Jakarta. Indonesia has strong comparative advantages to develop Southeast Asia’s largest special economic zone (SEZ) ecosystem, underpinned by integrated industrial value chains and market scale, senior executives at the National SEZ Council said, positioning the country as a potential regional manufacturing and investment hub.

The government has made SEZs a core policy tool to support economic growth and reduce regional disparities, ensuring continuity across political administrations, said Susiwijono Moegiarso, chairman of the council’s executive team.

“Unlike some SEZs in other ASEAN countries that rely heavily on re-exports or logistics alone, Indonesia’s SEZs are designed to integrate industrial value chains from upstream processing of natural resources to mid- and high-level manufacturing,” Susiwijono told the Jakarta Globe.

Political and economic stability, a domestic market of around 280 million people, Indonesia’s strategic location, persistent trade surpluses, a rising stock market, and steady economic growth have created what he described as a healthy environment for SEZ development.

Several Indonesian SEZs have already emerged as sector leaders, both regionally and globally. Susiwijono cited the Gresik SEZ in East Java, which hosts the world’s largest single-line copper smelter with an annual capacity of 17 million tons operated by Freeport Indonesia. Kendal SEZ, meanwhile, hosts what he described as the world’s largest lithium battery anode plant, backed by Chinese investment. Other zones have expanded into digital technology, information and communications technology, and healthcare.

Indonesia currently has 25 SEZs stretching from Lhokseumawe in Aceh to Sorong in Southwest Papua, with the government considering six additional zones. Thirteen are industrial zones and 12 are services-based. As of the third quarter of 2025, 351 companies and investors had committed a combined Rp 314 trillion ($18.7 billion) in investment.

All investment flowing into Indonesia’s SEZs has come entirely from businesses, with no funding from the state budget, reflecting strong investor confidence in the country’s SEZ ecosystem, said Rizal Edwin Manansang, secretary-general of the National SEZ Council.

“These investments have helped create more than 237,000 jobs, both directly and indirectly, underscoring the strategic role of SEZs as a key driver of regional economic strengthening,” Edwin told the Jakarta Globe in a separate interview.

Between January and September 2025 alone, realized investment across all SEZs reached Rp 60.25 trillion ($3.6 billion), equivalent to 71% of the full-year target, and generated 79,189 jobs — well above the full-year target of 46,864 jobs, Edwin said.

Indonesia’s SEZs are not dominated by natural resource–based industries. Nongsa SEZ in Batam focuses on the digital economy, including data centers, animation, and software development. Its proximity to Singapore is a key competitive advantage, enabling integration with the regional digital ecosystem, Edwin said.

Hurdles and Challenges
However, Indonesia’s total SEZ land area is only about 20,900 hectares, far smaller than Malaysia’s estimated 2.1 million hectares.

“SEZ land area affects competitiveness because factory expansion becomes constrained when the available area is limited,” said Bhima Yudhistira, executive director of research firm Celios.

Bhima said land size was not the only determinant of competitiveness, pointing to Malaysia’s stronger legal certainty, simpler licensing procedures, more reliable raw material supply, and skilled workforce.

“Malaysia’s SEZs focus on developing the semiconductor industry to compete with Taiwan. Indonesia’s SEZs cover a wide range of industries, even though each sector has very different requirements,” he said.

Infrastructure readiness remains another key challenge. Yusuf Rendy Manilet, an economist at the Center of Reform on Economics (CORE), said not all Indonesian SEZs have adequate infrastructure to support industrial activity.

He also warned of “silent competition” between nearby zones. In Central Sulawesi, an SEZ in Palu was later overshadowed by a nickel-focused SEZ in Morowali, which attracted more investment.

“If integration had been planned properly, the Palu SEZ could have functioned as a distribution and logistics hub supporting mining activities in Morowali,” Yusuf said.

Susiwijono, who also serves as secretary at the Coordinating Ministry for Economic Affairs, said regulatory certainty and faster licensing remain decisive factors for investors comparing Indonesia with regional peers.

Susiwijono and Edwin shared the opinion that recent minimum wage increases across all provinces are unlikely to deter SEZ investment, citing studies showing investors are more sensitive to productivity, industrial relations certainty, and access to skilled labor than to wage levels alone.

“The challenge is not suppressing wages, but improving human resource quality, transparency in labor demand, and alignment between SEZ industries and local vocational education systems,” Susiwijono said.

He acknowledged that SEZ development now faces more structural challenges, including protectionism abroad, financial market volatility, infrastructure gaps, land-use uncertainty, and weak local supply chain integration.

“With the right strategy, Indonesia does not need to have the largest SEZs, but it can become the country with the most strategically positioned SEZs in Southeast Asia,” he said.

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