Industrial zones are catalysts that help catapult a nation’s economic activities and shore up investor confidence.
To that end, the establishment and optimization of halal industrial estates can prove instrumental for the Islamic economy ecosystem.
However, Indonesia’s halal industrial estates leave much to be desired, and a long shot from coming into their own. Numbers back up the claim: their occupancy levels continue to remain low, despite being in operations for three years.
The three halal industrial estates - Modern Halal Valley Cikande in Banten, Halal Industrial Parks Sidoarjo in East Java, and Bintan Inti Halal Hub in Riau islands - were less than 34% occupied as of end of last year.
Modern Valley’s occupancy rate is only 19% (95 hectare occupied out of 500) by three small and medium companies, while Industrial Parks Sidoarjo is only 33.1% occupied (39 out of 118 standard factory buildings) by 39 small and medium companies. Bintan Inti is a mere 4.7% taken (5 out of 106 hectare) by a large entity.
Indonesia’s halal industrial estates have been developed by private developers and assisted – in the form of tax and non-tax incentives - by various ministries and institutions, including coordinating ministry for economic affairs, coordinating ministry for maritime affairs and investment, ministry of investment/Indonesia investment coordinating board, and ministry of industry, among others.
The initiative was meant to develop and offer an incentivized location for investors. For why is it contra-productive now?
Afdhal Aliasar, halal product industry director at Indonesia’s National Sharia Economy and Finance Committee (KNEKS) told Salaam Gateway that competitiveness is one of the shortcomings.
Halal requirement is not a top priority for most investors. Instead, cheaper labour, close proximity to locations from where raw materials can be procured, and a more established ecosystem are considered more critical factors.
“There were investors from South Korea, China and the European Union visiting us recently (Q3 2023) to examine the probability to invest in halal industrial estates. However, they prefer locations offering a more established ecosystem. For instance, for F&B materials companies, the ask is regarding proximity of F&B industries. Investors are quite interested, but again, there are many factors, including Indonesia’s general election next year, that factor in,” Aliasar said.
Meanwhile, Indonesia’s finance ministry, according to Aliasar, is also exploring the possibility of offering heavy tax incentives such as tax holiday and allowance, exemption of VAT and luxury goods as well as import tariff, likened to those in special economic zones, to boost investor’s appetite in halal industrial estates.
KNEKS will also launch Indonesia’s halal industry master plan for 2023 - 2029 next month to boost halal industry infrastructure development, especially halal industrial estates, similar to neighbouring country Malaysia.
Eko Cahyanto, director general of international industrial cooperation at Indonesia’s ministry of industry said that the government had already issued the Presidential Regulation Number 134/2022 on 2023’s Government Working Plan Revision to boost halal industrial estates performance.
The renewed working plan for 2023 outlined the government’s intent to add an additional halal industrial estate to three existing ones this year, and for it to be fully operational. The government also aims to fully integrate one of the existing estates with the country’s halal supply chain system.
Cahyanto added that the industry ministry is also working to improve non-tax incentives for companies, such as providing better supply chain or warehouse facilities, ease of doing business related to port authority, licensing processes as well as other services.
“The more parties (supporting and developing halal industrial estates), the better. It is still September now. Hopefully, by the end of this year, there will be another (halal industrial estate),” Cahyanto said.
Building on existing capabilities
Muti Arintawati, president director at Indonesia’s halal inspection agency LPPOM MUI said that it is onerous to accelerate investment in completely new halal industrial estates except when the government offers huge tax and non-tax incentives.
LPPOM MUI is also a partner of Modern Valley and Industrial Parks Sidoarjo.
“It is almost impossible to attract many investors at an extremely quick period into a completely new halal industrial estate that is built from scratch. They need to prepare road access infrastructure at first, but at the end what matters is the ecosystem,” Arintawati said.
She adds that it is easier to attract investment by adding a halal zone or cluster in existing industrial estates with a more established ecosystem.
LPPOM MUI is currently assisting two industrial estates for halal test lab and raw water and is also considering providing desk service for halal certification process for the industrial estate operator.
Afdhal added that KNEKS also promoted halal zones within existing industrial estates such as Jababeka in Cikarang, JIEP in Pulogadung, Grand Batang City and Kendal in Central Java and also KIMA in Makassar.
“Since the ecosystem already exists, investors will be more eager to come. We just need to add the halal zone in those industrial estates,” Afdhal explained.
LPPOM MUI’s halal partnership and audit services director, Dr. Muslich adds that government and developers can boost occupancy rate in Industrial Parks Sidoarjo, especially for small F&B related companies (raw materials, logistic, meat & slaughterhouse, retail, and restaurant) that are ought to be halal certified by October of next year.
Within the ASEAN region, Indonesia's progress on halal industrial estate trails neighbourhood countries, especially Malaysia and Thailand.
Malaysia, through its Halal Development Corporation, has 22 halal parks of which 14 have been accredited with Halal Malaysia or HALMAS.
Meanwhile, Thailand has rolled out a halal economic corridor (HEC) in southern border provinces of Yala, Pattani, Narathiwat, Satun and Songkhla. This corridor will promote the production and export of halal meat, including chicken, goat, and beef to Islamic countries.
However, Adi Saputra Tedjasurya, president director of Makmur Berkah Armada, operator of Industrial Parks Sidoarjo, affirms that Indonesia can compete with them once halal industrial estates are established and evenly distributed among all its regions.
"We strongly believe in the future if the government can have good synergies with developers throughout Indonesia including us. [In that case], we can outshine competitors such as Malaysia," Tedjasurya added.
To be more competitive, halal industrial estates should be equipped with superior supporting facilities, such as halal economy offices, halal laboratories and logistics, etc., to attract investor interest and develop the wider ecosystem.