Jakarta. Indonesia is gearing up to establish a special economic zone (SEZ) dedicated to semiconductor chip development in partnership with the Bandung Institute of Technology (ITB) in West Java, senior economic advisor Luhut Binsar Pandjaitan announced on Wednesday.

Speaking at an event in Jakarta, Luhut, who previously served as the investment minister under former President Joko "Jokowi" Widodo, underscored the critical need to advance Indonesia’s semiconductor industry to compete with regional peers.

"We will prepare this, potentially creating a special economic zone at ITB, specifically for semiconductors," Luhut said. He warned that without aggressive action, Indonesia risks falling behind countries like Malaysia, which have already attracted significant global investment in the sector.

Semiconductors, integral to modern technologies, are increasingly viewed as a strategic industry. Luhut described the sector as a potential new economic driver capable of accelerating national growth.

Lessons from Taiwan and South Korea

In a 2024 opinion piece for the Jakarta Globe, Lili Yan Ing, Lead Advisor for Southeast Asia at the Economic Research Institute for ASEAN and East Asia (ERIA), addressed the importance of collaboration between academia and industry in building robust semiconductor ecosystems, citing Taiwan and South Korea as models for success.

Taiwan’s Industrial Technology Research Institute (ITRI) has played a key role in bridging research and industry, promoting innovation and global competitiveness. South Korea, meanwhile, has heavily invested in education and training, creating partnerships between universities and tech giants like Samsung and SK Hynix to ensure a steady pipeline of skilled talent.

"ASEAN can learn from these models by developing specialized programs and aligning academic research with industry needs," Lili wrote.

Government support is crucial for ASEAN countries to thrive in the semiconductor sector. Lili added that nations like Singapore, Malaysia, and Vietnam have recognized this and are offering incentives to attract semiconductor investments.

ASEAN’s semiconductor exports have experienced significant growth, rising 41.6 percent from $189.9 billion in 2018 to $268.8 billion in 2023, according to ITC data. The region now accounts for 23.6 percent of the global semiconductor export market, valued at $1.14 trillion in 2023.

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