Batam's business model overtaken by events

BATAM has an unbeatable business proposition. The Indonesian island is 20 kilometres from Singapore, offers much cheaper land and labour, and is connected to its rich neighbour through extensive logistics networks. Over the past decades, Indonesia's leaders have sought to leverage this. In the 1970s, they set up an elite agency to liaise with investors and upgraded Batam's infrastructure. In 1990, they liberalised the island's investment framework. And, in 2009, Batam was made a free trade zone, which allows firms on the island exemptions on import duties and value-added tax.

Over the past 25 years, these attributes and incentives have attracted investment from Singaporean firms and multinational corporations based in the city-state. This occurred first in the electrical and electronics industry, then tourism, and, more recently, ship-building. Through these three "motors", hundreds of thousands of formal sector jobs have …