Indonesia's Economic Strategies, SEZ Development, and Malaysia's Data Center Growth

In this episode, Michelle presents an overview of the latest developments impacting Southeast Asian markets. She begins by examining Indonesia's economic landscape, drawing insights from an OECD survey that highlights industrial downstreaming and the burgeoning digital economy. The discussion moves to Indonesia's post-pandemic recovery strategies and growth forecast, emphasizing the country's resilience. Michelle also explores the role of Special Economic Zones in Indonesia, detailing their development, incentives, and strategic investments. The episode then shifts focus to Malaysia's data center industry, particularly its growth and economic impact in Johor. The episode wraps up with a conclusion and call to action.

Episode Transcript

(00:00):
Welcome back to the Southeast Asia MarketsDaily Brief.
I’m your host, AI Michelle.
Here are our top stories today...
First, Indonesia has unveiled its ambition tobecome a high-income country, focusing on
industrial downstreaming and strengtheningagriculture.

(00:20):
Second, the country is also pushing thedevelopment of special economic zones to
attract investors.
And third, Singapore's burgeoning data centerindustry is spilling over, benefiting
Malaysia’s Johor region.
Let's dive deeper into our first story aboutIndonesia's economic aspirations.

(00:40):
In a recent launch of the Organisation forEconomic Co-operation and Development Economic
Survey of Indonesia 2024, Finance Minister SriMulyani Indrawati highlighted the country's
resilience amidst global uncertainties.
She emphasized Indonesia's vision to transforminto a high-income nation, aiming for a more

(01:01):
inclusive and robust economic structure.
This ambitious goal is underscored by acommitment to reinforce previously adopted
policies, particularly through strengtheningindustrial downstreaming.
Sri Mulyani noted that strategic mineralresources like copper and nickel, along with
key sectors such as agriculture, are focalpoints for development, aligning with President

(01:25):
Prabowo's economic agenda.
Industrial downstreaming, a central theme inPresident Prabowo's administration, is seen as
a crucial driver for economic growth.
It was prominently featured in his inauguraladdress to the House of Representatives.
This process involves adding value to rawmaterials before they are exported, thereby

(01:48):
boosting local industries and creating jobs.
Moreover, the digital economy in Indonesia isgaining momentum, with a rise in e-commerce and
startup ventures contributing significantly toeconomic growth.
However, the development of physicalinfrastructure, digital access, and
connectivity remains a challenge that thegovernment is actively addressing.

(02:11):
The Organisation for Economic Co-operation andDevelopment Economic Survey also touched upon
Indonesia's recovery post-pandemic, indicatinga positive growth trajectory.
The survey forecasts a 5.2 percent annualgrowth rate for the upcoming year, aligning
with government targets outlined in the statebudget for 2025.

(02:31):
Nonetheless, maintaining macroeconomicstability will require careful calibration of
fiscal and monetary policies.
The report emphasizes the need for continuedinvestment in digitalization and green
transitions, which are pivotal for sustainabledevelopment.
Today, we're turning our attention toIndonesia's strategic push to develop Special

(02:54):
Economic Zones, or SEZs, as a means to attractinvestors and boost exports.
According to Indonesian Coordinating Ministerfor Economic Affairs Airlangga Hartarto, this
initiative is strongly supported by PresidentPrabowo Subianto, who has instructed the
government to expedite the development of thesezones.

(03:15):
The concept of Special Economic Zones is notnew, but Indonesia's approach is particularly
ambitious.
SEZs are designated areas within a country thatoffer special economic regulations and
incentives to attract foreign and domesticinvestors.
These zones aim to enhance the ease of doingbusiness, offering tax incentives, simplified

(03:38):
customs procedures, and a more flexibleregulatory environment.
For Indonesia, developing these zones is partof a broader strategy to strengthen its
economic position on the global stage.
Minister Hartarto mentioned that the country isgearing up to complete 18 national strategic
projects within these zones by the end of thisyear, with an additional 30 projects slated for

(04:01):
completion by 2025.
This aggressive timeline reflects thegovernment's commitment to creating a conducive
environment for investment and industrialgrowth.
As of October 2024, Indonesia has established24 Special Economic Zones across the country.
These zones are strategically spread out toleverage regional advantages and resources.

(04:24):
For instance, some zones focus on manufacturingand industrial development, while others are
geared towards tourism and service industries.
This diversification is intended to driveregional development and reduce economic
disparities between different parts of thecountry.
Investment in these zones has already shownpromising results.

(04:45):
Minister Hartarto reported that by the thirdquarter of this year, investment in SEZs had
reached an impressive 68.43 trillion rupiahs,which equates to approximately 4.3 billion
United States dollars.
This influx of capital is expected tosignificantly boost Indonesia's export
capabilities and create substantial employmentopportunities.

(05:09):
The success of these Special Economic Zonescould have a ripple effect on Indonesia's
broader economic landscape.
By attracting foreign direct investment andfostering industrial development, the SEZs are
poised to enhance the country's exportpotential significantly.
This could lead to a more diversified economicstructure, less dependent on traditional

(05:29):
commodities, and more aligned with globalmarket demands.
In summary, Indonesia's focused development ofSpecial Economic Zones is a strategic move to
attract investment, boost exports, and driveeconomic growth.
With robust government support and a clearvision for the future, these zones could play a

(05:50):
pivotal role in transforming Indonesia'seconomic landscape in the years to come.
Now, let's turn our attention to an intriguingdevelopment in the data center industry that's
unfolding between Singapore and Malaysia.
This story highlights how regional dynamics inSoutheast Asia can create new economic

(06:10):
opportunities.
Johor, a state in Malaysia, is experiencing asignificant boom in its data center market,
largely driven by spillover from Singapore.
This trend comes ahead of an anticipatedannouncement of a special economic zone between
the two countries, which could further amplifythis growth.

(06:31):
Singapore has long been a hub for data centers,but the city-state's moratorium on new data
centers, imposed five years ago due to heavyenergy and water demands, has led businesses to
look elsewhere.
Johor has emerged as a prime beneficiary ofthis shift.
According to DC Byte, a United Kingdom-baseddata center market intelligence firm, Johor was

(06:53):
ranked as the fastest-growing data centermarket in Southeast Asia for 2024.
This growth reflects Johor's ability tocapitalize on Singapore's space and resource
constraints.
The Malaysian government has reported thatbetween 2021 and 2023, the country attracted
approximately 26.6 billion United Statesdollars in approved data center investments.

(07:19):
A significant portion of these investments, atleast a quarter, flowed into Johor.
This includes substantial contributions fromSingapore-based conglomerates like the
Princeton Digital Group, which is expanding itsdata center operations in Johor and even
considering further expansion into Indonesia'sBatam Island.
This surge in data center investments is notonly transforming Johor's economic landscape

(07:45):
but also invigorating the local supply chain.
Businesses in Johor are rapidly adapting tomeet the demands of this burgeoning sector.
Nicholas Boey Kok Cheng, from the Johor-basedlogistics firm Professional Packers & Movers,
noted that the company is grappling with achallenge familiar to many in the region:

(08:06):
meeting the surging demand for data centerservices and infrastructure.
The ripple effects of this development areprofound.
As data centers are critical to cloud computingand the growing field of artificial
intelligence, Johor's rise as a data center hubunderscores the region's strategic importance
in the global digital economy.

(08:29):
It highlights how shifts in policy and marketdynamics in one country can have significant
impacts on neighboring regions, fostering newgrowth opportunities.
In summary, Johor's data center boom is atestament to the interconnectedness of
Southeast Asian economies and the potential forcross-border collaborations to drive economic

(08:49):
growth.
The expected announcement of a special economiczone between Singapore and Malaysia could
further enhance this cooperation, paving theway for even more robust economic ties and
development in the region.
Alright, that's a wrap for this episode.
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(09:11):
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