of suburban local government and metropolitan governance in order to better formulate, adapt, coordinate and implement local and regional land-use plans and integrate them with regional economic policies and longer-term plans prepared by the national government.

Institution building should be emphasized at the regional level since most sustainability issues have major implications for metropolitan regions.

In the context of Indonesia’s decentralization policy (regional autonomy), multi-level coordination and cooperation among existing local, provincial and national governments is recommended rather than designing a new rigid regional governmental tier.

It seems that the private sector and the local community needs to be involved at a proportionate level in regional decision-making since they will continue to play an active role in the industrialization process.

Finally, in the face of increasingly congested city of Jakarta, the government may support the industrial deconcentration trend by offering more incentives to investors who wish to move out of the city and relocate their activities to designated suburban industrial parks.

Stricter environmental regulation needs to be followed by stronger monitoring and control, thus more industries will be forced to leave the unplanned suburban zones and scattered pockets and fill out the industrial parks.