Strengthened by new deals in the transport, energy and agri-business sectors, foreign direct investment (FDI) in Indonesia’s East Java province has shown promising growth in recent years. Although the majority of FDI in Indonesia is sourced from other Asian nations, European investment has grown steadily since 2010, with East Java now poised to benefit from recently strengthened trade ties with the Netherlands. Major new investments announced in 2013 will see the province significantly expand its contribution to the national economy, while infrastructure gaps have created ongoing opportunities for new development projects.
Out of Indonesia’s 33 provinces, East Java was ranked second, after Jakarta, in terms of competitiveness and macroeconomic stability in 2013, accounting for 16% of national income. FDI in the province has shown tremendous growth in recent years, jumping from $1.77bn in 2010 to $3.39bn in 2013, a 91.5% increase, and FDI in East Java comprised 8.6% of the country’s overall inflows during the first quarter of 2013, according to the Indonesia Investment Coordinating Board. Contributing to the province’s attractiveness to foreign investors is a government commitment to facilitating land acquisition and business licences, with the average licensing process taking just 17 days to complete.
The province saw a host of new foreign projects announced last year. In May 2013, for example, American firm Cargill announced it will invest $100m to build a cocoa processing factory in Gresik, East Java. Renewable energy projects will also see significant investment in the coming years; in March 2013, Turkish firm Hitay announced plans to invest $2.5bn in three geothermal power projects on East Java, with exploration surveys expected to wrap up before 2016.
As it seeks to attract more foreign firms, addressing infrastructure gaps has become a top priority for the provincial government, offering significant opportunities for investors in harbour upgrades, construction of rail links and toll roads, expanding the Juanda International Airport and establishing additional city links within the province. In April 2014 the government announced it would tender the Porong-Gempol and Gempol-Pasuruan toll road projects, worth a total of Rp2.76trn ($276m), while the Juanda International Airport is slated to see three new runways constructed by 2017.
Although the majority of Indonesia’s foreign investments are sourced from Japan, Korea, China and Singapore, with Asia accounting for $13.8bn in FDI inflows in 2013, European investment has also grown, reaching $2.56bn in 2013, up from $1.3bn in 2010. The country has a growing trade relationship with the Netherlands, Indonesia’s second-largest trade partner in the EU.
FDI inflows from the Netherlands grew 52.5% between 2010 and 2013, jumping from $608.3m to $927.8m, and these have been bolstered by a comprehensive trade agreement signed between Dutch Prime Minister Mark Rutte and Indonesian President Susilo Bambang Yudhoyono in November 2013, which will see their trade relationship expanded in the maritime, aviation, agri-business and health care sectors.
East Java has benefitted from this growth; in April 2014 state-owned port operator Pelindo III awarded a contract worth $76m to Dutch firm Van Oord Dredging and Marine Contractors to carry out dredging works at Tanjung Perak Port, located in the provincial capital, Surabaya. The project, which has been in the works since 2000, will widen the port route to 150 metres from its current 100 metres and deepen the draught to 13 metres. Van Oord is set to dredge four spots along the 19-km route, removing 10m cu metres of mud and sand over the next year.
Djarwo Surjanto, president director of Pelindo III, told OBG, “In areas like dredging, which is a very spatial field, the experts are all from the Netherlands, and we work in conjunction with them to develop these processes in Indonesia. The most important thing when it comes to foreign partnerships is the building of a strong foundation of trust, so the development of long-standing partnerships is essential.”
Meanwhile, the Java Integrated Industrial and Port Estate (JIIPE) is being developed in Gresik, East Java and this is set to have a significant impact on the future economic development of the province. The project will include a deep sea port and an industrial estate, as well as railway and toll road connections. This will be the first project of its kind in East Java, with the first phase alone expected to cost between Rp7trn ($700m) and Rp8trn ($800m). However, the JIIPE is also expected to enhance the province’s logistical capacity, boost exports and create a considerable number of new jobs.