factors influencing the industrial location decision in jabotabek [PDF]

FACTORS INFLUENCING THE INDUSTRIAL LOCATION DECISION IN JABOTABEK, INDONESIA: AN EMPIRICAL STUDY FROM A RAPIDLY-GROWING URBAN REGION

UGAY SUGARMANSYAH B.Eng, Ir (Institute of Technology Bandung, Indonesia), MS (Bogor Agricultural University/IPB, Indonesia)

Thesis submitted to the University of South Australia in fulfilment of the conditions for the degree of Doctor of Philosophy

SCHOOL OF GEOINFORMATICS, PLANNING AND BUILDING UNIVERSITY OF SOUTH AUSTRALIA JULY 1999

UNIVERSITY OF SOUTH AUSTRALIA

3 0 JUil cAti

LIBRARY

TABLE OF CONTENTS

List of Figures List of Tables Glossary Abstract Declaration Acknowledgments

CHAPTER 1 INTRODUCTION 1.1

1.2 1.3

1.4

1

Urbanisation, Industrialisation and Problems in Developing Countries Statement of Problems and Research Questions Objectives of the Study Thesis Organisation

CHAPTER 2 THEORETICAL and EMPIRICAL ANALYSIS of INDUSTRIAL LOCATION DECISION 2.1

2.2 2.3 2.4

2.5

2.6 2.7

Introduction Industrial Location Theory

1

7 14 14

17

17 18

Behavioural Approach Concepts in the Industrial Location Decision Selected Empirical Studies of the Location Decision in Developed Countries Empirical Studies of Location Decision in Developing Countries Location Factors and Successful Firms Concluding Remarks

26

30

42 51

54

CHAPTER 3

URBAN GROWTH and PLANNING POLICY in the JABOTABEK REGION

57

3.1

Introduction

57

3.2

Growth and Pattern of Population in Jabotabek

57

ii

3.3 3.4

3.5

Regional Economy Land Use Pattern and Environmental Issues 3.4.1 Land Use Pattern in DKI Jakarta 3.4.2 Land Use Pattern in Botabek Planning Strategies within the Jabotabek Region 3.5.1 From Colonial Era Light House Policy 3.5.2 Master Plan of DKI Jakarta 1965 1985 3.5.3 Jabotabek Metropolitan Development Plan

3.5.4 Jakarta 2005 Master Plan 3.5.5 Jakarta Metropolitan Development Plan Review 3.5.6 Other Studies and Policies 3.6

3.7

Institutional Structure and Planning Process 3.6.1 Institutional Structure 3.6.2 Planning Process Concluding Remarks

CHAPTER 4 PLANNING and STRUCTURE of INDUSTRY within the JABOTABEK REGION

71

79 79 80 95

96 98 103 111

114 119 126 126

133 139

143

4.1

Introduction

143

4.2

National Planning and Structure of Industry 4.2.1 Economic Aspects of the National Planning and Structure

144

4.2.2 4.3

4.4

4.5

of Industry The Spatial Dimension in the Planning and Structure of

National Industry Planning and Structure of Industry in West Java 4.3.1 The Economic Dimension of Planning and Structure of Industry in West Java 4.3.2 The Spatial Dimension of Planning and Structure of Industry In West Java

144 154 162

163

169

The Planning and Structure of Industry in Jabotabek 174 4.4.1 The Economic Dimension of Planning and Structure of Industry in Jabotabek 174 4.4.2 The Spatial Dimension of Planning and Structure of Industry in Jabotabek 184 The Industrial Investment Procedure, and Spatial Planning of Industry and Its Outcomes 197 4.5.1 Industrial Investment Procedure 197 4.5.2 The Spatial Planning of Industry and Its outcomes 203

iii

4.6

Concluding Remarks

210

CHAPTER 5 METHODOLOGY 5.1

5.2

5.3

5.4 5.5 5.6 5.7

5.8

214

Introduction Hypotheses

Research Methodology and Procedure of Field Survey Sampling Methods and Sampling Size Measurement of Variables, and Questionnaire and Interview Statistical Testing Limitations of the Study Concluding Remarks

214 214 218 227 232 241

244 248

CHAPTER 6 FACTORS INFLUENCING INDUSTRIAL LOCATION DECISION 6.1

6.2 6.3

6.4 6.5

6.6

6.7 6.8

6.9

250

Introduction Nature of Respondents

250 250

Analysis of Variables and Location Factors Influencing Industrial Location Decision-Making for all Respondents of Industrial Firms 254 Analysis of Variables and Location Factors Influencing Industrial Location Decision-Making of Foreign and Domestic Investors 271 Analysis of Variables and Location Factors Influencing Industrial Location Decision-Making for Industrialists in DKI Jakarta (core city) and Botabek (fringe areas) 278 Analysis of Location Factors Influencing Industrial Location DecisionMaking of Industrial Firms both Inside and Outside of Industrial Estates Based on the Type of Industry 283 Analysis of Industrial Location Decision-Making for Industrialists In Industrial Estates and Outside Industrial Estates 288 Analysis of Location Factors Influencing Industrial Location Decision-Making Before and After the Issuance of Presidential Decree 53/1989 303 Concluding Remarks 310

iv

CHAPTER 7 CONCLUSIONS 7.1

7.2 7.3

316

Introduction Synopsis of the Study Main Issues and Findings 7.3.1 The Dynamics of Jabotabek Growth

316

316 318 318 322 326

7.3.2 Factors Influencing Industrial Location Decision 7.4 Policy Implications 7.5 Future Directions 330 Bibliography 333 Appendix A: Mean Scores of Location/Sub-Location Factors and Variables Influencing Industrial Location Decision-Making of Firms 353 Appendix B: Statistical Models and Procedures 371 Appendix C: Recommendation and Personal Letter 377 Appendix D : Questionnaires for Industrialists in Industrial Estates and those Outside Industrial Estates 383 Appendix E: Interview Questions 404

V

LIST OF FIGURES Number Figure 1.1 Figure 2.1

Figure 2.2 Figure 3.1 Figure 3.2 Figure 3.3 Figure 3.4 Figure 3.5 Figure 3.6

Figure 3.7 Figure 3.8 Figure 3.9 Figure 3.10 Figure 3.11

Figure 3.12 Figure 3.13 Figure.3.14 Figure 3.15 Figure 3.16 Figure 3.17 Figure 3.18 Figure 3.19 Figure 3.20 Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure 4.5 Figure 4.6

Title

Page

Growth of Domestic Product and Manufacturing Value Added, 1971-1993 Classification of Location Factors Determinants of National Advantage Jabotabek Administrative Boundaries Density of Population in Jabotabek 1990 Population Growth Rates of Botabek 1990-1995 The Estimation Population Growth Rates of Botabek 2005-2010 Spatial Configuration of a Hypothetical Asian Country Large Housing Estates and Industrial Area Development in Botabek Distribution of Industrial Domestic Investment Distribution of Industrial Foreign Investment Directional Urban Development of Jakarta From 1619 to 1980 Land Use Plan for Settlements and Industries in DKI Jakarta 1965-1985 Land Use of DKI Jakarta 1980 Physical Conditions of Jabotabek Structure Plan of DKI Jakarta Paradigm AAA Paradigm BBB Paradigm CCC Strategic Land Use Plan of Jabotabek 2000 to 2010 The Northern Region of West Java, Indonesia Administrative Planning Bodies Bottom-up and Top-down Planning process The Stages of Development of Industrial Zones in the Second Long-term Development Period (PJPT II) Regional Land Use Plan (RTRW) of West Java The Distribution of Industrial Development Planned Procedure to Obtain Location Permit Land Use Plan of Jabotabek Existing Industrial Establishment of Domestic Investment in Outside of Industrial Area Planned in the Botabek Region

vi

4

33 53 58 62 63 64 69

85 88

89 99 101

102 110

113 116

117 118

120 123 128 136 156 171

185

200 207 208

Figure 4.7 Figure 5.1

Existing Industrial Establishment of Foreign Investment Outside of Industrial Area Planned in the Botabek Region General Framework of the Research

VII

211

215

LIST OF TABLES Number Table 2.1

Table 2.2 Table 2.3 Table 2.4 Table 2.5

Table 2.6

Table 3.1

Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7

Table 3.8 Table 3.9 Table 3.10 Table 3.11 Table 3.12 Table 3.13 Table 3.14

Title

Page

Location Factors for 159 Branch Plants Established by US Manufacturing During 1970s Factors Influencing the Location Decision of Large Japanese Firms Within the United States Choice of Important Factors, and the 10 Most Important Factors Selected at South and North/Midwestern States Top Ten Preferred Attributes for Plant Location The Importance of Location Factors Ranked by Industries in Relation to 'Financial Incentives' Offered by Governments. Most Significant Major Location Factors Influencing Location Decisions of Manufacturing Firms in both Developed and Developing Countries (from main selected studies) Population Growth and Density of DKI Jakarta Population Growth of Botabek Region 1980-1990 Trends Projection of Population in DKI Jakarta and Botabek Immigration to DKI Jakarta during 1985-1990 Percentage Distribution of Gross Regional Domestic Product (GRDP ) by Industrial Sector in DKI Jakarta Percentage Distribution of Gross Regional Domestic Product (GRDP) by Industrial Sectors in Botabek Percentage Distribution of Gross Regional Domestic Product (GRDP) at Constant 1993 Prices the Jabotabek Region GRDP per Capita in Jakarta, Botabek, Jabotabek and National

Percentage of Employment Distribution by Industrial Sector in DKI Jakarta Percentage of Employment Distribution by Industrial Sector in Botabek Land Use in DKI Jakarta Land Use Pattern in Kabupaten (District) Bogor Land Use in Kotamadya (Municipality) Bogor Land Use Pattern in Kabupaten and Kotamadya Tangerang (District and Municipality of Tangerang)

viii

31

32 35

36

38

49 59 60 61

65 71

73

75

75

76 77

79 81

81

82

Table 3.15 Table 3.16

Land Use Pattern in Kabupaten (District) Bekasi New Town Projects Occupying of 500 hectares or More in Botabek 1996 Table 3.17 Botabek Land Area (hectares) Underpermit for Development 1983/1 984 - 1987/1988 Table 3.18 The Development of Industrial Estates in Botabek and West Java 1996 Table 3.19 Development of Built-up Areas in Jabotabek Table 3.20 Industrial Water Pollution in West Java Table 3.21 Sectoral Contribution of Air Pollution in Jakarta Unit: (tonnes/year) Table 3.22 Sectoral Contribution of Air Pollution in Jakarta Unit (`)/0) Table 3.23 The Selected Main Planning Strategies Table 4.1 The Growth of Manufacturing industry in the First Long Term Development (PJPT I) and the Fifth Five Year Development (Pelita V, 1989-1993), (°/0) Table 4.2 The Annual Growth Rate of National Targets for the Industrial Sector in the Repelita VI Plan for the Periods 1994/1995-1998/1999 Table 4.3 Indicators Targeted for National Industrial Development at the End of the Repelita VI Plan Table 4.4

Table 4.5

Table 4.6 Table 4.7 Table 4.8 Table 4.9

The Growth (°/0) of National GDP of Manufacturing Industry (non-oil and gas) at 1993 Constant Prices, 1994-1996 Distribution of Subsectors' Contribution to the Manufacturing Industry's GDP, and Total Share of National GDP at 1993 Constant Prices During 1994/96 Number and Distribution of Established Large and Medium Manufacturing Firms in Indonesia 1994-1996

Table 4.12

84 86 90 90 92

92 92 121

146

149 149

150

151

152

Number of Persons Engaged in Large and Medium Manufacturing Establishment in Indonesia 1994-1996

153

Number of Firms and Total Area of Industrial Estates in Indonesia at March 1997

160

Selected Major Laws/Policies of Industrial Development Linked to Environmental Aspects & Spatial Planning

162

Table 4.10 The Contribution of Manufacturing Industry to GRDP of West Java at the End of Pelita I, II, Ill, IV, and VI* Table 4.11

82

164

Value Added at Current Price (million Rp) and the Contribution of Each Manufacturing Sector on Total Value Added (")/0) in West Java

165

Number of Established Large and Medium Manufacturing Industries in West Java, 1989-1995

166

ix

Table 4.13 Table 4.14

Number of Person Engaged in Large and Medium Manufacturing Establishments in West Java during 1989-1995

167

Quantitative Targets of Industrial Development of West Java in Repelita VI

168

Table 4.15 The Distribution of Industrial Estates Planned for Each District/Municipality in West Java Table 4.16 Table 4.17 Table 4.18 Table 4.19 Table 4.20 Table 4.21

Table 4.22 Table 4.23 Table 4.24 Table 4.25 Table 4.26 Table 4.27 Table 4.28 Table 4.29 Table 4.30 Table 4.31

Table 4.32 Table 4.33 Table 4.34

Table 4.35

170

Quantitative Target of Industrial Development in DKI Jakarta in Repelita VI

174

Number of Firms, Workers, and Value-Added in 1990 and 1994 in DKI Jakarta

176

Number of Firms and Workers of Industry in Kotamadya Bogor in 1995

177

Number Large and Medium Manufacturing Firms in Kabupaten Bogor 1993-1996 Number of Workers of Large and Medium Firms in Kabupaten Bogor 1993-1996 Number of Firms and Workers of Large and Medium Firms in Kabupaten Tangerang 1994 Number of Firms of Large and medium Industry in Kotamadya Tangerang 1993-1995 Contribution of Industrial Sector to GRDP in Bekasi Number of Firms of Large and Medium Firms in Kabupaten Bekasi including Kotamadya Bekasi during 1992-1996 Number of Workers of Large and Medium Industry in Kabupaten Bekasi during 1993-1996 Total Area and Use of Industrial Estates in DKI Jakarta 1995 Industrial Zones in DKI Jakarta Total Area Planned, and Area Used, Name of Industrial Estates in Bogor 1995 Industrial Areas in Kotamadya Tangerang in 1992 & 1995 Name and Total Area and the Name of Industrial Estate Firms in Kabupaten and Kotamadya Tangerang 1995 Number of Large and Medium Firms of Industry in Industrial Zones and Industrial Estates in Bekasi 1996

178

179

180 181 181

182 183 186

186

188 190 191

193

Name and Total Area of Industrial Estate in Bekasi 1995 Land Used by Industries Inside and Outside Industrial Estates in 1994/1995

195

Distribution of Land Used by Industries Inside and Outside Industrial Estates 1994/1995

195

Planned Area, Used Area, and Remaining Area of

194

Industrial Estates in Jabotabek 1994/1995 Table 4.36 A Percentage of Planned, Used and Remaining Areas of Industrial Estates in Jabotabek 1994/1995 Table 4.37 Table 5.1 Table 5.2 Table 5.4 Table 5.5

Table 5.6 Table 5.7 Table 6.1

Table 6.2

The Primary Types of Permits of Industrial Investments Summary of Hypotheses to be Tested Comparison of Intensive with Extensive Research Methodology Sampling Method and Its Advantages and Disadvantages Advantages and Disadvantages of Thurstone, Gutmann Liken Scale Technique

202

217 220 228 234 242

Summary of Statistical Models Used and Main Data Required

244

Position of Respondents The Nature of Respondents Based on Site, Status and Region of Firms

The Nature of Respondents Based on Product Resulted Scale of Firms and Employment Table 6.5a The Results of Computation (Hypothesis 1) to Test the Preferences of Decision Makers of Industrial Firms in Terms of the Variables of Economic and Market Forces (EMF), Government Planning Policy (GPP), and Behavioural Factors (BF). Table 6.5b The Results of Computation (Hypothesis 2) to Test the Preferences of Decision Makers of Industrial Firms in Terms of the Variables of Economic and Market Forces (EMF), Government Planning Policy (GPP), and Behavioural Factors (BF). Table 6.5c The Results of Computation (Hypothesis 3) to Test the Preferences of Decision Makers of Industrial Firms in Terms of the Variables of Economic and Market Forces (EMF), Government Planning Policy (GPP), and Behavioural Factors (BF). Table 6.6 The Three Most Important Location Factors for All Respondents of Industrial Firms both Inside and Outside of Industrial Estates

Table 6.8

197

Statistical Test for Significance of Group, Differences for One Dependent; and One Independent Variable

Table 6.3 Table 6.4

Table 6.7

196

The Distribution of Opinion of Respondents in Relation to the Importance of Economic and Market Forces; Government Planning Policy; and Behavioural Factors for Industrial Location Decision-Making Mean Score of Location Factors for all Respondents (n= 164) of Industrial Firms both Inside and Outside of Industrial Estates

xi

251

253 254 254

256

257

258

262

262

264

Table 6.9

Table 6.10 Table 6.11

Table 6.12

Table 6.13 Table 6.14

Table 6.15 Table 6.16 Table 6.17

Table 6.18 Table 6.19

Table 6.20

Table 6.21

Table 6.22

Degree of Difficulty in Obtaining Permits of Industrial Development

265

Knowledge of the Respondents about Regional Land Use Plans

266

The Contribution of Location'to the Commercial Success and the Satisfaction of Respondents for the Existing Location The Preference of Industrialists of Foreign and Domestic Investors Regarding the Consideration of Economic and Market Forces (EMF); Government Planning Policies (GPP); and Behavioural Factors (BF) in Industrial Location Decision-Making Mean Scores of Location Factors for Foreign and Domestic Investors Preference of Industrialists in both DKI Jakarta (core city) and Botabek (fringe areas) with Regard to Economic and Market Forces (EMF); Government Planning Policies (GPP); and Behavioural Factors (BF)

270

273 275

279

Mean Score of Location Factors for Industries in DKI Jakarta and Botabek

282

The Mean Score and Ranks (in brackets) of Location Factors based on the Type of Industry

285

Preference of Industrialists in Industrial Location DecisionMaking with Regard to Economic and Market Forces (EMF); Government Planning Policy (GPP); and Behavioural Factors (BF) in Industrial Estates and Outside Industrial Estates Mean Scores of Location Factors for Industrial Estates and Outside Industrial Estates The Degree of Contribution of Location on the Commercial Success of a Firm and the Degree of the Satisfaction with its Existing Location Preference of Industrialists in Industrial Estates Based on the Status of Firms Regarding the Influence of Economic and Market Forces (EMF); Government Planning Policy (GPP); and Behavioural factors (BF) in Industrial Location Decision-Making Preference of Industrialists in Industrial Estates Based on the Region of Firms Regarding the Influence of Economic and Market Forces (EMF); Government Planning Policy (GPP); and Behavioural factors (BF) in Industrial Location Decision-Making Preference of Industrialists Outside Industrial Estates Based on the Status of Firms, Regarding the Influence of Economic and Market Forces (EMF); Government

xii

290

293

295

297

298

Planning Policy (GPP); and Behavioural factors (BF) in Industrial Location Decision-Making Table 6.23

Table 6.24

Table 6.25

Table 6.26

Table 6.27

Preference of Industrialists Outside Industrial Estates, Based on the Region of Firm, Regarding the Influence of Economic and Market Forces (EMF); Government Planning Policy (GPP); and Behavioural Factors (BF) on Industrial Location Decision-Making Degree of Difficulty in Obtaining Location Permit, Building Construction Permit (IMB); Building Right on Land (HGB); and Land Cultivation Right (HGU) and Nuisance Act Permit (UUG) for Industrialists in Industrial Estates and Outside Industrial Estates The Influence of Regional Land Use Planning Policy on Industrial Location Decision-Making for all Respondents of Industrial Firms both Inside and Outside of Industrial Estates before and after the Issuance Presidential Decree 53/1989 Mean Scores of Location factors for all Respondents both Inside and Outside of Industrial Estates, Approved Before and After Presidential Decree 53/1989 Mean Scores of Location factors for all Respondents Outside Industrial Estates Before and After Presidential Decree 53/1989

300

301

302

304

306

309

GLOSSARY ANDAL

Analisis Dampak Lingkungan (Environmental Impact Assessment)

APBD Tk I APBD Tk II APBN Bappeda I Bappeda II

Bappenas BF BKPM

Anggaran Pendapatan dan Belanja Daerah Tingkat I (Provincial Budget) Anggaran Pendapa tan dan Belanja Daerah Tin gkat II (District Budget) Anggaran Pendapatan dan Belanja Negara (State Budget) Badan Perencanaan Pembangunan Daerah Tin gkat I (Provincial Development Planning Agency) Badan Perencanaan Pembangunan Daerah Tingkat II (District Development Planning Agency) Badan Perencanaan Pembangunan Nasional (National Development Planning Agency) Behavioural Factors Badan Koordinasi Penanaman Modal (Investment Coordinating

BKPMD

Board) Badan Koordinasi Penanaman Modal Daerah Investment Coordinating Board)

BKSP

Badan Kerjasama Pembangunan (Development Cooperation

BOD Botabek BPN BPN Dati I BPN Dati II BPPT

BPS BSD CBD CO COD DCs DIESA Dinas PU DIP DIPDA I

(Regional

Board) Biochemical Oxygen Demand Bogor Tangerang Bekasi Badan Pertanahan Nasional (National Land Agency) Badan Pertanahan Daerah Tingkat I (Provincial Land Affairs) Badan Pertanahan Daerah Tin gkat II (District Land Affairs)

Badan Pengkajian dan Penerapan Technology (Agency for the Assessment and Application of Technology) Biro Pusat Statistik (Central Bureau of Statistics) Bumi Serpong Damai Central Business District Carbon Monoxide Chemical Oxygen Demand Developed Countries Department of International Economic and Social Affairs Dinas Pekerjaan Umum (Dinas of Office Work) Daftar Is/an Proyek (The Project Implementation Plan) Daftar Is/an Proyek Tingkat I (The Provincial Project Implementation Plan)

DIPDA II

Daftar Isian Proyek Tingkat II (The District Project Implemen-

DKI DNI DSP DUP

tation Plan) Daerah Khusus lbu Kota (Special Province ) Daftar Negatif lnvestasi (Negative List of Investments) Daftar Skala Prioritas (Priority Scale Plan) Daftar Usulan Proyek (Project Proposal) Economic and Market Forces

EMF

xiv

ESCAP FDI GBHN

The Economic and Social Commission for Asia and the Pacific Foreign Direct Investment

Garis-garis Besar Haluan Negara (The State Policy Guide

GDP GPP GRDP HC HGB HGU

Lines) Gross Domestic Product Government Planning Policy Gross Regional Domestic Product Hydrocarbon Hak Guna Bangunan (Building Rights on Land) Hak Guna Usaha (Land Cultivation Rights on Land)

HKI

Himpunan Kawasan lndustri Indonesia (Indonesian Industrial

IBRD IDAPs IHE ILO IMB ISC ISIC ITB IUDP IUT

Jabotabek JMA JMDP JMDPR JTMSS Kanwil PU Kepres KTI

Estates Association) The International Bank for Reconstruction and Development IUIDP Development Assessment Plans Institute of Hydraulic Engineering International Labor Organisation Ijin Mendirikan Bangunan (Building Construction Permit) International System and Commnication International Standard of Industrial Classification Institute of Technology, Bandung Integrated Urban Infrastructure Development Program !fin Usaha Tetap (Permanent Business License) Jakarta Bogor Tangerang Bekasi Jakarta Metropolitan Area Jabotabek Metropolitan Development Plan Jabotabek Metropolitan Development Plan Review Jakarta Mass Transit System Study

Kantor Wilayah Pekerjaan Umum (Representatives Office of Public Works) Keputusan Presiden (Presidential Decree) Kawasan Timur Indonesia (Eastern Part of Indonesia)

Large and Me- A Large industry is a firm that has 100 workers or more. A dium Industrial

medium industry is a firm that has workers between 20 and 99

Firm LIPPI

people.

Menpan

MHA MIT MOF MPR MPW MVA NICs NOx NRWJ

Lembaga Ilmu Pengetahuan Indonesia (Indonesian Science Institute) Menteri Penertiban Aparatur Negara Apparatus Enhancement) Ministry of Home Affairs Michigan Institute of Technology Ministry of Finance

(Ministry

of

State

Majelis Permusyawaratan Rakyat (The People's Consultative Assembly) Ministry of Public Works Manufacturing Value Added Newly Industrialising Countries Nitrogen Oxide Northen Region of West Java

XV

NUDS Pelita Perda PIK PJPT I

PJPT II PMA PMDN PPTS - LPUI

Pusdata R&D Rakorbang I Rakorbang II Rakornas RAPBD Tk I

RAPBD Tk II RAPBN

RBWK Repelita

National Urban Development Strategy Pembangunan Lima Tahun (Five Year Development) Peraturan Daerah (Regional Act) Perkampungan Industri Kecil (Areas for Small Scale Industries)

Pembangunan Jangka Panjang Tahap I (The First Long-term Development) Pembangunan Jangka Panjang Tahap ll (The Second Longterm Development) Penanaman Modal Asing (Foreign Investor) Penanaman Modal Dalam Negeri (Domestic Investor)

Pusat Penelitian Sains dan Teknologi- Lembaga Penelitian Universitas Indonesia (Centre for Research in Technology and Science Research Institute of University of Indonesia) Pusat Pengolahan data (Data Processing Centre) Research and Development Rapat Koordinasi Pembangunan Tingkat I (Provincial Development Coordinating Meeting) Rapat Koordinasi Pembangunan Tingkat ll (District Development Coordinating Meeting) Rapat Koordinasi National (National Coordinating Meeting) Rencana Anggaran Pendapatan dan Belanja Daerah Tin gkat I (Draft of Provincial Budget) Rencana Anggaran Pendapatan dan Belanja Daerah Tingkat II (Draft of District Budget) Rencana Anggaran dan Pendapatan Negara (Draft of State Budget) Rencana Bagian Wilayah Kota (A Part of the City Plan)

Rencana Pembangunan Lima Tahun (Five Year Development Plan)

Repelitada Tk I

Repelitada Tk RTRW Setwilda Tk I Setwilda Tk II SEZs

Rencana Pembangunan Lima

Tahun Daerah Tingkat I (Provincial Five Year Development Plan) Rencana Pembangunan Lima Tahun Daerah Tingkat ll (District Five Year Development Plan) Rencana Tata Ruang Wilayah (Regional Land Use Plan) Sekretaris Wilayah Daerah Tingkat I (Provincial Secretary) Sekretaris Wilayah Daerah Tingkat II (District Secretary) Special Economic Zones

Small Industrial A small industry is a firm that has workers between 5 and 19 Firm people. This industry is divided into formal industry (registered) and non formal industry (unregistered) SOx Sulphur Oxides SP Surat Persetujuan (Letter of Approval) SPPP Surat Pemberitahuan Persetujuan Presiden (Notification Letter of Presidential Approval) SPSS Statistical Package for Social Sciences SUPAS Survai Penduduk Antar Sensus (Intercencuses of Population Survey)

xvi

TKKP TSP UNIDO UP

USA UUG WPPI

Pembangunan Perkotaan (Team for Tim Koordinasi Coordination of Urban Development) Total Suspended Particulate United Nations Industrial Development Usulan Proyek (Project Proposal) The United States of America Undang-undang Gangguan (Nuisance Act Permit) Wilayah Pusat Pertumbuhan lndustri (Region of Industrial Growth Centre)

xvii

ABSTRACT Urbanisation has been increasing in developing countries at a rapid rate, particularly in the largest cities. Jabotabek (Jakarta and its urban region) is

typical of rapidly growing cities in developing countries, and exemplifies the problems of rapid urbanisation. In the case of Jabotabek, the process of urbanisation has been accelerated by industrialisation policies, promoted by central government as the key to successful development. However, industrialisation has not always been matched by the provision of adequate infrastructure, and this has resulted in social, governance and environmental problems.

The literature on urban development suggests that the location of industrial firms in places like Jabotabek is overwhelmingly influenced by economic and market forces rather than by government planning policies. However, some location theorists also argue that, in developing countries, behavioural factors are often decisive variables in influencing the industrial location decision. Against this general background, there is evidence that industrial firms in Jabotabek - particularly those drawing upon domestic investment are suburbanising to Botabek, and tend to locate their factories outside of designated industrial estates. Existing Planning strategies to control the urban-industrial development of Jabotabek seem to have been ineffective.

Within this general context, the research study focused on two specific objectives in more detail: (1) to examine why some decision makers of firms have located their factories in industrial estates, while others have located

outside of industrial estates; and (2). to examine the effectiveness of the government's land use planning policy in influencing the location decisions of industrial firms.

Primary data were obtained through a survey questionnaire completed by 164 industrialists located in Jabotabek, while secondary data were obtained and analysed using a historical approach. Nonparametric statistical techniques were used to analyse the primary data. The analysis demonstrates that, for respondents, both inside and outside of industrial estates, the influence of economic and market forces on industrial location decision-making was more powerful than that of either government planning policy or behavioural factors. The analysis also highlights the similarities and differences between industrialists in industrial estates and those outside industrial estates in terms of which location factors have influenced their industrial location decision-making.

Based on these findings, policy implications are discussed for Jabotabek development planning in general and for industrial location planning in particular.

xviii

DECLARATION

I hereby declare that the thesis contains no material which has been accepted

for the award of any other degree or diploma in any university and that, to the

best of the writer's knowledge and belief, the thesis contains no material previously published or written by another person, except where due reference

is made in the text. I give consent to copying of my thesis, when deposited in the University Library, being available for photocopying and loan

Ugay Sugarmansyah

xix

ACKNOWLEDGEMENTS I would like to thank my thesis supervisors, Professor Stephen Hamnett and Dr. Andrew Allan, who provided very useful guidance, constructive advice and strong support throughout the preparation and production of my research. I

would like to thank Dr. Ian Radbone (a lecturer at the school of planning, University of South Australia) for his valuable suggestions and encouragement;

Dr. Ir. Tommy Firman M.Sc (senior lecturer at the Department of Regional and

City Planning, Institute of Technology, Bandung-ITB Indonesia) who provided

me with valuable suggestions and excellent reading materials; and Professor

Dr. BS Kusbiantoro (Director of Centre for Urban and Regional Development Studies, Institute of Technology Bandung-ITB Indonesia) for his helpful

comments and discussion.

I would like to thank my sponsor, AusAID, who gave me scholarship and

who has been very supportive during my stay in Australia. I would like to thank

Drs. Komarudin MA (Deputy of Chairman of System Analysis, Agency for Assessment and Application of Technology, BPPT-Indonesia) for his strong encouragement and valuable advice; Ir. Ichjar Musa, SE.MM (former Assistant

Coordinating State Minister of Service and Infrastructure, the Coordinating State

Ministry

of

Production

and

Distribution,

Indonesia)

for

his

recommendations for achieving field survey success.

I would like to thank my mother (and my late father), brother, sister and friends for their encouragement and support. Special thanks go to my wife, Euis

Suryani, and my children, Irian and Vivi for their support, encouragement and patience.

XX

CHAPTER 1 INTRODUCTION 1.1

Urbanisation, Industrialisation and Problems in

Developing Countries

Rapid urbanisation has taken place over the past four decades in the developing countries of Asia, Africa, and Latin America, and the growth of large

cities has been particularly spectacular. According to Cheema (1993), in 1970, the world's urban population was 1.4 billion. It is expected to reach 2.9 billion by

the year 2000 and 5.1 billion by the year 2025. It is predicted that most of the growth in large cities will take place in developing countries, and estimated that

the number of cities that have more than 4 million inhabitants will rise to 66 by the year 2000, with 50 of these in the developing world, and to 135 by the year

2025, with 114 in developing countries. Devas and Rakodi (1993) state that

between 1950 and 1990 the world's urban population increased from 730 million to 2.3 billion. Between 1990 and 2020, it is predicted, the population will

double again, to over 4.6 billion. About 93 % of this increase will take place in the developing world. Hence, more than 2.2 billion people will be added to the cities of the developing countries. Pugh (1995) predicts that the growth rate of

population in the developing countries

will be twice that

of developed

countries, and around 50 cities in the developing countries will have a population of more than 5 million by the year 2000. According to Piel, "More than half the world's population and half the population of developing countries

will be then living in cities" (Piel 1997, p. 59). He also adds that, of the more

then twenty-seven mega-cities in the world with a population of around 10 million or more, twenty-three will be in developing countries.

Devas and Rakodi (1993) state that the rapid growth of urban populations creates a complex set of problems, particularly for the infrastructure

and service needs of cities. A prime cause of misery in the cities of developing

countries is the failure to expand water supplies, sanitation systems, housing

supply and transportation to match the growth of population. The Economic and

Social Commission for Asia and the Pacific (ESCAP) also argues that food, housing, clothing and the provision of other basic urban services and amenities

will be required for

an enormous number of urban people in developing

countries. This is the biggest urban challenge facing mankind in the 21st century (ESCAP,1993). ESCAP (1993, pp. 2-16) shows that the increase of urban population is due to several factors such as natural increase, non-urban to urban migration, international migration, and boundary expansion. Migration is a major factor.

In

developing countries,

industrialisation

policies which contribute

towards accelerating urbanisation have been of great significance in economic development. Industrialisation is a major economic and political goal.

It is

believed that industrialisation will transfer new technologies to the entire economy, increasing productivity and incomes, ending underemployment by creating jobs in manufacturing, and making countries independent of imports and therefore free of balance-of-payments problems (Hughes 1987). As a result

of industrialisation, Malaysia has experienced rapid growth in its manufacturing industry over the last two decades. The rate of industrial growth is 12% per year

from 1970 to 1980, and 9.3% per year from 1980 to 1990 (Ghee & Woon 1994). The same policy ensures that industrialisation has also been seen as

the key to national development in other Asian countries like Bangladesh, Thailand and Indonesia. In the 1980s, Bangladesh gave priority attention to the industrial sector among macro-sectors, on the grounds that the industrial sector

is the key to growth, employment and poverty alleviation. This was reflected in priority industrial, fiscal, financial and trade policies for the manufacturing sector

(Rahman 1994). In Thailand, industrialisation was one of the main factors in its

rapid development. Its manufacturing sector has grown at a rapid rate over three decades, for example, in the 1960s, the annual real value-added growth

rate of the manufacturing industry was 11% per year, and the annual growth rate during 1985-1990 was 13.19%. The manufacturing industry rose at well

2

above the average rate of all other sectors, outstripping the agricultural sector

in particular. The share of the manufacturing industry in Gross Domestic Product

(GDP),

and

of

manufactured

exports,

increased significantly.

Diversification of products away from primary-product processing industries to

manufacturing industries took place, and this required the use of all types of labour, capital and 'technical know-how' (Akrasanee & Wiboonchutikula 1994).

Indonesia has also been using an industrialisation strategy to facilitate its

national development According to RamIan (1994, cited in Laroba 1996), the industrial sector in the Second Long-term Development Plan (Pembangunan Jangka Panjang Tahap ke Dua/PJP II) served as an engine to hasten economic

development. From 1969 to 1992, Indonesian economic growth was 6.8% per

year, whereas the annual growth of the industrial sector was 12%, and the contribution of the industrial sector to GDP increase moved from 9.2% in 1969

to 21% in 1992. In 1995, the contribution of the industrial sector reached 23.86% of GDP.

Therefore, industrialisation in developing countries makes an impressive contribution to economic development and to national growth rates. Figure 1.1a

(p. 4) illustrates the relatively higher growth rates of developing countries in relation to developed countries over three decades (Wilson 1995). Wilson notes that :

In tandem with a strong rate of GDP growth, the developing countries have registered impressive overall gains in industrial performance. Overall growth rates of manufacturing value added

(MVA) of developing countries have exceeded those of the developed market economies over the same period (see Figure 1.1b). Much of this impressive growth has been export-oriented since the most rapidly developing nations have been aggressive traders. The share of total world exports of manufactured goods from developing countries jumped from under 5 per cent in 1970 to almost 25 per cent in 1993. Manufactured goods now account

for almost 60 per cent of export from the developing world, compared to barely 5 per cent in 1950. (Wilson 1995, p. 42)

3

Growth of Domestic Product GDP, 1971-1993

Growth of Manufacturing Value-Added,

Real annual growth in %

Real annual growth in %

1971-1993 12

8

10

a \. 111111CIMITiA A

V -2

I

I

.

7

I

11111111

-4

I

70 71 72737479 76 77787910 91828384 858687 888990 919293

Year

Year

Developing Countries

I

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93

Developing Countries

Developed Countries

Developed Countries

1

Note: Figures for developing countries do not include China

Note: Figures for developing countries do not include China

a

Figure 1.1: Growth of Domestic Product and Manufacturing Value-Added, 1971-1993 Source : Adapted from Wilson 1995 (cited in UNIDO & ISC 1995, p. 43).

I

The industrialisation strategies adopted by developing countries and their success in export markets have increased domestic incomes and created growing markets for exports from developed countries. In the first three years of

the 1990s, US exports to developing countries grew at an average rate of 12% per year, while exports to other developed countries increased by only 2% per year. Over the same period, imports by the developing world increased by 37%, well above the 22% rise in their exports (Wilson 1995).

The important role of the manufacturing industry in local, regional and

national economic development will, in turn, require its appropriate location (Hayter 1997). However, most industrial establishments in developing countries

are concentrated in and surrounding major cities, particularly in the largest metropolitan areas. In Thailand, for example, around 74% of the total industries

are agglomerated in the Bangkok Metropolitan Area that has just 10% of Thailand's population. In the Philippines, around two-thirds of all manufacturing

establishments are agglomerated in Manila, which has less than 15% of the total population of the country. This sector produces one-third of the country's gross national product. Likewise, Lagos with 5% of Nigeria's population in 1978,

produced 57% of total value added in manufacturing (Cheema 1993). Karachi,

with an estimated -population of 7,500,000 in 1987, that is Pakistan's largest

city, has seen a rapid growth of industrial establishments. At the time of independence, Karachi had only a small number of industrial units. By 1981,

the city had more than 1,700 registered industries, with a value of net fixed assets exceeding Rs 4 billion (DI ESA 1988).

This trend is also found in other developing countries. In Brazil, for example, Sao Paulo has a strong economic and industrial base, with one third

of all Brazil's factories (Devas & Rakodi 1993). In Mexico City, the number of factories increased from 3,180 in 1930 to 34,543 in 1973, rising from 3.8% to 29% of the country's total; and in 1990, the total number of factories in the city was 35,000 units (Schteingart 1989, cited in DIESA 1991). In India, according

5

to the annual survey of industries 1991-1992, conducted by the Central Statistical Organisation of the Government of India (1995), around 72% of the total number of factories were in urban areas, which also produced around 71%

of the value of total output. In 1994, around 37.16 % of the total of Indonesia's large and medium manufacturing industries were concentrated in Jabotabekl and its contribution on GROP (Gross Regional Domestic Product) of Jabotabek is 25.85% (Central Bureau of Statistics).

The concentration of industrial development in large cities of developing countries is due to several factors. According to Noer (1985), these include the

physical and geographical advantages of the city, the country's economic development policy (ie., national investment and industrialisation policies) and the attitudes and behaviour of the firms' decision-makers. In most developing countries, as Rondinelli and Ruddle (1978, cited in Noer 1985) have pointed out, the major cities have advantages such as being the communications and

transport hubs of the nation, and containing the best ports and harbours connecting the nation to the rest of the world while also functioning as the domestic transport linkage centres. Douglass (1989) also points out that both

industrial development and people are concentrated in a few large cities because large cities provide advantages in terms of agglomeration economies,

inter-industry and international linkages, access to government, diversified labour pools, and urban services and amenities. These arguments are

supported by Devas and Rakodi (1993) who argue that cities offer advantageous opportunities for capital, stimulating concentration of financial,

commercial and industrial power, as well as the expansion of markets. Cities provide the condition for external economies of scale: pools of skilled labour; access to capital; availability of information; common services; markets for products, and sources for inputs.

'The acronym `Jabotabek' is formed from the syllables of the names of Jakarta, Bogor, Tangerang and Bekasi. Jabotabek is governed by two Provinces, DKI Jakarta and West Java.

6

From the above, It is clear that rapid urbanisation in developing countries

has increasingly led to concentration in the largest cities. The process of urbanisation has been accelerated by industrialisation policies, which are seen by

government

as

the

keys

to

successful

development.

However,

industrialisation has not always been matched by the provision of adequate infrastructure, and many rapidly growing cities have seen an increase in social, governance and environmental problems along with industrialisation.

1.2

Statement of the Problems and Research Questions The focus of this thesis is on one part of the industrialisation process -

the decision by industrialists to locate their activity in a particular part of the metropolitan area. Classical location theory, including Von Thunen's (1826)

economic rent concept, Alfred Weber's (1929) 'material index and critical isodapane', Losch's (1954) 'market area and profit maximisation' principles,

and those who developed their principles, are well established theoretical approaches to optimising place utility. But their assumptions of economic

rationality, complete information, and a static situation, probably are not appropriate to explaining conditions in developing countries, and do not pay attention to the complex conditions found in a particular region or nation. While

such models still remain central in the geographer's analysis of spatial economic patterns, many problems surrounding location decision making still remain largely unresolved (Onyemelukwe, 1974). Onyemelukwe argues that, in

reality, not only economic variables, but also non-economic variables which are

often non-quantifiable, influence locational decisions. In addition, Hamilton (1974) argues that in analysing industrial locational decisions, key decisionmakers of firms (who are generally the owners, as in developing countries) should receive more attention. They tend to maintain close relationships with

government officials and with business institutions in order to avoid the bureaucratic obstacles threatening the production activities of firms. Noer (1985) concludes that such behavioural factors are dominant considerations in influencing industrialists when determining industrial location.

7

Meanwhile, Robinson, I.M (1995) states that, in most Asian mega-cities, decentralisation of industrial-urban economic activities has occurred, mainly as

a result of market forces rather than government policy. In the Bangkok Metropolitan Region, Robinson, I.M (1995) found that firms or new firms considered locating on the periphery because of lower land prices, although the

decision does not appear to have been in any approved plan. Ruland (1996, p. 1) also argues that there are several reasons, such as the availability of space, lower land prices, and the weakness of land use regulation, that pulled strongly residential subdivision and manufacturing industries into suburban sites.

Richardson (1993) supports Robinson and Ruland's arguments that some decentralisation of population and employment to five surrounding provinces

(Samut Prakarn, Panttum Thad, Nontha Bud, Nakhon Patom, and Samut Sakorn) took place due to market forces, and this was not because of a spatial

planning strategy. Richardson also notes that other cities in developing countries, such as Delhi, Madras, Karachi, and Jakarta, have periodically issued masterplans that have included elements of a spatial strategy; but such

plans are seldom useful, being too rigid and inflexible to adjust to changing conditions under rapid growth.

In the 1970s, in the area north east of Bombay, spontaneous private development was taking place, namely the cluster of industrial towns known as

the Kalyan complex, but the government did not prepare the first plan for this region until 1983. The same pattern also occurs in Manila, Karachi, and Dhaka,

where the private sector, or decisions based on sectoral investment, are dominant and continue to handle development, rather than reference to the government's spatial planning policy (Richardson 1993). In Sao Paulo, Brazil,

according to Devas and Rakodi (1993, p. 14), the forces of the private land

market, and the pressure for development, have beaten efforts to plan the

growth of the city. The uncontrolled growth of the city has been strongly affected by an uncoordinated process of private subdivisions. In Jabotabek,

8

Indonesia, where the private sector is also dominant in driving the city, Stolte (1995) found that just under 50% of the permits issued are compatible with the

existing plans. For example, the developments in Depok, Serpong and other

Botabek locations were not planned under the original 1980 Jabotabek Metropolitan Development Plan (JMDP). In his study, Firman (1997) also indicates that much of the private sector, and the local government itself have violated land use plans (rencana tata ruang) in the areas surrounding Jakarta

city, due to political pressure and interests motivated by profitable economic

activities. This is not altogether surprising for as the World Bank (1994) has observed, the Indonesian development strategy has stressed not only the need

for increasing the efficiency and competitiveness of domestic production, as well as higher productivity and value adding for the growing labour forces, but it

has also supported the role of the private sector as the main engine of growth. The Indonesian government recognised that there is uncontrolled development

in Jabotabek and that this can lead to diseconomies of scale; high costs of development; congestion; social and environmental problems; and community dissatisfaction (BAPPEDA of West Java 1997a). Efforts to improve Jabotabek's

development, have received recent attention from the Indonesian government,

but a central issue remains the capacity of government to direct urban and industrial growth to the desired locations.

In the case of Jabotabek, Indonesia, Dharmapatni and Firman (1995) argue that

the role of economic and market forces has been dominant in

shaping the development of the urban system in Jabotabek. In his study, Firman (1997) also adds that " land in the areas surrounding Jakarta is now

largely controlled by private developers, who build new town and industrial estates in the region" (p.1029). Winarso and Kombaitan (1997) seem to support

Firman's study. They conclude that "....the most recent restructuring processes

undergone in the area has been driven, to the greatest extent, by large-scale land speculators and developers" (p. 37).

9

In Jabotabek, there

is

also a tendency, particularly for domestic

investors, to choose locations outside the designated industrial estates, in pursuit of locational advantages and the lower labour costs of the desakota zone, so avoiding the higher prices for zoned industrial land. The factory in the

rice fields is a common feature in the landscape of a major city's periphery (Leaf 1996). PT Procon Indah (1992, cited in JMDPR, 1993a) also examined

whether there is a preference for local investors to purchase cheaper land outside the designated industrial estates. The evidence that industrialists will tend to continue to purchase land outside industrial estates is reinforced by the

evidence that Indonesian industrialists

generally prefer to develop their

factories on their own land rather than on industrial estates (JMDPR 1993h,

p.19). Firman (1997) argues that, since Keputusan Presiden (Presidential Decree) 53/1989, which

permitted private companies to manage industrial

estates, the demand for industrial land has increased tremendously. Firman (1997) adds, however, that there are still many industries, such as footwear,

electronics, plastics manufacturing and others, located outside the available industrial estates. Moreover, the enforcement of environmental protection may be weaker outside the designated estates.

A key question, therefore, is the extent to which spatial planning can affect industrial development. This is an issue that has tremendous implications

for the future development of infrastructure in Jabotabek, as it seeks "a new

form of dynamic planning that can allow for a greater responsiveness to impacts of private decision making within urban context" (Leaf 1996, p. 1622).

According to the World Bank (1994), in Indonesia, the rapid and uncontrolled

urban development has led to sprawl and inefficiency

in infrastructure

development. Industrial establishment continues to agglomerate in and around

urban areas threatening the environment and welfare of surrounding communities particularly on Java (including Jabotabek). This will lead to increasing industrial pollution combined with urban pollution such as human

waste, solid waste and vehicle emissions. The World Bank (1994) also

10

estimates that growing congestion and pollution in the large urban centres will reduce the efficiency of public and private sector investment, which has serious implications for the Indonesian economy as a whole.

Within this general context, this thesis seeks to address a number of questions.

Why do some decision-makers of firms locate their factories in an industrial

estate, while some locate their factories outside industrial estates that are mostly unplanned ?

Are there any differences between the preferences of industrialists with foreign and those with domestic investors; or between industrialists in the core

city (DKI Jakarta) and those in the fringe areas (Botabek) regarding industrial location decision-making?

To what extent is the government's spatial planning policy effective in influencing industrialists in locating their factories?

Besides classical location factors, what are the dominant factors that might influence decision-makers to locate their factories?

Are the price of land and the strictness of regulations major considerations in choosing an industrial location ?

Is the variable of economic and market forces more dominant or less dominant in affecting an industrial firm's decision in determining the location for their factory than that of behavioural factors and government planning policy ?

Weber's (1929) Least Cost Theory states that minimising cost is the most important factor in industrial location decisions. In the 1920s, he believed

that industry would be attracted to those points where the transportation costs

are the lowest, and that the minimisation of labour cost was the next most important factor. Meanwhile, Losch's Profit Maximisation Theory (1954) argues

that, in selecting an industrial site, the best location is the point where the difference between cost and revenue is maximised. However, Alonso (1975)

criticises the classical theory on the grounds that it assumes economic

11

rationality, complete information, a static situation, and the simplification of the complexities of the real system of a region or nation. Alonso suggests that it is

not appropriate to the conditions of developing countries. Alonso (1975) adds

that, in developing countries, the considerations of scarcity, uncertainty and lack of information should be involved in determining an industrial location. He argues that behavioural factors such as personal preference may in some ways

be the most powerful. Likewise, the study of Noer (1985) states that behavioural factors are the decisive variables in selecting an industrial location for developing countries.

The work of Simon (1955, 1957) and Cyert and March (1963), as cited in

Hayter (1997), pioneered the idea of the Behavioural Theory. Simon changed the idea of the firm as an 'economic man' for another picture of the firm, 'that of

a learning, estimating, searching, information processing organism' (Simon 1959, cited in Hayter 1997, p. 138). In the real world, a firm has neither perfect

information nor perfect rationality, therefore, for Simon, the argument of 'optimal' decision-making, and of minimising costs and maximising profits was a

theoretical abstraction. In the characterisation of 'real world' decision-makers,

Simon proposes the `satisficing' approach. Simon states that the information horizons of `satisficers' are limited, and `satisficers' have 'bounded rationality', hence they cannot examine all relevant information, tangible and intangible, for

all possible alternatives. This does not mean that the approach condones irrational behaviour; this approach simply emphasises the need for recognition

of the limitation of opportunities for decision-makers to evaluate information (Hayter, 1997). Using a mathematical approach to location theory, Krugman

(1991,1998) has accommodated the issues of increasing returns; non-linear phenomena, and general-equilibrium. However, the model is still abstract due to Krugman's simplification of the complexities of the real world system. Bowlby

(1988) seems to support Simon's critics. Bowlby argues that theory based on

mathematical models adopted by normative approaches is not successful in accommodating some important issues in industrial location decision-making.

12

The first reason is that the formulations are not really decision models. The

second reason is that it is difficult to quantify many aspects affecting the location decision.

Some scholars believe that _multi-criteria location factors should be considered in industrial location decision-making. Ulgado (1996), for example, found empirically that the location decisions, particularly for foreign investments

in the USA, were significantly affected by availability of utilities, availability of

suitable plant sites, space for expansion, attitude of local government, and labour productivity (the top five major location factors). Various dimensions of location factors affecting industrial location decisions have been found by other scholars (an-explanation of location_ theory and empirical studies of a location -

decision are discussed at greater depth in chapter 2). However, most of the theoretical and empirical studies of industrial location decision-making through the behavioural approaches, have taken place in developed countries. Very few

empirical studies have been done in developing countries. And most of these studies seem not to be based on the framework of a planning policy. Therefore

an empirical case study of industrial location decision-making based on the

framework of a planning policy in Jabotabek-Indonesia, may enrich existing industrial location theory, which takes an important part in planning, especially for developing countries.

To summarise, industrialisation in developing countries has clearly contributed to economic development. However, most industrial establishments are concentrated in the largest urban region. Economic and market forces, and

the behaviour factors of private firms are hypothesised to take a dominant role over government planning policy in influencing decision-makers of firms when

locating their factories. In the case of Jabotabek-lndonesia, most industrial domestic investors generally prefer to locate their industries outside of industrial

estates, usually in unplanned areas. This contributes to a complex set of

13

problems. This study aims to address these problems by clarifying the factors involved in industrial location decision-making in a developing country.

1.3

Objectives of the Study As discussed above, it is hypothesised that, due to the domination of

economic and market forces in influencing most decision-makers of firms, and to the consequent behaviour of firms, industrial urban-economic development is

not compatible with government spatial planning policy. Most domestic industrialists generally prefer to locate their factories in the largest cities but outside planned industrial estates. Therefore the objectives of this study are focused as follows:

To examine why some decision-makers of firms locate their factories in industrial estates, and some outside industrial estates. The expected

conclusion from the study is that, as well as the traditional factors of industrial

location, the factors influencing private decision-makers factories

include

(particularly for domestic investors)

in

locating their

considerations of

behavioural factors; cheaper land prices; avoiding strict government policies (eg. environmental regulations); and the freedom to operate industrial activities on its own land area.

To examine the effectiveness of the government's spatial planning policy.

The expected conclusion is that the policy is not effective

in influencing

industrial location decisions due to behavioural factors amongst the decision makers of firms, and to the domination of economic and market forces over the government's planning policy.

1.4

Thesis Organisation The thesis is divided into 7 chapters. Chapter 1, the Introduction,

describes urbanisation, industrialisation, and problems in developing countries,

14

as a basis on which to develop the research questions and objectives of this study.

Chapter 2 is Mainly concerned with the theoretical and empirical studies regarding

industrial location decision-making of firms. This chapter critically

reviews the literature pertaining to industrial location theory, and selected empirical studies conducted in both developed and developing countries. One objective of this chapter is to identify and discuss the theories that may provide

an appropriate approach to explain what location factors might affect the decision-makers of firms in selecting a location for their, factories. A secand objective is to analyse empirical studies in order to identify the major location factors considered important in determining an industrial location.

Chapter 3 discusses the urban growth and planning policy in Jabotabek.

This chapter examines the pattern of urban growth within the Jabotabek region

and traces the evolution of planning ideas and policies for the region over the past few decades. The attempts to direct the location of industry in Jabotabek over this period, and the institution and structure of the planning process, are analysed in this chapter.

Chapter 4 reviews industrial development planning in Jabotabek, involving national and regional development planning of industry within

Jabotabek; it examines industrial structure,

socio-economic and spatial

planning perspectives. This provides the context for a more detailed discussion

of attempts to influence the location of industry. This chapter also gives a comparison of spatial planning for industry with the existing industrial development.

Chapter 5, the Methodology, states the hypotheses to be tested, and describes the research methodology approach; sampling methods and sample size; the measurement of variables examined; the design of the questionnaires

15

and interviews conducted; the statistical methods to test the hypotheses; and the limitations of the research.

Chapter 6 explains the analysis of location factors influencing industrial

location decision making. This chapter gives an analysis of results from a questionnaire completed by participating industrial firms. The analysis of location factors and three variables (economic and market forces, government planning policy, and behavioural factors) thought to influence industrial location,

is based on the site of industries located (in industrial estates and outside industrial estates); the status of industrial firms (foreign and domestic

investors); and the regions where existing industries are located (the core city of

DKI Jakarta and fringe areas of Botabek). An analysis based on the type of

industry is also examined, as is the influence of an important presidential decree on industrial location decision-making.

Chapter 7 provides conclusions to the thesis, and discusses policy implications. This chapter summarises the main issues, discussed in previous

chapters, regarding the dynamic of urban development in Jabotabek, with special attention to industrial development, and it culminates in conclusions

based on findings from the completed questionnaires and interviews with industrial respondents, in order to answer the research questions. This chapter

finally puts forward the possible policy implications for Jabotabek development planning policy, adopting the main findings of this research.

16

CHAPTER 2 THEORETICAL and EMPIRICAL ANALYSIS of INDUSTRIAL LOCATION DECISION

2.1

Introduction This chapter critically reviews the literature pertaining to industrial

location theory and selected empirical studies dealing with the industrial location decisions of firms. The review describes the theories in a broad sense, beginning with the basic location theories of Von Thunen (1826), Weber (1929),

those who have followed and developed their theories, and those who have disagreed with their theories. Selected empirical location decision studies on

the location of industry in both developed

and developing countries are

analysed.

The main objective of this review is to identify which approach arising

from the theories best explains which location factors might influence the decision maker of firms in selecting industrial location. The second objective is to analyse existing empirical studies which have identified major location factors

influencing decision-makers of firms in determining the location of their factories.

Six main sections constitute this review chapter. Section 2.2 reviews

industrial location theory in the broader sense. Section 2.3 focuses on the behavioural theory approach. Section 2.4 explores empirical studies of location

decisions in developed countries. Section 2.5 explores empirical studies of location decisions, and the relevant literature pertaining to developing countries.

Section 2.6 describes location factors with regard to a successful firm and finally, in section 2.7 are the concluding remarks to this chapter.

17

2.2.

Industrial Location Theory This section reviews location theory in its broad basic form and analyses

some scholars' critiques of some aspects of the theory. According to Greenhut (1995a):

Location theory is a set of propositions that yields a systematic exposition and explanation of the spatial organisation of economic activities including both business firms and households. (Greenhut 1995a, p. 43)

Location theory is similarly described

in

the MIT Dictionary of Modern

Economics as:

That body of economic theory which analyses the forces which determine the location of economic activity and seeks to explain and predict the spatial pattern of the location of economic agents. Much of the theory has been concerned with the location decision of producers or firms, but attention has also been given to the spatial pattern of agriculture, the distribution of towns and cities and particularly in urban economics, to the location of households. (Pearce 1992, p. 252)

The MIT Dictionary (1992) also states that J.H. Von Thunen in 1826

published the first important work on location theory. By assuming perfect competition, and that producers are 'price takers' seeking maximum profits, the case of agricultural producers placed around a market town was analysed. Von Thunen shows that the distance between producers' land and the market could

affect their decision about what crops to produce. Products that demand expensive transportation would be produced near the town, while goods that

require lower transportation costs would be produced further afield. The contribution of Von Thunen's model to location theory is represented by the role

of transportation costs in affecting location decision. However, the model makes little contribution to industrial location analysis.

18

Weber in 1929 (cited in Greenhut 1995a, p. 43) proposed the LeastCost Theory of Industrial Location. His framework assumed pure competition, all buyers were assumed to be located at a given market centre, with prices of

goods fixed and the demand for each product unlimited relative to any seller's supply. The best location is identified as the point at which costs are minimised.

A major consideration was dependent on the transport cost involved assembling materials at the manufacturing site and delivering

in

the finished

product to the market. In the simplest version, for one market place and one raw material source, Weber's concept in 1929 (cited in Pearce 1992) indicates:

If production of the good in question is 'weight losing', i.e., the good is less heavy (or bulky, or perishable) than the raw materials from which it is manufactured, then the firm will locate near the raw material source (Input Orientation).

If the production process is

'weight gaining' the good being bulkier, heavier or more perishable than its raw materials, then the firm will locate near the market (Market Orientation).

Generally, the firm will locate either at the market or the material source, and not at any intermediate point. This is so because an

intermediate location would involve extra costs of loading and unloading (terminal costs), and by involving shorter journeys would lose long-haul economies. (p.253)

According to Greenhut (1995a), scholars such as Palander, Scheneider and Hoover followed and developed further Weber's concepts. They stated that least-cost sites determine manufacturing locations. However, most of them paid

no attention to the locational effects of varying demands. Therefore, Preodohl,

Cassel, Krzyzanoswki, England and lsard (as cited in Greenhut 1995b)

extended the theory by developing a substitution cost analysis. Ritschl examined the changing pattern of costs and location over time. Linke and other

students of Weber

emphasised the factors of labour and agglomeration.

Meanwhile, Holmes et al. analysed industrial orientations to materials, labour and market. Fetter, Hotelling, Lerner and Singer, Smithies, Chamberlain, and other writers, were concerned with locational interdependence. Their concept

19

assumed that costs of procuring and processing were equal at all locations.

Pearce (1992, p. 252) asserted that locational interdependence is an interrelationship between firms where one firm's decision concerning a choice of location for its plant, is affected by the locational choices of its competitors'.

Locational interdependence by comparison can be related to oligopoly theory.

No single solution has been developed to examine

the location pattern

problem, when locational interdependence exists.

Losch's Maximum Profit Theory (1954) says that, in assessing an industrial site, not only cost but also revenue must be evaluated. According to Losch, the optimum location is not the point where the cost is at a minimum or

the revenue is maximum, but rather where the difference between cost and

revenue is maximised. According to Pearce (1992), Losch expanded a complicated theory on the location pattern of economic activity in an economy

by considering a general equilibrium approach - the first attempt to do so in location theory. However, Chapman and Walker (1991) argued that the theory

is more appropriate to retailing than to manufacturing. The theory has been extended by many economists, notably in lsard and also Greenhut. Greenhut

(1956, 1963) and lsard (1956) were more ambitious in incorporating the variables influencing both costs and revenue sides (Chapman & Walker, 1991).

Christaller in 1933 (cited in Pearce 1992) proposed a theory called 'central place theory' which bears some relation to Losch's theory, however, in terms of economic theory, it is less advanced. Again, the theory is more relevant for the

provision of services and the location pattern of market towns than for the location of industry.

Most theories described above have been developed on the basis of the micro economics/ normative theories. McNee in 1959 (cited in Rees 1971) has stated that:

Economics has attained great intellectual heights in the building of abstract models, though these models have not always been

20

testable. Nevertheless, these models are of great value in interpreting, if not predicting, economic behaviour in the real world. (p.2)

However, many critical comments have been addressed to Weberian and Loschian concepts, and to those who have followed and developed the

models, implying that most are ineffective, unrealistic and unoperational. Chapman and Walker's (1991) criticism was that the use of the normative approach is still questionable; hence the objective to achieve the best location is not easy possible. They asserted that : Central to the normative approach are certain assumptions

regarding the characteristics of those responsible for selecting the

best plant location. These are embraced within the concept of economic man. This notional decision-maker is distinguished by the single-minded pursuit of the goal of profit maximisation and by the possession of complete knowledge of all relevant economic information including the ability to predict the actions of competitors and future events. No individual can, in reality, posses

such omniscient powers and, even if all of the simplifying assumptions of location were accepted, the optimal location of these normative models would remain an unattainable objective. (Chapman & Walker 1991, p.20)

According to Rees (1971), the assumption of complete rationality adopted by the rational models in the economic sense, has an implication as follows:

Economic man is free from the multiplicity of goals and imperfect knowledge economic man has a single profit goal, omniscient powers of perception, reasoning and computation, and is blessed with perfect prediction abilities. (Rees 1971, p. 3) Therefore, because of these assumptions, Rees (1971) argued that the models are not successful in explaining actual industrial locations.

Chapman and Walker (1991) also argued that Weber's concepts did not

take account of the potential effect of the competitor. Demand was effectively

held constant and it was argued that the manufacturer could sell all that was

21

produced regardless of the location and the actions of competitors. In addition,

the location of demand was also endogenous to Weber's model. Given this condition, Chapman and Walker (1991), therefore, argued in their critique that it is unreasonable to regard the least-cost location as the best location. Chapman

and Walker (1991) stated that the abstract model of normative theory, to which

Weber has been the most influential of contributors is an insignificant tool to apply (eg for government) for regional development planning objectives linked to the distribution of new manufacturing investments.

According to Hayter (1997), the main characteristics of the normative

theories, particularly for neoclassical theory, are optimising or maximising economic profit/minimising cost, and perfect rationality and information.

In

neoclassical economic theory, economic behaviour is based upon competition,

particularly perfect competition. This theory puts

it

that powerful economic

forces dictate the location of factories. The firm is assumed as 'an economic

man' (homo economicus) who has the perfect information and perfect rationality to compute an 'optimal' location related to minimising costs or maximising profits. Basically, neoclassical location theory is derived from

neoclassical economics, which is abstract in nature for two reasons: 'first it emphasises deductive reasoning and, second it focuses narrowly on 'purely' economic considerations' (Hayter 1997, p. 112).

Berry, Conkling, and Ray (1993) also stated that, in the classical theory,

the optimal location for an individual plant in a given industry is the main

objective to be assessed. The theory assumes an economic maximiser determining the industrial location by considering minimisation of transportation

costs or maximisation of some benefits. However, they state that, in practice,

the economic `satisficing' approach of decision-makers has played a very important role in determining an industrial location. In this approach the satisficer recognises a lack of perfect knowledge, and may be more concerned with obtaining market share than with trying to maximise profits.

22

In addition, most of the theories assessing manufacturing location have

been developed on the basis of mainstream economic analysis which, in turn, is based on a neoclassical economics framework. However, in the 1980s, there

'was a new theory called New Growth Theory pioneered by Paul Romer. Romer's theory, supported by Grossman and Helpman (1991, 1994) and others, has turned neoclassical economic theory upside down. The traditional theory only adopts two factors of production, namely capital and labour, while the new theory added another input 'technology'. Romer (Robinson, P 1995, p.

67) argues that technology is an endogenous variable, a central point in the

economic system, while the traditional theory treats technology as an exogenous variable. 'In traditional theory, perfect competition is the norm, monopoly power is a nasty aberration'. In the new theory, Romer argues that

'monopoly power can be useful, even essential, providing the incentives that lead firms to engage in technological research'. Paul Krugman (Robinson, P 1995, p. 67), calls Romer 'arguably the most influential theorist of the 1980s'. Cosgrove (1996, p. 20) stated that 'Romer has had a revolutionary impact on economic thinking and upset the apple cart of traditional economic theories of growth'. Although Romer's theory could still be debatable, and still particularly emphasises economic growth theory, nevertheless the implication of this shift

of the fundamental economic theory may influence economic theory as a whole. This means that most normative theory of manufacturing location based

on the neoclassical economic framework also might be considered for reevaluation. Krugman (1991,1998) proposes a mathematical model to explain

the spatial structure of the economy by considering increasing returns and imperfect competition; however, this model has still simplified the complexities

of the real world and concentrates on a limited set of forces. Therefore this model still seems unrealistic and abstract for industrial location planning in practice.

23

As mentioned earlier, the strongest criticisms of the classical theory have

come from Simon (Rees 1971, P. 6) referring to 'the mental prowess of economic man as preposterously omniscient rationality'. Simon introduced two distinguishable

concepts,

namely

'bounded

rationality'

and

`satisficing'.

'Bounded rationality' is a direct respond to 'economic man'. Simon in 1957 (cited in Rees 1971) argues that economic man is an 'optimiser', however, the real world is a `satisficer. Bowlby (1988) seems to support those critics, stating

that theoretical models in determining

the corporate location decision are

based on a rational economic interpretation of behaviour. The best combination of site costs, market costs and the financial impact of both technological factors

and government intervention is considered in the process of selecting location. The theories and models along these lines are still useful and important, taking a part in determining location problems (Abler, Adam, & Goulds, cited in Bowlby 1988).

However,

recent

studies

show that mathematical models are

unsuccessful in addressing some important aspects involved in the location decision. Bowlby (1988) proposed two reasons for this:

First, such formulations are not really decision models. Rather, they are theoretical explanations of aggregate behaviour. Though useful in some instances, aggregate behaviour may be of little interest to an individual firm seeking a new location. Conversely, an understanding of aggregate behaviour may be of limited value to a community attempting to attract a particular company or industrial sector. Second, many factors that influence the location decision are difficult or impossible to quantify reliably. The trade-off

potential between utility costs and 'quality of life'

difficult to assess, even in individual cases. Should one be able to accurately assess their relative importance, the problem of precisely measuring a community's quality of life remains. Theories that exiled such factors are incomplete, and mathematical models that is

include them remain suspect. (Bowlby 1988, p. 37)

Meanwhile, Smith (1981) states that the critics of the Weberian and Loschian location concepts, and those who have followed and developed the models are classified into four types. First, conventional economic theory, which

underlay traditional location theory, is unsuccessful for practical application in

24

locating a plant which has a criterion of cost minimisation or maximisation of profit. Second, the concept of omniscient 'economic man' which is inherent in

the theory, ignores considering actual human behaviour. Third, conventional

location theory bears little relationship to that which actually exists in the contemporary world. Fourth, reliance on neoclassical economics underlying a theory of industrial location has avoided in its development a theory grounded in political economy.

The weaknesses of the assumptions underlying conventional location theory provide more difficulties when applied in developing countries. Alonso in

1968 (cited in Noer 1985) criticised the Weberian theories, and others in accordance with its lines, as not being very useful to apply to complicated conditions in developing countries. He believed that behavioural factors

amongst decision-makers could affect the decision in locating manufacturing industry. Assumptions such as economic rationality, complete information, and

static situation, are not realistic for application to developing countries.

In

addition, Miller in 1977 (cited in Noer 1985) has criticised the classical theories

of location as being not entirely suitable for developing countries, on the grounds of assumptions such as availability of information and complete economic rationality.

In

fact, in the real situation, information is spread

asymmetrically. The necessary data are often unavailable, incomplete, or out of

date, and the reliability of the available data is often questionable. Noer (1985)

has pointed out that in developing countries, the behavioural factors are more

influential than either cost or physical factors

in

influencing the location

decision. In Nigeria, Onyemelukwe (1974) explained that, particularly for small industrial firms, socio-cultural and other non-economic factors play a prominent

role in the location decision of firms. This should not be viewed as saying that

the decision-makers of firms are irrational to the power of market forces, however; this is due to very limited information, capital resources and organisation ability. Factors such as social and political aspects of the choice are the dominant non-economic factors affecting the plant location decision.

25

It is clear that traditional western location models based on the rational economic man have limited capability of application to the real-world economic

conditions, due to their unrealistic assumptions. Therefore, the behavioural approach is considered as an alternative to explain what factors influence the decision-makers of industrial manufacturing in locating their plants.

2.3.

Behavioural Approach Concepts in the Industrial Location Decision Factors other than those discussed above are believed to strongly

influence the location decisions of industries. These factors are related to reality; to the behaviour of the owners and decision-makers of the firms, and to

their responses to the economic, social, and political conditions in the country.

The effort to relate theory to real world decision-making has been recognised over the past decade, and is known as the behavioural approach in industrial

location theory (Noer 1985). According to Chapman and Walker (1991), the behavioural approach in the study of industrial location, has been inspired by

the work of Simon (1957), and March and Simon (1958) in administration theory. Simon argued that 'economic man', in the classical theory of location, is an optimiser; however, he argued, the real world is a `satisficer'. In other words,

decision-makers of firms adopt courses of determining location which are perceived to be satisfactory. Simon's effort to link location theory to specific

conditions raised the question of how to focus more closely on those who make the decisions about factory location. His concept, called the 'principle of bounded rationality', explains that:

The capacity of the human mind for formulating and solving complex problems is very small compared with the size of problems whose solution is required for objectively rational behaviour in the real world. (Simon 1957, cited in Rees 1971, p. 6)

26

Daily experience suggests that the acceptance of 'satisfactory' underlies much

decision-making

without

thinking

optimality.

Therefore,

perfect

information, and the rational homo economicus of traditional theory, could be

replaced by satisficing (Smith 1981). In addition, Townroe (1991) supports Simon's concept that studies from cognitive psychology show the characteristics of human behaviour as more closely aligned to satisficing than to

optimising. According to Townroe, satisficing indicates that a level of objective of achievement is set for the result of a given decision dilemma of an individual.

Furthermore, through a decision sequence, the individual learns about alternatives, sifts the alternatives and assesses each against their objectives. A

decision is taken after an option-meets-the- objective. Pred in 1967 & 1969 (cited in Watts 1987) proposed the idea of a behavioural matrix describing the available information and decision-making ability to explain patterns of

locational change. However, this approach is difficult to operationalise in the real world.

In addition, summarising the ideas of Pred (1967, 1969), Townroe (1969, 1971) and Stafford (1969, 1972), Hayter (1997) states that:

in practice locational choice is part of a strategic or longterm investment decision that is complex, uncertain, inherently subjective and conducted by individuals or groups of decisionmakers who do not have the capabilities of "Homo Economicus". In this view, factory location reflects locational preferences, which shape, and are shaped by, decision-making processes. (p. 137) Hayter (1997) identifies the main characteristics of behavioural theory as

satisficing for firms, bounded rationality, limited information, and a learning

process. In this theory, the preferences of decision-makers may determine industrial location based on their search for, and evaluation of, information.

According to Hayter (1997, p. 137), this theory is more realistic than neoclassical theory; in the real world, firms often make a decision based on limited and uncertain information. Basically, behavioural theory emphasises how decision-makers cope with uncertainty. Therefore, the satisficer of decision 27

makers who have bounded rationality ultimately reflects the reality. The -

satisficer determines choices, including locationar choices, by collecting, coding

and evaluating information and by learning through the process. In general, according to behavioural theory, firms (a) consider a limited number of choices; (b).search and evaluate alternatives in a strongly sequential way; (c) choose the first solution that is 'satisfactory' (Hayter 1997, p. 138).

According to Watts (1987), the ways in which firms and individuals change an industrial location are the main aspects in behavioural approaches.

There are two groups who favour this method. The first group collects data

dealing with the characteristics of firms and individuals and links these characteristics:- to their behaviour. The second group takes a more direct approach and_asks the firm or individual why certain actions were done, then focuses upon iactors affecting decisions, and the way in which these decisions

were made. As Chapman and Walker (1991) asserted, questionnaire surveys

of industrialists emphasised the importance of personal considerations. This method is usually used for empirical research into industrial location decisions from a behavioural approach perspective. However, according to Smith (1981),

before the emergence of the behavioural approach, the importance of personal

factors obtained in empirical studies using questionnaires or interviews had

been recognised. For example, personal factors ranked fourth, behind the market, transportation facilities and labour, in a survey by Chapman and Well in

Atlanta in 1958. These factors were cited by around 23% of 49 firms as factors

affecting their decision making concerning new industrial development in the

city. By interviewing executives from 188 Michigan factories, Katona and

Morgan in 1950 and 1952 (cited in Smith 1981) found that 51% had their original location in Michigan. The most frequent response to the question of why the firm had been located in Michigan, was that the founder had lived in Michigan when the factory was first opened. Malinowski and Kinnard in 1961

(cited in Smith, 1981) found that around 12.3% of 359 reasons cited by executives to explain a specific location site were purely personal reasons,

28

including nearness to home and family, personal attachment to the area, and important contacts. The summary of the results of those studies was that

:

Traditional cost and demand factors have indeed an important influence on location decision, but other economic as well as non-economic factors may play a significant role under certain circumstances. Thus the assumption of profit maximisation is too restrictive for an analysis of location decisions. The process of industrial location is clarified if we recognise other preferences in addition to the desire to maximise profits. (Mueller & Morgan 1962, cited in Smith 1981, p. 110)

Smith (1981) observed an increase in use of the behavioural approach in

location analysis, as in human geography generally. The approach

emphasises the real world

in

relation to decision making theory, where

organisation theory and psychology play important roles. Empirical findings are

characteristic of the behaviouralists

in

their search for theory. An early

contribution to the use of empirical analysis in researching the decision-making

process was adopted by Stafford (Smith 1981) who found a sequential structure in which the entrepreneur takes into account a variety of strategies, from on-site expansion to alternative feasible sites, before a location is finally

chosen. Townroe (1969,1975) and Lloyd and Dicken (1977) also adopted

a

similar line in locational research (Smith 1981).

By

interviewing executives,

Rees (Smith 1981)

investigated the

investment location decision of large British and American firms. He claims that

his research has endorsed the validity of a conceptual framework of locational

choice, learning, and evaluation. A growth problem preventing the firm from

satisfying demand is recognised as the first phase in the decision making

process. Relocation, acquisition, or opening a new branch plant are the alternative responses for plant expansion. A new plant requires a three step search procedure

:

(1) regional delimitation of macro-scale areas due

to

demand needs; (2) community evaluation by means of a comparative - cost approach; and (3) selection of a few location sites on the basis of face-value

29

judgement. One characteristic of Rees' model is the separation of short term and long term response of the organisation. Meanwhile, traditional theory tends to ignore the time frame. Smith (1981) states that:

The behavioural approach is much more realistic in its recognition

that the environment within which the industrial organisation operates is in a constant state of flux, and that how firms adapt to change will vary according to whether they seek to satisfy their goals (profit maximisation or otherwise) over five years, ten years, or whatever the case m-ay be. (Smith 1981, p. 124) Hayter

(1997)

states,

however,

that

'in

practice

eclecticism of

contemporary literature on industrial location has blurred the boundaries between the theories' (p. 80). Nevertheless, Chapman and Walker (1991, p. 24)

states that in responding to some of the limitation of normative theory, the behavioural approach opened up line of inquiry'.

2.4

Selected Empirical Studies of the Location Decision in Developed Countries In theory, the sequential consideration of factors for the industrial

location decision begins with an appreciation of appropriate geographical scale. For example, multinational corporations will consider the relative advantages of different countries as locations for their factories. The next step is a comparison

of regions within the country that has been chosen. Subsequently they will choose an appropriate site within the community. In practice, however, this

systematic sequence is rarely followed. Particularly for a small firm, such a systematic approach may be irrelevant (Chapman & Walker,1991). According

to Wasylenko (cited in Herzog & Schottmann, 1993), in making the location decision, the degree of relative importance of the location factors vary. The decision may depend on: (1) the type of location decision considered (start-up,

expansion on-site; relocation); (2) the type of industry considered; (3) the size of plant considered; and (4) the stage of location decision considered (regional vs local research).

30

Chapman and Walker (1991) claimed that they found some evidence of

the link between the scale of a firm and the importance of various location factors. At the international level, the considerations of market size, labour costs, political stability and raw material are important. Various location factors are relevant at regional level, however, market prospects and the labour aspect

receive more attention. Many attributes influence the perceptions of the firm, such as the potential business climate, including the attitudes of politicians and

community leaders, the provision of amenities, housing and educational facilities.

Schemenner's (1982) empirical study of location factors for 158 branch plants established by US manufacturers shows that the top three major location

factors at region/state level are: a favourable labour climate; proximity to the

market; and

it

being an attractive place for engineers/manager to live.

Meanwhile, within the specific locality, the top three major location factors are: a

rail service, access to an expressway; and the special provision of utilities (see Table 2.1).

Table 2.1 Location Factors for 159 Branch Plants Established by US -

,

Location factors (Regional level)

.

Favourable labour climate Near market

Attractive place for engi-

Plant openings citing at least one factor (as per cent of total number of plant openings) 76 % 55 % 35 %

neers / manager to live

Near supplies, resources (includes energy) Low labour rates

Near existing facilities of division / company

Environmental permits Better transportation Taxes, financing others

31

%

30 % 25 % 17 %

2% 1 %

0%

Location Factors (Site Level)1,1 Rail service On expressway

Special provision of utilities (gas, and water). Rural area

Plant openings citing at least one factor (as per cent

of total number of plant openings) 47 % 42 % 34 %

sewerage, 27 % 23 %

Environmental permits Within metropolitan area On water Available land/building Others

_ ... .. Source : Adapted from Schemenner(Chapman & walKer,

21

%

6 % 8 %

7%

. .....

.

p.

wa-Al,

.

31

Yoshida's (1987)

empirical study

provides

an example of how

international level or multinational corporations invest in the United States. He

examined how Japanese firms (12 cases of large firms) select their industrial plant location within the United Stated - eight were located in California, three in

Texas, one each in Alabama, Georgia, Kansas, Maine, Missouri, and Virginia. It can be seen from Table 2.2, that the top three major location factors from these firms are quality of labour, labour unionisation, and proximity to markets.

Table 2.2 Factors Influencing the Location Decision of Large Japanese Firms ----- ---- -- --

No.

Location Factors

1. 2. 3. 4. 5. 6. 7. 8. 9.

Quality of labour Labor unionisation Proximity to markets Cost of land Cost of labour Quality of life Proximity to suppliers Special tax incentives Other state and local government incentives Proximity to educational & research institutions Proximity to a Japanese community Proximity to competitors

10. 11. 12.

Average Rating

Note: The average ratings are based on a four point scale: 3=important, 2= less important, and 1=not important at all. Source : Yoshida 1987, p. 29.

3.83 3.58 3.08 2.83 2.83 2.83 2.75 2.75 2.50 2.17 1.75 1.67 . . =very important, .

Yoshida also explained that labour-related issues were the major considerations for most of the Japanese firms in industrial location decisions: the availability and quality of labour (especially engineers); the level of union

activity; and past records on management-labour relations in a particular locality within the United States. Proximity to the markets is also an important factor in selecting plant location. A close relation with US customers was seen

as one of the main reasons for manufacturing investment. Yoshida adds that other location factors considered important in deciding the location of a plant were: the economic factor; cost of land and labour; financial incentives such as

tax concession or low financing rates for industrial development; market size;

total capital requirements for the investment; infrastructure of a particular

32

locality; and the existence of subcontractors for procurement. An interesting

factor in Yoshida's study is that the Japanese firms preferred proximity to a Japanese community even though this factor was ranked eleventh.

Bowlby (1988) sent postal questionnaires to 1000 Canadian companies

and received 126 usable responses. He analysed two scores for his surveys.

The score of Citation Frequency, gives the frequency at which a particular criterion was mentioned. For example, fifty respondents may have chosen the

"Labour Pool" criterion, while only six considered "Demographics" as an important criterion. From this, it

could be assumed that "Labour Pool" is a

major factor and "Demographics" is of secondary importance. The second

criterion, Factor Strength, measured on a Liken scale, shows the average number of votes assigned to each criterion. By using the relationship between

the two results for each score, Bowlby classified location factors into four categories (see Figure 2.1). High 1

Target Factors: Raw Material Availability Demographics Economic Stability Organisation "Fit" Labour Stability

Core Factors: Market Size Labour Pool Market Potential Financial Centre

Fringe Factors:

General Factors:

Taxes Tourism Competition Quality of Life Utility Services Government Support

Cost Base Accessibility Infrastructure Market Proximity Internal Transportation

Low

Low

Citation Frequency

High

Figure 2.1. Classification of Location Factors Source: Adapted from Bowlby 1988, p. 38

33

The most favoured category was termed 'Core Factors'. This category includes high factor strength scores that were also frequently cited. According

to Bowlby, factors such as market size, labour pool, market potential and financial centre are essential not only for a company's long term development program, but also for diversified industrial and commercial growth. Therefore, these conditions could be considered to be first priority. The second category is

'General Factors'. This category was often cited by respondents, but had low factor scores eg. cost base, accessibility, infrastructure, market proximity, and

internal transportation. These factors are important in attracting people to a community, however, the location decision will depend on additional criteria. Bowlby argues that a main consideration for development agencies is resource

allocation between General and Core Factors. The third category is 'Target

Factors'. This category was not mentioned frequently, but had high factor

strength scores. The location factors

in

this category are raw material

availability, demographics, economic stability, organisation 'fit', and labour stability. Finally, 'Fringe Factors' were not mentioned frequently and received low factor strength scores, eg taxes, tourism, competition quality of life, utility

services and government support. Bowlby (1988) concluded that such categorisation of location criteria could contribute in the formulation of an economic development plan. For example, the categorisation of location criteria may be used to underlie a framework for making a resource allocation decision. It may also provide for specific marketing purposes.

Haitani and Marquis (1990) mailed questionaries to the top Japanese and American executives located in the seven member states of the Southeast

US/Japan Association. These states include Alabama, Florida, Georgia, North

Carolina, South Carolina, Tennessee, and Virginia. They examined the importance of site location factors that were considered by the executives

linked with the investment. It can be seen from Table 2.3 (p. 35) that, by analysing 16 location factors, they found that the location factors playing an

34

Table 2.3 Choice of Important Factors, and the 10 Most Important Factors Selected at South Eastern and North/Midwestern States. Choice of Important Fac- The 10 Most Im- The 10 Most Important Location tors at South-eastern and portant Factors Factors Selected, in the No Factors North/Midwestern States Selected in the North / Midwest Southeast

Combined

Frequency 1

2

3 4 5

6 7 8

9 10 11

12 13 14 15 16

Markets Labour Unionisation Hospitality Transportation Incentives Supplier Land Materials Environment Airports Climate Right to work Construction Energy Research

Rank

%

Rank

0/0

Rank

98 74 46 45 36 35 27 26 14 13

6 7 8 9 10

11

11

-

11

12 13 14 15 16

9

10

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

7

5 4 3

1

2 3 4 5

54 50 36 29

1

2 3

88 32

1

2

-

-

21

4 6

27 29

23 15 17

5 8 7

18

-

-

9

9

4 3 6 5 7 8 10 9

24 15 15 6 15

Source : Haitani and Marquis 1990, P. 47.

important role in their industrial location decision were access to market, labour

aspects, access to transportation system, the hospitality of the state and local

communities, the incentives package, and available and affordable industrial land.

Haitani and Marquis (1990) also

observed that there were different

preferences between two regions in appreciating location factors. For example,

in the Southeast, unionisation was ranked as the third most important factor,

while in the North/Midwest they saw unionisation as having relatively less importance. The Southeast region of the United States appears to have had a

more favourable investment climate than that of the North/Midwest. Beside

unionisation, the Southeast also had a favourable level of available and affordable labour and land, hospitality service, transportation, and business incentives.

35

Ulgado (1996) surveyed 319 firms of both foreign and domestic manufacturing in the United States to examine location factors affecting the

location decision. The study compares domestic manufacturing (American firms) and foreign manufacturers and analyses the location factors considered important by the manufacturing firms. Ulgado (1996) observed that there were differences and similarities between foreign and domestic manufacturing firms

in highlighting the importance of location factors. This can also be seen

in

Ulgado's study (see Table 2.4). The top ten proffered location-specific attributes

Table 2.4 Top Ten Preferred Attributes for Plant Location Top Ten For Overall

1

Top Ten for Domestic Firms Location Factors Rank State tax rates 1

2

Local tax rates

2

3

Availability of Utilities Availability of suitable plant sites Labour productivity Level of unionisation Local labour attitudes Local salary and wage levels State tax breaks Space for expansion

3

Sample a) Location Factors Availability of utilities Availability of suitable plant sites Space for Expansion Attitude of local government

Rank

5

Labour productivity

5

6

Local salary and wage level Local labour attitude Transportation service availability

6

k No 1

2 3

4

7 8

4

7 8

9

Cost of utilities

9

10

Labour turnover

10

rate

Top Ten for Japanese Firms Rank

4

Location Factors Attitude of local government officials Attitudes of local citizens Availability of Suitable Plant Sites Availability of utilities

5

Space for expansion

5

6

Availability of transportation services Local labour attitudes

6

8

Local salary and wage levels

8

9

Labor productivity

9

10

Employee training

10

7

1

2

3 4

7

Source : Adapted from Ulgado 1996, pp. 13-15. a) Overall sample consisted of domestic firms(American) and foreign firms (Japanese, German, and others)

were ranked based on the respective means averages of the domestic and foreign firms. Table 2.4 shows that, of the 58 attributes proffered, the top ten for

the overall sample were :1. Availability of Utilities; 2. Availability of Suitable Plant Sites; 3. Space for Expansion; 4. Attitudes of Local Government; 5. Labor

36

Productivity; 6. Local Salary and Wage Level; 7. Local Labor Attitude; 8. Transportation Service Availability; 9. Costs of Utilities; and 10. Labor Turnover

Rate. Ulgado's study also showed the different perspectives in relation to location factors between domestic investments (American firms) and foreign investments such as Japanese firms. Based on their respective means, the top ten of location factors for American firms were: 1. State Tax Rates; 2. Local Tax Rates; 3. Availability of Utilities; 4. Availability of Suitable Plants Sites; 5. Labor

Productivity; 6. Level of Unionisation; 7. Local Labor Attitudes; 8. Local Salary

and Wage Levels; 9. State Tax Breaks; and 10. Space for Expansion.

Meanwhile, the top ten for Japanese firms were:1. Attitude of Local _

Government Officials; 2. Attitudes of Local Citizens z 3. Availability of Suitable

Plant Sites; 4. Availability of Utilities; 5. Space for Expansion; 6. Availability of _-

Transportation Services; 7. Local Labor Attitudes; 8. Local Salary and Wage Levels; 9. Labor Productivity; and 10. Employee Training.

As Ulgado's (1996) study shows, (Table 2.4), tax considerations, with

higher ratings for state tax rates, local tax rates, state tax breaks and unionisation, were considered highly important by domestic firms (American)

compared to foreign firms. On the other hand, strong similarities appeared between the foreign and domestic firms in the significance of availability of utilities, availability of suitable plant sites, and labour considerations such as labour productivity and local salary and wage levels.

Artikis, Merikas and Vozikis' (1996) empirical study is an example of industrial location decision research based on the type of industry namely, the food, chemical, electricaVelectronic, plastic, and metal industries. By analysing

sample firms of around 259 respondents, they identified and described the relevant and important factors for locating industries. The aim of their study was

to investigate the degree of relevance and effectiveness of location policies issued by governments to the locational criteria needed by manufacturer firms

37

in Greece; to assess each location factor's relative importance; and to compare

and contrast the importance of financial incentives relative to other location factors. In determining the degree of relevance of industrial location policies to

the locational criteria specified by industries, they identified 16 important location factors, namely, labour, raw materials, financial incentives, industrial

infrastructure, proximity to markets, land, facilities and services, marketing

costs, pollution control, freight, growth potential, industrial linkages, plant, compatibility strategies, planning, and community characteristics. Based on 6 industrial classifications, they found that labour had the strongest importance

for all industries (see Table 2.5). The table shows the degree of importance of the 16 industrial location factors and the difference in importance when ranked against the financial incentives factor. They concluded that financial incentives

are not of major main importance in considering and selecting industrial location. Therefore, concluded the authors, the use of financial incentives as a consideration in regional development should be re-examined by Greek policy makers.

Table 2.5 Importance of Location Factors Ranked by Industries in Relation to

'Financial Incentives' Offered by- Governments. Industries No

Location Factors

1.

Labour Raw materials Financial incentives Industrial infrastructure proximity to markets Land Facilities and services Marketing costs Pollution control Freight Growth potential Industrial linkages Plant Compatibility w/ company strategies Planning Community characteristics

2. 3. 4. 5 6 7 8 9

10 11

12 13 14

15 16

Chemical

Food

Clothing

2 1*

1* 4

12

11

5

11

2 10 3 13

8* 10 12

16*

1* 8 6 2 5 3

3

11

11

12 6 9 5 8 7 14

9 4 6

5

9

6

15 13

11

11

3

7

14* 16*

7 10 8

14* 10 7 12 15 4

16 15

13*

14* 12

13 16

8 3 5

10 4

7 14 15 6 13 9

16

1* 2

15

Electrical/ Electronic 1

2

4 9 6

Plastic/ Rubber

Metal 1

9

2 4 5 3 7

10 13 16 12 14 8

15

Source: Artikis, Merikas & Vozikis 1996, p 95. * = Significant at the 0.05 level

38

Other studies have been conducted on firms' perceptions of location factors. Porcano (1993) examined firms in five countries and their decisions in

locating plants, particularly in terms of foreign direct investment (FDI). He identified 21 location factors affecting firms' location decisions as a basis for comparing the responses in various countries. Results of the study showed that

product demand, economic condition, labour quality and labour supply in the

host country had a relatively high degree of importance. On the other hand,

government incentives at the national level were the lowest rated for all countries except the USA. The degree of importance of product demand was

greater than the other factors for each host country. Also, the labour factors _

(quality, rate and supply) were significantly greater .than many of the other factors. However, exchange rates and government incentives had lower ratings _-

than the other factors. The study also showed that, in general, small firms

seemed 'to rank the importance of factors higher than did large firms.

In

addition, the small firms appreciated physical infrastructure, dividend policy, tariffs, attitude toward investment, and political climate as more important than did large firms.

Wasylenko (Herzog & Schottmann 1993) found that the most significant

location factors affecting industrial location decisions were markets, labour compensation

(quality), and various

dimensions of local transportation

accessibility. Wasylenko also found that the local business climate affected firm

location decisions. Calzonetti and Walker's (Herzog & Schottmann 1993) survey findings showed that, in a regional search, overall, there were three highest ranked location factors namely markets, labour and land, whereas, in the local search process, markets, non-union labour, and access to a highway were the dominant location factors. Furthermore, in terms of policy intervention dealing with location factors, the highest ranked in a regional search for location were

taxes, education and non-tax incentives, whereas at the local level,

highways, property taxes and water availability were ranked most important.

39

Tong in 1979 (cited in Haigh 1990) found that transportation services, labour attitudes, space for expansion, nearness to markets, and availability of a

site were the most important factors affecting the location decisions of firms. Cost and availability of capital, nearness to home country, proximity to export markets, and nearness to operations were their least important considerations.

Chernotsky in 1983 (cited in Haigh 1990) surveyed 21 West German and

Japanese firms in the Charlotte-Mecklenburg areas, and North Carolina, and

found that the most important considerations in their location decisions were

the availability of desirable sites, attractiveness to incoming personnel, and market access. Meanwhile, factors such as labour, financial incentives, and access to raw materials and semi-finished goods were given less emphasis. Haigh (1990) concluded that, in terms of the location decision process, firms

underwent three stages, namely: (1) selection of a region; (2) selection of states; and (3) selection of a specific site in a particular community. There are two main differences between Haigh's study and previous studies. Firstly, the role of state and local economic development agencies was very important in affecting

the respondents' decisions. Secondly, wage levels were less

important as a consideration than in other studies. Location factors such as nearness to markets, labour union prospects, and proximity to seaports were found to be important in Haigh's research, as in many others.

Ziegler (1990) argues that traditional location factors, such as market factors, cost and availability of labour, transportation facilities, and the cost and availability of materials, are important. However, their importance varies by type

of industry and firm. Ziegler adds that, due to technological change and more efficient transportation systems, the importance of nearness to raw materials

may be decreasing. Meanwhile, such factors as unionisation, quality of education, quality of life, and business climate are becoming more important.

Tu, Jones and Kedia (1993) also argue that low-cost, unskilled workers are becoming less important as a consideration, while technical workers become

40

more important, particularly for firms in the high technology sector. They also

support Ziegler's argument that proximity to supplier and markets seem to receive only secondary consideration.

Another study which involved three actors in location decision making was conducted by Tosh, Festervand, and Lumpkin (1988). They determined

which location factors or variables impact on the location decision, and the relative importance of each. They mailed questionnaires to manufacturers, real

estate brokers, and economic and industrial developers. A list of 39 location factors that may influence the industrial location decision were presented and

the respondents were asked to respond. There were significantly different opinions among the manufacturers, industrial real estate brokers and economic

and industrial developers in considering the importance of location factors in the industrial location decision. For example, the factors of 'growing regional market' and 'availability of state industrial revenue bond financing' were more important for the broker respondents than for the manufacturers. At the same

time, the influence of environmental regulations on the industrial location

decision of economic developers was less important than for real estate brokers and manufacturers. Manufacturers saw proximity to market, freight costs of materials, and the availability of capital as relatively less important than

did real estate brokers and economic developers. By contrast, manufacturers saw the productivity of workers, cost of labour, trainability of labour, and level of

unionisation as more important than did the real estate brokers and economic

developers. Hence, Tosh, Festervand, and Lumpkin (1988) suggested that economic and industrial developers should consider location factors that are

actually required by manufacturers before attempting to choose a particular locational site.

What can be learned from the empirical studies described above is that

there is no dominant single factor that could be chosen as the most decisive

variable in determining industrial location. In other words, to select the best

41

industrial location, multiple criteria should be considered. What Townroe

(1983) argues may be quite true that "

a combination of factors is the

norm". ( p. 68)

2.5

Empirical Studies of Location Decision in Developing Countries Most studies of industrial location decision pertain to developed

countries, whereas few relate to developing countries. There is a paucity of published literature explaining empirical studies related to industrial location decisions in developing countries. In this section, several studies which might

be relevant to a behavioural approach_ in developing countries will be

discussed. For example, in Onyemelukwe's study (1974) titled 'Industrial Location in Nigeria', it was argued that, in Nigeria, location decisions are determined not only by economic considerations but also by non-economic

factors which are very often non quantifiable variables. According to Onyemelukwe, in Nigeria, small industrial firms which employ a handful of

workers and operate behind residential house frontages, display deviant behaviour. 'To a one-man enterprise, nearness-to major labour source or market, low land values, adequate housing or commuter transport facilities, low

land values for factory floor space, adequate housing or commuter transport facilities for workers and regional variations in wage rates have no significance

and hence no locational importance' (Onyemelukwe 1974, p. 473). Therefore,

Onyemelukwe stated, the majority of small manufacturing firms in Nigeria do

not often consider the traditional "Western" location factors developed by Weberian and Loschian and others who developed their ideas within that theoretical construct. Socio-cultural and other non-economic factors played an

important role in influencing small firms in their location decisions. As stated earlier, according to Onyemelulove, this does not mean that decision-makers of the firms in Nigeria were economically irrational or non-responsive to the power

of economic markets. It is, rather, because they have very limited information, capital resources and organisational ability. 42

External non-economic power influences the decision making for large industrial firms in Nigeria. Onyemelukwe (1974) gave an example in the case of

a cement plant location decision. The Calabar factory was developed with the

aim of bringing to the city a prestigious industry which could reduce unemployment in a 'minority area' and to satisfy a political interest. A feasibility

study based on 'the least cost calculation' recommended the establishment of the cement plant in the Oron region, but political influence resulted in the plant

being built in Calabar. In this case, theoretical optima proposed by traditional

'Western' theory was not workable in determining plant location. Another example is the role of the 'social identification' phenomenon in affecting location

decision making. The one-person proprietorship industrialist often establishes

plant location in his/her home community. This is done for reasons of socialpolitical prestige. The industrialist needs the community's recognition of his/her

contribution towards the goals of society, and this could also be a passport to

political honours. Nevertheless, Onyemelukwe also recognised that decision making was influenced by proximity to market (particularly the domestic market,

as a consequence of Nigeria's import substitution policy); proximity to raw materials; being in close touch with the federal centre of decision-making; and

quick access to or from Britain. Onyemelukwe (1974, p. 483) stated that 'rationality must be understood from the decision-makers' viewpoint of plan objectives and methods for achieving them'. Hence, Onyemelukwe claimed, the

non-economic criteria which have affected location decisions in Nigeria are often not irrational. One should consider the industrial firm as an integral part of the decision-maker's web of activity interrelationships.

The second example of a location decision study in a developing country

is Townroe's study. In Sao Paulo, Brazil, Townroe's (1983) study, which forms

part of the findings of World Bank studies, has surveyed 581 industrial firms located both within the metropolitan area and in the hinterland cities. The firms were asked to respond to 38 location factors which may be considered decisive

43

or important in selecting the location of their factories. The location factors are _

divided into two categories: the pull factors (eg: easy road access, a suitable

plot, space for expansion, and availability of reliable electric power supply, which are also the top four major pull factors) and push factors (eg. the need to

increase production, existing premises- fully occupied, -a desire for internal reorganisation, and the introduction of 'a new line of products, which are also the top four major push factors).

Townroe (1983) stressed three issues in examining the pattern of responses to the pull factors: First, that different types and categories of new-plant have different

requirements and priorities, - within a common broad pattern. Particularly important distinctions _ for looking at metropolitan industrial decentralisation have been those between births and branch -plants and relocation, and between the metropolitan and the non-metropolitan locations. Second, that the typical company will cite a group of location factors as having been important in

the choice of a new site, it being rare for a single factor to completely dominate the decision. Third, the pattern of responses obtained is not so very different from that expected on the basis of

past industrial location surveys in North America and Western Europe, with some playing up of the role of access to reliable utilities and some playing down the importance of labour related factors. (Townroe 1983, pp. 66-67)

In more detail, eight major locational pull factors were stated by more than 50% of the factories moving within the built-up metropolitan area. They

were 'easy road access' (86%); 'suitable plot' (84%); 'space for expansion' (82%); 'availability and reliability of electric power' (79%); 'cost and land' (69%);

'telephone and telex facilities' (66%); 'proximity to main customers' (55%), and

'proximity to main supplier' (51%). Meanwhile, around 57% of a suburbanised group of plants recognised that seven of these eight factors are also the most

important. Another major factor for this group was 'plentiful supply of labour'.

Townroe (1983) also compared his study with British and American studies. Townroe found that in Sao Paulo, labour factors are not as problematic as in

western countries, and also that these factors are not as important as other 44

factors in stimulating movement. State and local governments in Sao Paulo -

offer weak inducements to generate movement of firms.

The third example is Noers study. Noer (1985) surveyed firms in the four

largest cities in Indonesia to examine _why industrial firmsagglomerate in the largest cities linked to the-framework of investment policy. The total number of

respondents was 103, distributed in Jakarta (44), Surabaya (32), Medan (16)

and Ujungpandang (11). Twelve location factors that may affect location decisions were asked of Indonesian manufacturing industrialists, namely: labour; nearness to the government office; availability of material; availability of officials; freight cost per unit output; nearness to the owners home; proximity to

buyers; access:-to business institutions; availability of electricity; tax holiday;

availability of transport facilities; and investment policy. Noers study argued that manufactUring industries agglomerated in Indonesia's largest cities as a response to the ineffectiveness of government policies such as tax incentives

and investment policies. Noer added that behavioural factors were more dominant than cost and physical factors in affecting the location decisions of

Indonesian firms. Indonesian industrialists were more influenced by such location factors as access to business institutions; nearness to the office of

BKPM/BKPMD (National and Regional Investment Coordinating Board); availability

of

potentially

helpful

officials;

home

location

of

the

owner/shareholders; and other location factors cited in traditional industrial location theory.

Another study was conducted by Rietveld, Kameo, Schiper and Vlaanderen in Central Java-Indonesia in 1994. Rietveld et al. (1994) examined

the impact of infrastructure (roads, telecommunications and electricity) on industrial development. By surveying around 274 medium and large firms in various parts of Central Java (Kotamadya/Kabupaten Semarang, Kotamadya Salatiga, Kabupaten Karanganyar, Kabupaten Banyumas, Kabupaten Boyolali

and Kabupaten Magelang) and analysing secondary data, they concluded that

45

the

infrastructural

location

factors making a

high

contribution to

the

development of the manufacturing industry were access to telephone, electricity, sea ports and air ports. Other important location factors were high expected

growth in

locaVregional

markets;

speed

of

land

acquisition

procedures; supply of qualified labour; ease of obtaining permits; proximity of

highway; and presence of supporting industries. Moreover, according to Rietveld et al., the government bureaucratic procedures for obtaining land and permits were also important.

Other studies relevant to the location decision explain location factors that might be considered as major factors in selecting the location of industry. In Bangkok Metropolitan Region, for example, Robinson, I.M (1995) found that lower land price is the main consideration for both existing firms and new firms in industrial location decision making. Meanwhile Ruland (1996) adds that, not only lower land prices, but also available space and less strictly regulated land use are the main reasons for selecting industrial locations, particularly for plants

that move to suburban sites. Leaf (1996) also identified lower labour costs and

lower land prices as the main factors for domestic investment in selecting an industrial location. PT Procon Indah in 1992 (cited in JMDPR, 1993) added that

cheaper land, and having a factory built on one's own land, are major considerations in selecting a location. According to McGee (1995), cheap labour is one of the major considerations for Japanese and Newly Industrialised

Countries' (NICs) firms in relocating and investing in developing countries, particularly in the

Association of Southeast Asian Nations (ASEAN) region

which has been a major destination for their investment. Douglas (1995) identified that Malaysia and Indonesia attract international investment due to labour pools and relatively lower land costs. Meanwhile, Sheng and Rahman

(1995) argued that firms were, at that time, attracted to invest in Bangkok,

Thailand, for reasons of its low wages, low taxes and tax concessions for foreign investors, lenient regulations, and its stable economic and political system. Sheng and Rahman add that Thai workers are diligent, dexterous, and

46

trainable. Meanwhile, other parts of Thailand such as Pathrun Thani, and Klong

Luang offer advantages to investors such as inexpensive land, easy access to

Bangkok ensured by the highway, and lack of regulations. In Malaysia, Thong

(1995) adds that industrial activities exist along the western part of the Peninsula following the existing highway, railroad system, and port facilities.

In China, Leung (1996) argued that investors are interested in the development of Special Economic Zones (SEZs) such as Shenzhen, Zhuai, Guangzhou and others, due to their proximity to and social ties with Hong-

Kong which is a major economic centre in the region and well-established internationally, with strong investment capabilities. China's industrialisation program also offered low cost structure, a flexible policy environment, relatively low-costs, an adaptable cooperative labour force, and financial incentives such

as lower tax rates, exemption of tariffs for foreign investors, and additional tax

reductions. The concentration of major state and non-state enterprises as domestic partners also attracted investors to locate their factories in China. In addition, the availability of scientists and engineers who are paid with low wages was a primary reason for firms to consider China as a location.

Again, in the empirical studies described above, perceptions of decision

makers of firms vary in terms of their location decisions. There is no single decisive location factor which determines the industrial location behaviour of firms. In other words, location factors should be considered by firms to be multi factorial. It depends on the scale of firm (multinational, regional, and local), size

of firm (large, medium or small), and type of industry. This is not surprising, as Townroe (1991) states that:

As always in social science, we know that behaviour patterns are far from homogeneous. Some subgroups of a population fall closer to one model of behaviour for a particular choice, while others lean towards another models. (Townroe 1991, p. 391)

47

Of the empirical studies carried out in developing -countries, examined

above, Onyemelukwe' study and Noer's study sewn somewhat similar. They

are both really concerned with the role of behavioural factors in influencing location decisions. They claim that non-economic considerations should be

considered as important location factors, and even that, in some cases, the

dominant than other factors. By

non-economic considerations are more

contrast, in Townroe's study in Sao Paulo, Brazil, it seems that the result of the study is not significantly different from those of developed countries, with

the exception of the labour aspects. In Sao Paulo, labour aspects are less important than in developed countries.

As explained above, one of the objectives of this chapter was to examine

the role of government planning policy in industrial location decision making. -

_

The review sh6ws that it is very rare for planning to be considered as a location

factor in the industrial location decision. Even though several studies use planning/environment as location factors, the role of this factor seems less

important than other location factors. There are two possibilities for why planning factors, including environmental considerations, did not attract strong

attention. First, the questionnaire may not have explicitly asked respondents what was the importance of planning/environment. Second, the fact is that the

decision maker of firms may not,

in

fact, see planning as an important

consideration in making a location decision.

Many location factors are considered in the industrial location decision making of firms in both developed and developing countries (findings from the

literature are summarised in Table. 2.6 p.49). In general, various aspects of

labour, markets, transportation and land are frequently cited by firms in developed countries. Meanwhile, in developing countries, cheap labour, cheap

land and space for expansion, financial incentives from the government, and

also various aspects of behavioural factors or non-economic considerations, are important factors to be considered in selecting industrial location.

48

Table 2.6 Most Significant Major Location Factors Influencing Location Decisions of Manufacturing Firms in both Developed and Developing countries from main selected studies .

Of.

No.

Scholars

A

Developed Countries

1.

Morgan (1967)

-

2..

Tong (1979)

-

3.

Schemenner (1982)

4.

Chernostky (1983)

5.

Yoshida (1987)

6.

Bowlby (1988)

7.

Tosh, Festervand, and Lumpkin (1988)

8.

Ziegler (1990)

9.

Haigh (1990)

Business Administration

10.

Haitani and Marquis (1990)

Economic Development / Investment

Framework/main issues

Business Administration

-

Business Administration / Investment Economic Development Economic Development -

Top Five Major Location Factors in Research Findings

1.markets, 2. labour, 3. raw materials, 4. transportation. 1. transportation services, 2. labour attitudes, 3. space for expansion, 4. nearness to market, 5. Availability of a site. Regional level: 1. favourable labour climate, 2. near market, 3. attractive place for engineer and managers,4. near supplies and resources, 5. low labour rates. Site level: 1. access to rail service, 2. access to express way, 3. special provision of utilities, 4. rural area, 5. environmental permits. 1. availability of desirable site, 2. attractiveness to incoming personnel, 3. market access. 1. quality of labour, 2. labour unionisation, 3. proximity to markets, 4. cost of land, 5. cost of labour. 1. market size, 2. labour pool, 3. market potential, 4. financial centre. 1. trainable labour, 2. level of union activity, 3. productivity of workers, 4. cost of labour, 5. community receptivity to industry. 1. unionisation, 2. quality of education, 3. quality of life, 4. business climate, 5. traditional factors (market, labour, transportation, and materials) 1. right to work law, 2. nearness to markets, 3. economic development agency, 4. sea port accessibility, 5. land, building, and tax costs, 6. economic incentives; 7. quality of life

11.

Wasylenko (1991)

12

Calzonetti and Walker (1991)

13

Allan (1993)

Economic Development Regional Growth and Development

Economic Development

1. access to market, 2. labour aspects, 3. access to transportation system, 4. hospita-

lity of the state and local communities, 5. the incentives package including available and affordable industrial land. 1. markets, 2. labour compensation, 3. various aspects of local transportation. Regional search : 1. markets, 2. labour, 3. land Local search : 1. markets, 2. non-union labour, 3. highway.

1. infrastructure (transportation & accessibility to markets), 2. government financial support, 3. site (suitable site and space for expansion), 4. local human resources, 5. proximity to harbour and education facilities.

49

Table 2.6 continued/..... Framework/main issues Business Administration / Foreign Investment

No.

Scholars

14.

Porcano (1993)

15.

Ulgado (1996)

Business Administration / Investment

16.

Artikis, Merikas and Vozikis (1996)

Regional Economic Development

B

Developing countries

1.

Onyemelukwe (1974)

Economic Development

2.

Townroe (1983)

Urban and Regional Economics

3.

Noer (1985)

Investment Policy

4.

Yuen (1991)

Economic Development

Top Five Major Location Factors in Research Findings Host Country:1. product demand, 2. labour quality, 3. economic condition, 4. labour supply, 5. wage rates. Home Country: 1. product demand, 2. labour quality, 3. wage rates, 4. economic conditions, 5. attitudes toward foreign investment. 1. availability of utilities, 2. availability of suitable plants sites, 3. space for expansion, 4. attitude of local government, and 5. labour productivity. (for overall sample) Food industry: 1. raw materials, 2. labour, 3. land, 4. pollution control, 5 facilities and services. Clothing industry: 1. labour, 2. industrial infrastructure, 3. land, 4. pollution control, 5. facilities and services. Chemical industry: 1. labour, 2. raw material, 3. facilities and services, 4. pollution control, 5. financial incentives. Electrical/electronic : 1. labour, 2. raw material, 3. growth potential, 4. financial incentives, 5. marketing costs. Plastic/rubber: 1. labour, 2. Industrial infrastructure, 3. land, 4. compatibility with company strategies, 5. proximity to markets. Metal : 1. labour, 2. financial incentives, 3. land, 4. industrial infrastructure, 5. proximity to markets.

1. proximity to markets, 2. proximity to raw materials, 3. close federal centre of decision making, 4. quick access to or from Britain, 5. socio-political considerations. Locational pull factors: 1. easy road access, 2. a suitable plot, 3. space for expansion, 4. reliable electric power supply. Locational push factors: 1. the need to increase production, 2. existing premises fully occupied, 3. a desire for internal reorganisation, 4. the introduction of a new line of product 1. availability of raw material, 2. freight cost per unit, 3. proximity to buyers, 4. near-ness to the office of Regional Investment Coordinating Board (BKPM/BKPMD), 5. availability of potentially helpful officials, 6. home location of the owner/shareholder. 1. infrastructure, 2. land development, 3. utility services, 4. legislation and tax incentives, 5. financial, technical and managerial assistance.

50

Table 2.6 Continued/ No.

Scholars

5

Rietveld, Kameo, Schiper and Vlaanderen (1994)

6.

7.

2.6

Framework/main issues Economic Development

Top Five Major Location Factors in Research Findings 1. telephone, 2. electricity, 3. sea ports, 4. airport, 5. high expected growth in local /regional market.

Sheng and Rahman (1995)

Urbanisation

Leung (1996)

Regional Development and Investment Policy

1. low wages, 2. low tax, 3. lenient regulations, stable economic and political system, 4. attitude of labour. 1. nearness and social ties with a major economic centre (Hong-Kong), 2. low cost structure, 3. flexible policy environment, 4. low cost and attitude of labour, 5. financial incentives.

Location Factors and a Successful firm The relationship between location factors considered in determining

industrial location and the successful performance of firms may be approached in

Porter's study. Porter (1990, p.154) argues that 'competitors in many

internationally successful industries, and often entire clusters of industries, are

often located in a single town or region within a nation'. Porter gave some examples, such as the vast majority of Italy's woollen textile producers being

located in two towns. British auctioneers are all within a few blocks of each other in London. Basel is the home base for all three Swiss pharmaceutical giants. Danish windmill producers are centred in Herning. In America, many leading US advertising agencies are concentrated on Madison Avenue in New

York City. Large-scale computer manufacturers such as Control Data, Research,

Burroughs

(now part of Unisys)

and

Cray

Honeywell are all

headquartered in or near Minneapolis, Minnesota. Pharmaceutical and related

companies, among them Merck, Smith Kline, American Cyanamide, Squib, Becton-Dickinson, and C.R. Bard, are based in the New Jersey/Philadelphia area. General aviation aircraft producers are concentrated in Wichita, Kansas, and minicomputer producers in Boston. According to Porter (1990, p. 157), the geographical concentration of firms in internationally successful industries often

happens 'because the influence of the individual determinants in the diamond

and their mutual reinforcement are heightened by close geographic proximity

51

within a nation. A concentration of rivals, customers, and suppliers will promote efficiencies

and

specialisation'.

Porter

defines

the

diamond

as

a

conceptualisation comprising four broad attributes which form an environment

generating competitive advantage (see Figure 2.2 p. 53). Porter (1990) describes these attributes:

The first is factor conditions. The nation's position in factors of production, such as skilled labour or infrastructure, necessary to compete in a given industry.

The second is demand conditions. The nature of home demand for the industry's product or service.

The third is related and supporting industries. The presence or absence in the nation of supplier industries and related industries that are internationally competitive.

Finally, firm strategy, structure, and rivalry. The conditions in the

nation governing how companies are created, organised and managed, and the nature of domestic rivalry. (Porter 1990, p. 71)

Basically, the first three attributes of Porter's model are location factors considered by most firms in selecting the location for their industrial site. Porter

also argued that the advantages of geographic concentration are to increase improvement and innovation; to attract talented people; to encourage spin-offs;

to increase the concentration of information and speed of information flow, and

at the same time to limit the spread of information out slowly; to raise the visibility of competitors, and other advantages.

Porter (1990) claims that the circumstances underlying competitive advantage can often be localised within a nation, though at different locations for different industries. According to Porter, this theory also explains why some

cities are more successful than others. Porter gives an example of why the London region is successful in the United Kingdom, due to its higher demand for many goods and services, its cluster of supporting industries, and its highly

52

Figure 2.2 Determinants of.National Advantage Source: Adapted from Porter 1990, p. 72

skilled labour pools, among other considerations. Porter (1990) also explains that usually the home nation is the initial location for all activities. In the global

strategy, however, a firm could locate its plant in any nation which has advantages. The costs-factor is the classic reason for choosing a location in a

particular nation. Taiwan and Singapore, for example, are suitable places for

manufacturing assembly, due to the advantages of a pool of educated, motivated, but inexpensive labour. More recently, cost as a consideration for

firms in choosing locations in other nations has been joined by research and

53

development (R&D), gaining access to specialised local skills, and developing relationships with a pivotal customer.

Allan (1993) who has assessed Porter's model found that, in the case of manufacturing firms in Scotland, infrastructure provision (factor conditions)

such as a well serviced industrial estate with good transport links and good premises, easily accessible to its main markets, was extremely important for the firms, especially during the start-up phase of the industrial location decision

process. According to Allan, other location factors very important for firms in Scotland were government financial support, suitable factory premises, a site

that permitted future expansion, and local human resources (the quantity of labour available and its costs). Allan also argued that all location factors were

considered to have an association with the successful growth of firms. In the city of Aberdeen, Allan found location factors such as close proximity of harbour

facilities and facilities for education and training to be the key conditions responsible for growth in firms of the oil and gas related industry.

2.7

Concluding Remarks. The behavioural simplicity of the rational economic man which underlay

Weberian and Loschian conceptualisations, and those who followed and developed the models within their framework, brings about difficulties for these

models to be applied

in

real world economic conditions.

Because of

unhappiness with the models, some scholars argue that the behavioural approach is an alternative which is more realistic in influencing decision makers

of firms in locating their plants. This means that the approach could be used to

explain what location factors may influence decision makers in selecting industrial locations. Most empirical studies of industrial location decisions have

taken place in developed countries, while empirical studies in developing countries are very few.

54

From the selected studies described in the previous sections, it can be

argued that the major location factors considered in selecting an industrial

location vary in both developed and developing countries. There is no dominant location factor chosen as the most decisive variable in location decision. In other words, to select the best industrial location, multiple criteria should be considered. Various degrees of importance for location factors also depend on the type of location decision considered (start-up, expansion on-site,

or relocation); the type of industry considered; the size of plant considered (large, medium or small firms); and the scope of location decision considered (eg multinational, regional or local search).

In developed countries, most major location factors considered by firms

in selecting industrial locations, bear a strong relationship with economic /

market forces and physical or natural attributes. However, in developing countries, major location factors considered by firms are not only related to economic/market forces and physical aspects, but also behavioural factors or

non-economic/market factors. The role of non-economic considerations in influencing location decisions should be considered as an important location

factor. In some cases, the non-economic considerations are more dominant than economic factors. However, in another study, it seems that the results for

developing country firms are not so different from those of the developed countries, with exception of various aspects of the labour dimension. Overall, in

developed countries, the manufacturing firms seem to pay more attention to

various aspects of labour, markets, transportation and land. Meanwhile, in developing countries, the manufacturing firms seem to give more consideration

to cheap labour, cheap land and space for expansion, financial incentives,

transportation and also to various

behavioural factors or non economic

considerations.

As explained above, one of the objectives of this chapter has been to examine the role of government planning policy in industrial location decision

55

making. The review shows that it is very rare for planning to be considered as a

location factor in industrial location decisions. Although several studies used -

planning consideration as a factor in examining location decisions, the role of

planning appears to be less important than other factors. There are two possibilities why planning factors, including environmental considerations, tend

not to have been chosen as major location factors in these studies. First, the questionnaire may not have asked explicitly about the importance of planning policies. Second, decision-makers of firms may have not have been aware that planning is an important consideration in selecting a location. Moreover most of

the empirical location studies in both developed and developing countries are

based on the business administration/investment framework or on economic development:- Studies of industrial location decisions based on urban

management and planning frameworks, or regional and site stages, are few. The next chapter will discuss urban growth and planning policy in Jabotabek.

56

CHAPTER 3 URBAN GROWTH and PLANNING POLICY in the JABOTABEK REGION 3.1

Introduction This chapter examines the pattern of urban growth within the Jabotabek

region and traces the evolution of planning ideas and policies for the region

over the few past decades. This provides the context for a more detailed discussion of attempts to influence the location of industry in Jabotabek over this period, and for the empirical study of factors influencing industrial location decisions in the following chapters.

There are seven main sections in this chapter. Sections 3.2-3.6 analyse

the growth of Jakarta and its surrounding region, including the pattern of population growth, regional economic development and the changing land use

patterns and environmental issues that have accompanied growth. These sections also relate patterns of growth to the principal planning strategies that

have sought to shape and direct Jabotabek's growth over recent decades. Section 3.7 draws conclusions about the overall ineffectiveness of attempts to

direct Jabotabek's growth into planned directions, and discusses these in relation to general characteristics of planning in rapidly-growing Asian countries.

3.2

Growth and Pattern of Population in Jabotabek In last four decades, the population of DKI Jakarta (Daerah Khusus lbu

Kota Jakarta or the Special Province Level I) and Botabek has increased dramatically. In the 1961 census,

the population of DKI Jakarta was 2.973

million. By the1990 census, the population had more than doubled to around

8.222 million. By the year 2000 and 2005, the Master Plan of Jakarta 2005 (1991) has estimated that the population of DKI Jakarta will be 11 million and 12

million

respectively. By the year 2010 the Jabotabek Metropolitan

57

LEGEND

r ir.401AV

DKI Jakarta 1

Depok Administrative City Bogor Municipality Bogor Regency

Tangerang Municipality Tangerang Regency Bekasi Municipality Bekasi Regency

Figure 3.1 Jabotabek Administrative Boundaries. Source: Adapted from Jakarta 2005 Master Plan 1991, p. 9.

Development Plan (JMDP) forecast a population of 12.585 million, while the Jabotabek Metropolitan Development Plan Review (JMDPR)'s prediction is

12 million (see Table 3.1). The density of population in DKI Jakarta was 5,152

persons per km2 in 1961. By 1990, the density had increased to 12,642 persons per km2 . By the year 2010, it is predicted that it will be 18,461 persons per km2 . It can also be seen from Table 3.1 that the annual inter-census

growth rate of population decreased from 4.41 % between 1961 and 1971 to

2.37% between 1980 and 1990, reflecting changes in migration pattern. Table 3.1 Population Growth and Density of DKI Jakarta. Year Population Density (persons Inter census annual (million) growth rate (YO) per km2 ) 1961 Census 2.973 5,152 1971 Census 4.579 7,936 4.41 1980 Census 6.503 9,335 3.97 1990 Census 8.222 12,642 2.37 2000*) 9,738 14,982 12.000 18,461 Source: Adapted from JMDPR 1993a, and Soegijoko, BTS 1996. *) JMDPR forecast -2010*)

Since 1975, permanent migration from West Java including Botabek and other

parts of the country to DKI Jakarta has decreased gradually. According to

Soegijoko, BTS (1996), there is a trend for Botabek to become one of the preferred destinations for migrants due to lower land prices and living costs,

increasing availability of employment, and easy accessibility to Jakarta. Thus

Botabek's rate of population growth has increased, while DKI Jakarta's has slowed.

The JMDPR (1993a) also noted that Jabotabek is the main destination for migrants from elsewhere in Indonesia because of economic considerations

such as the availability of industrial estates providing job opportunities, and overall economic growth potential

in

attracting migrants.

Soegijoko, BTS (1996) the 1990 population gradually,

areas outside

censuses

According to

indicated

that,

Java becoming more important destinations of

59

Table 3.2 Population Growth of the Botabek Region 1980-1990. Region

Kotamadya Bogor Kabupaten Bogor Kabupaten Tangerang *) Kabupaten Bekasi *)

1980")

1990 **)

Annual ,growth Rate 1980-1990 271,341 0.95 3,736,180 4.13 2,764,988 6.10 2,104,392 6.29 8,876,901 5.65

246,946 2,493,843 1,529,019 1,143,463 Botabek 5,413,271 Source: Adapted from Soegijoko, BTS 1996. *) including their administrative cities (Kotamadya) of Tangerang and Bekasi **) BPS' Censuses

permanent migrants. However, DKI Jakarta and West Java are still

the

main migrant destinations.

Soegijoko, BTS (1996) also argues that the decline of DKI Jakarta's rate of population growth was mainly due to the out-migration of Jakarta inhabitants

to the Botabek region. The development of large scale residential areas and new towns (eg. Bumi Serpong Damai, and Tiga Raksa) was significant in the rapid growth of the Botabek area. Meanwhile, Badan Kerjasama Pembangunan

(BKSP) (1996) also argued that the decline of DKI Jakarta's population was because of a successful family planning program, the transmigration program,

as well as migration from DKI Jakarta to Botabek. High land prices and the difficulty in getting land are the main reasons why the population moved from

the core city of DKI Jakarta out to fringe city areas. According to Jones and

Mamas (1995), Botabek or the fringe areas outside DKI Jakarta have dominated urban growth in West Java in recent years.

Based on JMDPR projections (see Table 3.3, p. 61), the population of

Jabotabek will grow from 17 million in 1990 to almost 30 million by the year 2010. During the period 1990-1995 the growth rate of population of DKI Jakarta

was 1.8%, while during the period 2005-2010 the growth rate is expected to be 1.3%. This means that the growth rate of population in DKI Jakarta will decline gradually from 1.8 % to 1.3%. At the same period, the growth of Botabek region

60

1990 Area 8,210,000 DKI Jakarta 8,746,000 Botabek 16,956,000 Jabotabek Source: JMDPR 1993a.

Pooulation in DKI and Botabek 2005 2000 1995 8,964,000 11,077,000 20,041,000

9,738,000 13,534,000 23,272,000

10,487,000 16,110,000 26,597,000

2010 11,178,000 18,740,000 29,918,000

will decline from 4.7% during the period 1990-1995 to 3.0% during the period 2005-2010. However, the JMDPR (1993) argues that the major issue is not the overall growth but how to distribute the population.

The pattern of population change is heavily influenced by migration. UNESCO estimated that the annual rate of migration into DKI Jakarta between

1948 and 1953 was 116,000 migrants. During the 1960s, ILO (International

Labor Organisation) estimated around 86,000 migrants per annum. By comparison, PT Hasfarm Dian Konsultan's estimation of annual migration into

Jakarta, during 1971-1980, was 72,000. In 1985, the Office of Population Affairs of Indonesia reported that around 90,800 migrants arrived in the city (DIESA 1989).

Meanwhile, according to data from BKSP (1994) during the period 1985-

1990 around 794,124 migrants came to DKI Jakarta from various regions including overseas (see Table 3.4, p. 65). Firman and Dharmapatni in 1995 (cited in Firman 1997, p.1032) emphasised that Jabotabek, Serang and

Karawang (Northern Region of West Java/NRWJ) was one of the main destinations for both permanent and non-permanent migrants from many parts

of Indonesia (especially from Java and Lampung), because in these regions,

the development of services and industries has increased and created job opportunities. Around two-thirds of the industrial workers in Kabupaten Bekasi were from Central and East Java.

A study of Jakarta's metropolitan fringe (Browder, Bohland, & Scarpaci

1995) indicated that most residents who live in the fringe areas of Jakarta moved there from other neighbourhoods within the city. The study argues that 61

< 60.000

50.001 - 100.000

100.001

150.000

150.001

200.000

,A=

200.001 - 250.000

[MN

250.001

300.000

300.000

10

Figure 3.2 Density of Population in Jabotabek 1990 Source: Adapted from BKSP 1994.

...15

0 5 ....4=011

Km

; .11f

/4&-p.

/-

;_;.

I.

Figure 3.3 Population Growth Rates of Botabek 1990-1995 Source : Adapted from JiViDPR 1993.

I

D2C-4.5

0

5 I

Km

Figure 3.4.The Estimation of Population Growth Rates of Botabek 200592010 Source : Adapted from JMDP 1993. .

10 I

15

Table 3.4 Immigration to DKI Jakarta during 1985-1990 Region West Java Central Java East Java North Sumatra West Sumatra D.I Yogyakarta South Sumatra South Sulawesi West Kalimantan Riau North Sulawesi International migrants Lampung D.I Aceh Maluku South Kalimantan Jambi Bali NTT East Kalimantan Sulawesi Tenggara Bengkulu Irian Jaya NTB Central Sulawesi Central Kalimantan Timor Timur Total

Migrants (person) 213,258 337,326 89,714 40,536 27,732 20,529 19,704 7,555 13,127 6,288 4,897 13,458 10,131

3,447 2,985 2,342 2,651

2,598 1,783 3,156 593 1,734 1,687 3,070 1,054 971

703 833,029

Percent 25.6 40.5 10.8 4.9 3.3 2.5 2.4 0.9 1.6 0.8 0.6 1.6 1.2 0.4 0.4 0.3 0.3 0.3

0.2 0.4 0.1

0.2 0.2 0.4 0.1 0.1 0.1 100.0.

Source : Jabotabek Dalam Angka Tahun 1994 (Jabotabek in Figures 1994) Published by BKSP.

there is an integration of fringe areas into the urban economy functionally and

spatially. The study also found that around 50% of the surveyed households had previously stayed in the city centre; and one-sixth had previously stayed in rural areas.

It can be seen from Table 3.4 that most migrants came from Java. Central Java accounted for around 40.5%, followed by West Java and East

Java (25.6% and 10.8% respectively). Migrants from the other regions accounted for less than 5%. Based on the result of SUPAS 1995 (Survai

65

Penduduk Antar Sensu 1995 or the 1995 Inter Census of Population Survey), a -

recent analysis of migration done by Firman (19984 indicated that the total of migration in DKI Jakarta during 1990-1995 reached 594,542 in-migrants (6.53%

of the total population) and 823,045 out-migrants (9.03% of the population). Thus, out-migration was larger than in-migration, such that the growth rate of population of DKI_Jakarta decreased from 3.09% per year during 1980-1990 to 2.06% per year during 1990-1995.

Firman (1998a) also noted that most migrants into DKI Jakarta were from Central Java (34.1%), West Java (31.0%), and East Java (10.0%) and

dominated by females working in services. The main destination of out-

migration from DK! Jakarta were the Bogor, Tangerang and Bekasi (Botabe-k)

regions, and, during 1990-1995, the growth rates of population of these three _-

regions were -3.4%, 5.7%, and 5.6% per year respectively. The migrants from DKI

Jakarta to Botabek were attracted

by new settlements and job

opportunities, especially in industrial sectors. Firman (1998a) also concluded

that the pattern of in and out-migration in DKI Jakarta represented a restructuring of Jabotabek, physically and economically. The core city (DKI

Jakarta) has shifted from industrial activities and residential settlements to services and trading, while settlements and industrial activities have moved out to fringe cities (Botabek).

Essentially, the pattern of population movement between village and city

is very complex. Censuses and surveys do not always deal adequately with commuting, circular and seasonal migration, for example. Hugo in 1982 (cited in United Nations 1989) claimed that only one third of all population movement

is compatible with the criteria indicated by census as migration. Regular commuting of up to 50 kilometres (although not necessarily every day) occurs to work or to attend school. Circular migrants by contrast, still live at their usual

place of residence in the village but are absent in the city for up to six months. Hugo also found, however, that not all circular migration took place during the so called empty season, when there was the seasonal slack between planting 66

and harvesting. In the early 1970s, the local government of Jakarta issued a 'closed city policy' to prohibit new migrants to the major city. This policy was

not successful, but instead brought about an increasing proportion of illegal residents (Hugo 1985, cited in United Nations 1989). In addition, Soegijoko,

BTS (1996) shows that today there are large numbers of daily commuters between the urban fringe areas and DKI Jakarta. Probably, more than 300,000

people are commuting everyday from Botabek to Jakarta for work by using buses and intercity trains. The Jakarta Mass Transit System Study (JMTSS)

(JMDPR 1993a) estimated that in 1990 around 300,000 commuted from Botabek into DKI Jakarta and 100,000 commuted from Jakarta to Botabek, whereas by 2015, JMTSS estimated that around 600,000 would commute into

Jakarta and 200,000 out from Jakarta. JMDPR (1993a) itself estimated a net

increase of 500,000 commuters and argued that the growth rate

in net

commuting into Jakarta might be slow, because of development over time of employment opportunities in the main centres of the Botabek region.

BKSP (1996, p.13) argued that population movement from new residential areas in Botabek to Jakarta could be interpreted in three main ways:

The large scale development of residential areas in the Botabek region is to fulfil the need for housing for the people who work in Jakarta.

The rapid development of new residential areas has less linkages with the development of industrial activities in the Botabek region

The large scale development of new residential areas or new towns, has not been accompanied by adequate social and economic facilities.

Henderson, Kuncoro and Nasoetion (1996) also argue that, due to major

transport improvements, the demand to live in the city centre and the premium

on location near it decrease. This is one of the reasons that people prefer to live outside Jakarta, even though they work in Jakarta. Badan Pengkajian dan

Penerapan Teknologi (BPPT)'s study (1993) estimated that, in 1990, there

67

might be 1.8 million daily movements of people between Jakarta and Botabek. And in 2015 , this is predicted to be 5.8 million movements.

The pattern of population of Jabotabek is characterised by rather high population densities near the centre combined with Urban sprawl at the fringes

(Henderson, Kuncoro and Nasution, 1996). Dharmapatni and Firman (1995)

predict that Jabotabek is becoming spatially unified with the Bandung Metropolitan Region. This means that the urban population will be increasingly

clustered in areas adjoining the 200 km long arterial road connecting Jakarta-

Bogor and Bandung. Ginsburg and McGee (1991) hypothesised that in Asia, there is a new phenomenon of extended metropolitan areas called desakota: the growth of extensive, formerly rural., areas surrounding major metropolises-or

along transport-corridors between major cities, where population is dense and

there is an intense mixture of agricultural and non-agricultural activities. More precisely McGee (1991) states that:

in the Asian context, the conventional view of the urban transition, which assumes that the widely accepted distinction between rural and urban areas will persist as the urbanisation process advances, needs to be re-evaluated. Distinctive areas of agricultural and non-agricultural activity are emerging adjacent to and between urban cores, which are a direct response to preexisting conditions, time-space collapse, economic change, technological developments, and labour force change occurring in a different manner and mix from the operation of these factors in the Western industrialised countries in ninetieth and early twentieth centuries. (McGee 1991, p. 4)

Figure 3.5 (p. 69) illustrates the spatial configuration of a hypothetical Asian country. McGee (1991, p.6) describes five main regions of the spatial economy as follows:

the major cities of an urban hierarchy, which in the Asian context are often dominated by one or two extremely large cities;

the pen-urban regions, ie. those areas surrounding the cities within a daily commuting distance from the cores;

68

% 666666

66 6. OOOOOOOOO .666666

61,6

611.6. 66 S 66

SPATIAL SYSTEM Molor cities PefiAtiban Desakota Densely populated rural

Sparsely populatd.frontier Smaller cities and toWns Communication routes

Figure 3.5 Spatial Configuration of a Hypothetical Asian Country Source: McGee 1991, p. 6.

the desakota regions, which often lie along the corridors connecting a large city core to smaller town centres; densely populated rural regions;

sparsely populated frontier regions

Jabotabek clearly illustrates the emergence of a desakota (McGee, 1991

,

and

Dharmapatni and Firman 1995).

According to Soegijoko, BTS (1997) during 1971-1994, the population of

DKI Jakarta grew around 4.9% per year. In 1994, DKI Jakarta had a built-up area of 54,506 hectares or 82% of the total city. Meanwhile, the Botabek region

had a lower built-up area compared with DKI Jakarta. Its expansion, however,

is much higher. The rapid urbanisation of Botabek transformed the number of localities considered as rural into urban. Soegijoko BTS (1997) states that

the direction of the expansion of built-up areas has changed during 1970-1990. Since the late 1970s, rapid expansion has been largely following the east-west axis. The spillover development along the east-west and to the north-south axis of DKI Jakarta and Botabek region has created an urban ribbon development which has blurred the distinction between urban and rural areas in Jabotabek. (Soegijoko, BTS 1997, p. 10)

In order to reduce migration to the core cities, the Jabotabek plans have

planned counter-magnet towns, but development along the east-west axis of Jabotabek has been much faster than planned. The development of toll roads

connecting Jakarta and Tangerang, Jakarta and Bekasi, and Cikampek and Jakarta-Bogor has encouraged east-west and also north-south axes of physical development. It has also had a great impact on decentralisation of development

to Botabek, where the large-scale housing development, new towns, and industrial estates are located (Dharmapatni & Firman 1995). The development of planning strategies for Jabotabek is considered in detail later.

70

3. 3

Regional Economy The regional economies of DKI Jakarta and Botabek have followed

rather different trends. It can be seen from the Table 3.5, during the period 1985-1995, in the core city of DKI Jakarta, that the shares of manufacturing industry; construction; and financial, rental and business services increased steadily. In 1985, the shares of each sector of GRDP (Gross Regional Domestic

Table 3.5. Percentage Distribution of Gross Regional Domestic Product (GRDP) by Industrial Sector in DKI Jakarta. Sector/year

1985*

1993**

1994**

1995**

DKI/J131-K

1994

DKI/NA 1994

18.64

0.28 0 20.95

3.87

1.76

8.27

13.01

23.31

22.14

13.68 22.19

10.17

8.7

8.41

8.04

78.88

18.53

21.29

22.64

22.69

22.25

95.06

40.75

13.06

10.51

10.05

9.48

81.78

16.28

77.81

15.65

Agriculture Mining Manufacturing Industry Electricity, Gas & Water supply Construction Trade, Restaurant and Hotel Transportation & communication Financial, Rental and Business Services Services GRDP in million rupiahs

9,012,722

1.39

0

100

0.23

0.2

0

0

20.99 1.76

21.3 1.67 14.49

7.90 0 62.76 64.23

26.32

22.57

87.99 84.09

29.37 20.70

100 100 100 51,106,459 55,505,268 60,638,216

0.21

0

14.10

Source : Biro Pusat Statistics (Central Bureau of Statistics) * at constant 1983 market price ** At constant 1993 market price DKI/JBTK ratio = the ration between GRDP of DKI Jakarta and Jabotabek DKI/NA ratio = the ration between GRDP of DKI Jakarta and Indonesia.

Product) were 18.6%, 8.3% and 21.3% respectively. And in 1995 the shares increased to be 21.3%, 14.5%, and 22. 6%. The share of construction in 1995

was almost twice as high as in 1985. By contrast, the share of agriculture decreased sharply, from 1.39% in 1985 to 0.23% in 1995. The three sectors

with the highest share of GRDP during the period 1985-1995 are 'financial, rental

and

business

services',

'trade,

restaurants

and

hotels',

and

'manufacturing industry'.

71

In 1994, the contribution of GRDP of DKI Jakarta to Jabotabek's economy was almost 78%. The shares

of 'financial, rental and business

services', 'construction', 'trade, restaurant and hotel', and 'services', the first four highest contributions, were 95.1%, 88%, 84.1% and 81.8 % respectively.

Meanwhile, the contribution of DKI Jakarta's economy to national economic development represented by its contribution to Gross Domestic Product (GDP)

was 15.7%. Again, 'financial, rental and business services' had the highest

rank, followed by 'construction', 'electricity, gas & water supply' and 'trade, restaurant and business services'. According to Firman (1997, p. 1032), the DKI

Jakarta's economic activities have gradually shifted from manufacturing sectors

to finance and services, whereas the growth of manufacturing has moved to peripheral areas at a rapid rate.

The regional economic growth of DKI Jakarta at constant 1993 market prices in 1995 (the growth of GRDP) was 11.44% which is three times as much

as the regional economic growth in 1985 (4.21%). By comparison, the growth rate of gross domestic product (GDP) or the national economic growth rate in

1995 was 8.21%. This shows that DKI Jakarta

has an important role in

economic growth as a whole. As stated earlier, the first three dominant sectors

in contributing to

DKI Jakarta's economy are 'trade, restaurant and hotels',

'financial, rental, and business services', and 'manufacturing industry'.

In terms of Botabek's economic features, Table 3.6 (p. 73) shows that the most dominant sector was manufacturing industry. The share of this sector in GRDP was 43.67%, in 1994, almost 1.7 times higher than in 1985. Although the share of 'trade, restaurant and hotels' 'fell almost more than 1.5 times during

the period 1985-1994, this sector was still the second most dominant sector in

Botabek's economy. The dominance of manufacturing industry, according to

Hill (1989), is not surprising, because around 50% of foreign and domestic investment in West Java took place in this region. This was also encouraged by

the Presidential Decree No. 53/1989 allowing private companies to own and manage industrial estates, whereas DKI Jakarta had constraints such as high

72

land prices and prohibition of certain industries (Soegijoko, BTS 1996). Firman

(1997) also shows that foreign and domestic investment have influenced the economic growth in Jabotabek. Almost 50% of all investment of manufacturing industries, finance, property and other services took place in this region. Thus,

manufacturing industries have been growing in the peripheral areas, whereas the finance and services sector have become the dominant economic activities in the core of the region DKI Jakarta.

Table 3.6 shows how the increase of the share of `manufacturing industry' was followed by the increase of `financial, rental, and business services', electricity, gas & water supply, and 'trade, restaurant and hotels' in

Table 3. 6 Percentage Distribution of Gross Regional Domestic Product

t bek. Sector/year

Agriculture Mining Manufacturing Industry Electricity, Gas & Water supply Construction Trade, Restaurant and Hotel Transportation & communication Financial Rental and Business Services Services GRDP in million (Rp)

2.1

10.46 3.00 41.28 3.48

Growth BTK/JBTK BTKANJ 1994 1994 1994** 16.24 92.12 9.21 -1.50 11.25 100 2.52 -6.51 41.38 37.24 43.67 18.13 41.63 35.77 3.43 10.05

8.4 22.7

6.70 14.89

6.55 14.73

9.14

12.01

10.47

15.91

29.14 21.59

10.6

8.03

7.90

9.79

21.11

37.70

1.8

4.15

4.13

11.21

4.94

23.06

9.53 11.67

18.22 22.19

23.27 28.07

1994*

1993*

1985 16.1

0.5 26.8

7.85 100 - 1,135,020 1,243,186

10.9 100

8.01 100

.

a

M.,"

AP.,

wo. oegIJoKo, 1994' shows the percentage change of GRDP At constant 1993 prices; ** The column 'Growth _

..

.

.

Source : Biro Pusat Statistics(Central Bureau 01 Statstics)ano

from 1993 to 1994; BTK/JBTK= Ratio of GRDP between Botabek and Jabotabek; BTK/WJ = Ratio of CROP between Botabek and West Java

Botabek. This is reasonable in order to support basic services that should be provided by this region. The table also explains that the share of the agriculture

sector decreased almost 43%, from 16.1% in 1985 to 9.2% in 1994. Nevertheless, this sector is still an important sector in Botabek's economy, represented by the third highest share of GDRP. The regional economic growth

73

of Botabek at constant 1993 prices in 1994 (the growth of GRDP) was 11.67%. At the same period, this growth was higher than the _economic growth of West

Java (7.04%) and Indonesia (7.54%): The table also shows that the role of Botabek's economy in the West Java economy is quite important. Botabek's

share of West Java's GRDP was aim- ost 30%. 'Manufacturing industry',

'electricity, -gas & water supply', 'transportation & communication' and 'construction' are the main sectors contributing to West Java's economy. The

three most dominant sectors in this contribution to GRDP of Botabek are 'manufacturing industry', 'trade, restaurant and hotels', and 'agriculture'.

In Jabotabek overall, 'manufacturing industry', 'trade, restaurant and hotels', and 'financial, rental and business services' are the dominant sectors driving economic development. The contribution of manufacturing industry to GRDP in both 1993 and 1994 was more than 25% followed by the 'trade and

restaurant, and hotel' category at around 20%; and 'financial, rental, and business services' at almost 19% (see Table 3.7, p. 75). In contrast, the role of the agriculture sector tended to decline. Table 3.7 shows that the contribution of this sector to GRDP in both 1993 and 1994 was less than 3%.

The role of Jabotabek in the national economy, represented by its contribution to GDP, was 20.11%. 'Financial, rental, and business services' and

'electricity, gas & water supply' contribute more than 40% to this sector of Indonesia's GDP, followed by 'transportation', 'trade, restaurant and hotels' and

'manufacturing industry'. Between 1985 and 1994, DKI Jakarta had a higher GRDP per capita than Jabotabek. It can be seen from Table 3.8 (p. 75), that the per capita ratios of GRDP of DKI Jakarta and Jabotabek were 1.4 (in 1985),

1.9 (in 1993) and 1.7 (in 1994). This means that the average of GRDP per

capita of DKI Jakarta during that period was more than 1.5

times

the

Jabotabek figure. Likewise, the GRDP per capita of DKI Jakarta is higher

74

Table. 3.7 Percentage Distribution of Gross Regional Domestic Product GRDP) at Constant 1993 Prices in the Jabotabek Region Sector 1993 1994 JBTK/NA (%)

1994

(%)

Agriculture 2.49 2.22 Mining 0.65 0.56 Manufacturing Industry 25.37 26.02 Electricity, Gas & Water supply 2.13 2.13 Construction 11.64 12.10 Trade, Restaurant and Hotel 20.57 20.54 Transportation & communication 8.55 8.30 Financial Rental and Business Services 18.63 18.60 Services 9.96 9.57 Gross Regional Domestic Product 100 100 (GRDP) in million rupiahs 65,281,478 71,333,822 Source : B P S (Central Bureau of Statist cs) JBTK/NA = the ratio between GRDP of Jabotabek and National GDP

2.7 1.2

22.46 40.97 33.39 24.62 23.50 42.87 19.90 20.11

Table. 3.8 GRDP per capita in Jakarta, Botabek, Jabotabek and National Region GDP per capita (thousand rupiahs) a. DKI Jakarta b. Botabek

c.Jabotabek d. Indonesia (incl. oil/gas) GDP per capita ratio a/c a/d b/c b/d c/d

1980

1985

1993

1994

613 n.a n.a 293

1334 5867.834 6248.111 455 1201.407 1509.557 937 3142.948 3682.869 564 1609.997 1859.913

Na

1.4 2.4 0.5 0.81 1.66

2.1

Na Na Na

1.9

3.6 0.4 0.75 1.95

1.7 3.4 0.4 0.81 1.98

Source : BPS (Central Bureau of Statistics)

than the national level. The table shows an increase between 1985 and 1994 in the GRDP per capita ratio between DKI Jakarta and the nation, from 2.4 to 3.4.

In contrast, the GRDP per capita of Botabek is lower than both Jabotabek and

the national level. In 1985, 1993 and 1994, the table shows that the average of GRDP per capita of Botabek is less than 0.5 times that of Jabotabek. In the

same period, the ratio of GRDP per capita of Botabek to the national level is

less than one. Between 1985 and 1994, Jabotabek had a higher GRDP per

75

higher

than

the capita than the national level. The GRDP per capita of

Jabotabek is almost twice that of the nation as a whole.

The structure of employment in DKI Jakarta during 1971-1995, can be

seen in Table 3.9 which shows that in 1971 the role of 'services; trade, restaurant

and

hotel';

and

'transportation'

were

dominant

in

creating

employment. Manufacturing industry tended to increase to replace the role of transportation. The employment in manufacturing industry increased from 9.6% Table 3.9. Percentage of Employment Distribution by Industrial Sector in DKI Jakarta Sector 19711 1980*) 19901 1995 3.7 1.9 1.05 1.36 Agriculture Mining

Manufacturing Industry Electricity, Gas & Water supply Construction Trade, Restaurant and

0.4 9.6

0.7

0.65

0.97

14.9

17.61

0.7

0.6

20.56 0.66

7.4 26.2

6.7

6.4

6.17

24.6

26.7

29.38

11.4

8.3

7.4

7.5")

3.0

3.4

7.3

6.17

37.0

38.9

29.19

29.2**)

100 1,444,220

100 1,927,634

100

100

2,931,914

3,269,942

1.72

Hotel

Transportation & communication Financial Rental and Business Services Services Total (%), person

Source : BPS (Central Bureau of Statislcs); JMDPR 1993a; and Jakarta 1996. *) = Census, **) interpolated data

in 1971 to 20.56% in 1990. However, in 1995, it decreased to 17.61%. This

might be due to tight policy and difficulties in seeking land for industry. In contrast, the employment of the agriculture sector decreased from 3.7% in 1971 to 1.36 % in 1995. Therefore it can be argued that the 'service', 'trade, restaurant and hotel'; and 'manufacturing industry' have played an important role in absorbing employment in DKI Jakarta.

The employment structure in Botabek is different. Table 3.10 (p. 77) shows the role of agriculture in creating employment. In 1971 and 1980, this

76

sector had 44% and 45% of employment respectively. Between 1990 and 1996, the role of the sector decreased from 28.2% to 11.77% of Botabek's

employment. Nevertheless, this sector is still playing an important role in the Botabek region. By contrast, manufacturing industry grew rapidly in this region.

In 1971, the role of this sector was 9.6% of employment and by 1996, it had more than doubled to be 22.24%. According to Soegijoko, BTS (1996), most

capital in Botabek was invested

in the

manufacturing sector, while in

Table 3.10. Percentage of Employment Distribution by Industrial Sector in Botabek Sector 9711 19801 19901 094 1995 1996, Agriculture Mining Manufacturing Industry Electricity, Gas & Water supply Construction Trade, Restaurant and Hotel Transportation & communication Financial, Rental and Business Services Services Total person

43.9 0.4 9.6 0.1 4.1

21.7 4.0 0.2 16.0

44.9 0.8 10.9 0.2 0.6 16.5

28.2

15.55

1.0 18.8 0.4

2.41

4.1

20.5 6.0

0.8

1.6

23.89 1.22 7.46 19.70 7.52 1.59

17.5

17.5

20.65

6.1

22.38 1.18 7.47 24.95 7.26 1.93

11.77 0.99 22.24 1.10 7.45 25.01 8.13 1.63

20.22

21.66

13.61 1.01

100 100 100 100 100 100 743,051 1,474,949 3,081,956 3,560,899 3,670,843 3,701,166

Source : BPS (Central Bureau of Statistics); and JMDPR 1993a. *) Censuses data

Jakarta it has been dominated by the construction and service sectors. These

investments in both DKI Jakarta and Botabek have in turn created abundant new employment and generated

multiplier effects in other sectors. Firman

(1997) observes that most manufacturing industries in DKI Jakarta have shifted

to the fringe areas, and the economic activity in DKI Jakarta itself is dominated

by the property, financial, and services sectors. 'In fact, the city of Jakarta's economy has in many respects become post-industrial' (Castles 1991, cited in Firman 1997, p. 1035).

In the two decades, ending in 1987, almost 40% of all Indonesia's

domestic manufacturing investment and over two thirds of its foreign manufacturing investment was concentrated in DKI Jakarta (Castles 1991). In

77

the 1980s, the expansion of manufacturing development spread over the Jakarta border and manufacturing grew rapidly in Botabek. This trend was supported

by

government

investment

policies

(Leaf

1996).

Likewise

Dharmapatni and Firman (1995) have shown that the government policy of liberalisation of foreign investment, international trade, and the finance sector,

in response to globalisation, has stimulated the rapid growth of metropolitan cities through the expansion of industrial and commercial activities, particularly the Jakarta and Bandung metropolitan Areas (West Java) and Surabaya (East

Java) and their surrounding areas. In 1992, the share of foreign and domestic investment of Jakarta and West Java were 49.6% and 47% of the national total, respectively.

BKSP (1996) also indicated that between 1 January 1967 and 30 November 1995, total foreign capital invested in Indonesia was US$140.859

billion. DKI Jakarta and West Java including Botabek, received 14.51% (US$20.445 billion) and 29% (US$40.837 billion) respectively. It is estimated that more than 50% of Indonesian total foreign and domestic investment was

concentrated in the Jabotabek region between 1967 and 1995. According to Firman (1997), in 1992 alone around 200 licenses to foreign trade companies

were issued by the government

which reflects the importance of foreign

investment in Jakarta. Most of the foreign investors were from Japan, Hong Kong, Singapore and South Korea. They relocated labour intensive industries

to lower-wage countries such as Indonesia. The proportions of Japanese and Hong Kong foreign investment in Indonesia were 40% and 16% respectively. Firman claimed that most of the relocated industries were footloose industries

able to take advantage of low-wage conditions. The increasing numbers of foreign and domestic investors were also indicated by exports and imports in

the Port of Tanjung Priok. In 1986, total exports through Tanjung Priok Port were US$1.48 billion or 10% of national exports. In 1995, the exports increased to be US$9.6 billion or 53% of the total national exports (BKSP 1996).

78

The suburbanisation of Botabek's industrial development shows the 'pent-up demand' of industries trying to avoid the high costs of land and labour

in DKI Jakarta, leading to the development of large factories in peripheral areas. Industrial activities have grown rapidly further east and west into the Kabupaten of Serang and Karawang beyond Tangerang and Bekasi. This very rapid decentralisation along transport corridors shows that, with further

transport and communication development throughout Java, industries could decentralise into interior medium and smaller cities beyond the Jabotabek area (Henderson, et al 1996).

3.4

Land Use Pattern and Environmental Issues

3.4.1

Land Use Pattern in DKI Jakarta

The conversion of land use from non-urban purposes to housing, industry and commercial activities has been taking place in both DKI Jakarta and Botabek at a rapid rate. In DKI Jakarta, which has a total area of 64,710 hectares, the proportion of land for urban uses has tended to increase, whereas

the use of land for non-urban purposes has tended to decrease over the period

1982-1994 (see Table 3.11). The table shows that in 1982 the use of land for non-urban uses was 25.2% and land used for urban purposes and other uses was 74.8%. In 1994, the proportion of land used for urban purposes increased to 79%. The use of land for housing increased from 45.53% in 1982 to 47.55%

in 1994. Likewise, the use of land for both 'manufacturing industry', and Table 3.11. Land Use in DKI Jakarta 1982 1990 1994 ok Hectares % Hectares % Hectares Sectors 29,462 45.53 30,888 47.73 30,771 47.55 Housing 1,665 2.57 2,160 3.34 2,846 4.40 Industry 5,868 & 9.07 6,632 10.25 6,913 10.68 Trade services 25.16 14,292 22.09 20.97 16,278 13,570 Non-urban 11,437 17.67 10,738 16.59 10,610 16.40 Others 64,710 100.00 64,710 100.00 64,710 100.00 Total Source: BPN cited in PPST-LPUI & the Government of DKI Jakarta 1996.

79

'trade and services' increased. The land used

for industry increased from

2.57% in 1982 to 4.4% in 1994. In the same period, trade and services increased from 9.07% to 10.68%. In contrast, the use of land for non-urban purposes decreased from 25.6% in 1982 to 20.97% in 1994.

Pusat Penelitian Sains dan Teknologi-Lembaga Penelitian Universitas

Indonesia (PPST-LPUI) (1996) argues that the demand for land in DKI has increased, but since the availability of land is limited, this demand is expressed

in the acceleration of suburbanisation in the Botabek areas. The central city of DKI Jakarta has mushroomed with high-rise office buildings, shopping centres

and government departments. Typically, these are clustered into sub-nodes marked by a mixture of office, hotel, apartment and retail functions which have emerged in Kemayoran, Grogol, Kebayoran, and along jalan Thamrin and jalan

Jenderal Sudirman. Meanwhile many former kampung inhabitants of Jakarta have moved out to new low-cost housing estates close to industrial estates in the Botabek region. The majority of middle and upper income groups live in this

region, commuting to work by fast electric trains. Firman (1997, p. 1039) also notes that land conversion is taking place in the core city (Jakarta),'notably in the central business district (CBD). As a result of high demand for commercial

and office space especially in the 'golden triangle' of Thamrin - Kuningan Sudirman in central Jakarta, development has been increasing very rapidly'. Firman (1997) also adds that shopping centres, offices and business space,

and luxurious high-rise apartments have replaced many former slum areas within the city centre of Jakarta.

3.4.2 Land Use Pattern in Botabek In

Botabek, the land use pattern

is still

dominated by non-urban

purposes, but, there is a rapid increase in the use of land for urban activities such as housing, industry, and trade and services. This trend is due to the spill

over effects of DKI Jakarta's growth. Table 3.12 (p. 81) shows that

in

Kabupaten Bogor, the proportion of land use for both industry and housing is still less than 18% of the total, but this is increasing rapidly. The proportion of

80

land for industry, for example, increased from 0.1% in 1986 to 1.21% in 1994, which is a twelve fold increase although on a very low base. Meanwhile, Table

3.13 shows the existing condition of land use in Kotamadya Bogor which is a

rather different figure from Kabupaten Bogor. The highest proportion of land used was for housing in both 1985 and in 1994. Industry increased from 0.44%

in 1985 to 2.40 % in 1994, and trade and services from 7.01% to 10.79%.

Koestoer (1992) stated that the growth of settlements was speeded up by transport network development due to industrial development. Koestoer noted that the greatest number of settlements were located in Bogor district at places

Table 3.12 Land Use Pattern in Kabu aten District Bo_ or 1986

Sectors Housing Industry Others Total

Hectares 48,847.6 294.1

297,630.3 346,772.0

1990

%

Hectares 50,700.0

14.09 0.08 85.83 100.00

1,095.1

294,976.9 346,772.0

1994

Hectares 55,347.36 4,197.17 287,227.42 346,771.95

% 14.62 0.32 85.06 100.00

% 15.96 1.21

82.83 100.00

Source: BPN cited in PPST-LPUI & the Government of DKI Jakarta 1996.

Bo or

Table 3.13. Land Use in Kotamad a Munici alit 1985

Sectors Housing Industry Trade & services Others Total

Hectares 1,153.50 9.40 151.08 842.02 2,156.00

1990 ok

53.50 0.44 7.01

39.05 100.00

Hectares 1,162.10 34.20 200.78 758.92 2,156.00

1994 ok

53.90 1.59 9.31

35.20 100.00

Hectares 1,210.05 51.64 232.54 661.77 2,156.00

ok

56.12 2.40 10.79 30.69 100.00

Source: BPN, cited in PPST-LPUI & the Government of DKI Jakarta 1996.

like Cibinong, Cimanggis, Depok and Gunung Putri. Settlements expanded to

Tangerang and Bekasi which grew in centrifugal fashion, spreading out particularly in the areas adjacent to Jakarta. Koestoer also suggested that the

distribution was influenced by the distribution of toll roads and planned industrial location.

Table 3.14 (p. 82) shows that the proportion of land used for housing in

Tangerang increased from 2% in 1985 to almost 5% in 1994. In the same period, land for industry increased from 1.26% to almost 4%. Likewise, in

81

Bekasi, housing land increased dramatically from 0% in 1982 to 3.03% or around 4,461 hectares in 1994. At the same period, land for industry increased from 0% to 1.04% (see Table 3.15).

Table 3.14. Land Use Pattern in Kabupaten and Kotamadya Tangerang District and MuniciDalltv of Tancieran 1985 1990 1994 Sectors Group of Villages Housing Industry Others Total

%

hectares 20,183

15.73

2,567 1,614 103,917

81.01

128,281

100.00

2.00 1.26

%

Hectares 19,644.3

15.31

4,413.7 4,262.8 99,960.0 128,270.8

3.44 3.32 77.92 100.00

hectares 19,491.69

6,309.65 4,771.65 97,708.01 128,281.00

%

15.19

4.92 3.72 76.17 100.00

Source:BPN, cited in PPST LPUI and The Government of DKI Jakarta, 1996.

Table 3.15 Land Use Pattern in Kabu aten District Bekasi 1990

1982 Sectors Group of Villages Housing Industry Others Total

Hectares 15,608.00

% 10.59

Hectares 16,518.00

0.00 0.00 131,821.00 147,429.00

0.00 0.00 89.41 100.00

2,990.00 989.00 127,632.00 147,429.00

% 11.20 1.55 0.67

86.57 100.00

1994 Hectares 16,758.00

% 11.37

4,461.00 1,535.00 124,675.00 147,429.00

3.03 1.04 84.57 100.00

Source:BPN, cited in PPST-LPUI and The Government of DKI Jakarta, 1996.

The aggregate figures for Botabek show that there was a rapid transformation of land from non-urban area to urban area over the years 1982 to 1994, where the proportion of housing and industry increased at a rapid rate.

Koestoer (1992) notes that even some wetland areas (between 0-100 metres

above sea level) which are suitable for paddy and other plants have been converted into settlements. The development of toll roads has speeded up the shift from rural agriculture into urban settlement.

Tobing (1995) also illustrates how the decline of the agricultural sector, particularly in Bekasi, is because of the rapid growth of population and industrial

development. Tobing's analysis for the period 1986-1992, was that the growth

rate of land use for housing development was 7.3%, and the growth rate of

industrial areas was 22.7% per year. In contrast, in the same period, the

82

agricultural areas such as wetland (rice fields) and dry land experienced reductions of 0.2% and 3.17% respectively. Dharmapatni and Firman (1995)

suggest that during 1980-1989, housing development in Botabek converted 15,900 hectares of former rice fields into urban uses. Industrial development that took up four-fifths of the total land converted came from wet and dry rice fields.

Dharmapatni and Firman (1995, p. 303) explain the reasons for rapid residential development across Botabek being due to:

high urban land and housing prices and high living costs in the city centre; increasing numbers in the medium income group who can not afford to live in the main cities;

increasing employment opportunities in the areas surrounding Jakarta; good transportation facilities connecting the surrounding areas; and

the better social and economic facilities provided by real estate developments located outside the main cities.

Planned new towns are a feature of recent suburban expansion, sometimes integrated with industrial estate development. Towns such as Cikarang Baru and Lippo City in Kabupaten Bekasi are being developed in

tandem with the Cikarang Industrial Estate and Bekasi Terpadu Industrial Estate, respectively. Facilities provided by these towns include a golf course in Cikarang, and hotels and offices in Lippo City (Dharmapatni & Firman 1995).

Firman (1997, p. 1037) notes how in Jabotabek, including Serang and Karawang, the demand for land has been stimulated by the development of real

estate investment, although recently there an oversupply of housing stock, particularly for luxury housing, has led to a decrease of prices in the market. Much of this housing development has taken place at a rapid rate in the form of new towns and also large-scale subdivision. Leaf in 1994 (cited in Firman 1997,

83

Table 3.16 New Town Projects Occupying 500 hectares or More in Botabek 1996 Area (hectares) Location Project No. _

1. Rancamaya 2. Royal Sentul 3. Banyu Buana Adhi Lestari 4. Maharani Citra Pertiwi 5. Bangunjaya Triperkasa 6. Kuripan Jaya 7. Resort Danau Lido

8. Bukit Jonggol Asril 9. Bumi Serpong Damai 10. Kota Tigaraksa 11. Bintaro Jaya 12. Citra Raya 13. Gading Serpong 14. Kota Modern 15. Alam Sutera 16. Kota Jaya 17. Pantai lndah Kapuk 18. Lippo Karawaci 19. Lippo Cikarang 20. Kota Legenda 21. Harapan lndah 22. Cikarang Baru Kota Hijau

TOTAL BOTABEK

Bogor Bogor. Bogor Bogor BogorBogor Bogor Bogor Tangerang Tangerang Tangerang Tangerang Tangerang Tangerang Tangerang Tangerang Tangerang Tangerang Bekasi Bekasi Bekasi Bekasi

550 2000 500 -1679

-

500 500 1200 30000 6000 3000 1700 1000 1000 770 - 700 1745 800 700 3000 2000 700 5400 65444

% 0.84 3.06 0.76 2.57 0.77 0.76 1.83 45.84 9.17 4.58 2.60 1.53 1.53 1.18 1.07 2.67 1.22 1.07 4.58 3.06 1.07 8.25 100

Source: Adapted from Properti Indonesia, cited in Firman 1997, p. *) Planned area

p.1037) describes that 'the new towns and large-scale subdivisions designed for the middle and high income groups, physically are like a walled compound setting row and clusters of houses along standardised thoroughfares'.

The major objectives of the national policy of urban development are `to

stop the overgrowing development of larger cities; to re-direct migration and to

provide housing for people and company towns' (Sujarto 1997, p. DS-2). The large scale residential development in fringe or surrounding areas of the large cities, and the development of small and intermediate towns, are the means of

implementation of this policy. However, in practice this policy has led to the

development of exclusive and luxury new settlements for middle and high income groups (Sujarto 1997).

84

KAB. TANGERANG

DKI JAKARTA

KAB. BEKASI

KAB. KARAWANG

Modernland

Tangerang, 1.500 ha I

Kowason lndustri Bekosi Terpodu

Citro Crond City Tong erang, 1.000 ha

Cikarang lndustri

Lippo eikorang Bekosi 5.000 ha

Tornbun

Zono lndustri

70t

rono

Cikorang Baru

Bekasi, 5.400 ha

Tigorokso Tongerang.

&Alt Indoh Timur 2.000 ha

3.000 ho

Lippo Tongerong Tange rang, 700 ha

Burni Serpong ()mai Tangerang, 6.000 ho Alorr? Suter°

Tongerong, 700 ho

Kota 12 Bekosii

Ant 2.000

Kawoson lndustri Bekosi Terpadu

Bukit Indah Barat 7.100 ha

Bintoro Joyo

Tongerong, 3.000 ha

111

Royal Sentul

Bogor, 2.000 ho

Coding Serpong Tongerong, 1.500 ho

Kowoson Industri Korawong Terpodu

2.000 ha

0

Lido Lakes Resort Bogor, 1.700 ho

Housing Estate/New Town

Industrial Estate Industrial Zone

Figure 3.6 .Large Housing Estates and Industrial Area Development in Botabek. Source: Sujarto 1997.

Industrial New Town

Sujarto (1997) criticises the development of new towns in Jabotabek on the basis that it does not form part of coherent urban development policies and it

does not conform to the regional master plan issued by the local (district) government. According to him, 'physically the development of new towns in Jabotabek is merely a huge urban sprawl of Jakarta rather than self sufficient new towns' (Sujarto 1997; p. DS-13).

Leaf's (1996) analysis, based on data from the government over a five-

year period (1983/84 to 1987/88), shows the rapidity of land use changes on Jakarta's fringe (see Table 3.17). For Botabek overall, more than 6% of the total land area of the region was put under permit in this period, amounting _to

more than 38,000 hectares, the vast majority of which (86%) was planned for housing. Most of the remaining 14% (over 5000 hectares) was planned for industrial development, a figure which in relative terms grossly underestimates the extent of industrial development in fringe areas. This rapid concentration of housing-development

permits was spurred by the development of Bumi

Serpong Damai (BSD) in Tangerang, the first 'new town' development in the

region. This caused a rush of local market activity, resulting in the rapid acquisition of and speculation in nearby lands. New town mania led by the private sector, also spread to other areas in Jabotabek.

Table. 3.17. Botabek Land Area (hectares) Under Permit for Development 1983/1 984 - 1987/1988 Tangerang

Permit area - Housing - Other

Bekasi

Bogor

Botabek

3,507 2,469 5,976

33,340 5,208 38,548

334,794 138,700 131,282 Total Land Area 1.8% 3.1% 21.5% Permits as % - - --1b. source: unpublished data BPN, cited- in- Leat

604,776 6.4%

Total

27,114 1,100 28,214

2,719 1,639 4,358

86

As mentioned above, the cheaper land prices and the development of Botabek accelerated

toll roads in

industrial

development

in this region.

Susilawati (1995) argued that the shift of industrial activities from Jakarta to Botabek was due to economic considerations and supported by government policy through Presidential Decree No.13/1976 which related to the Jabotabek

Metropolitan Development Plan. The expansion of industrial location grew after

rapidly

toll

roads

Jagorawi

(Jakarta-Bogor-Ciawi),

Jakarta-Merak

(Tangerang), and Jakarta-Cikampek (Bekasi) had been developed. The industries tend to agglomerate in locations having high accessibility to and from Jakarta.

Firman (1997) adds that the demand for industrial land was

accelerated after Keppres (Presidential Decree) No. 53/1989 permitted private companies to manage industrial estates. In Bogor, medium and large industries

lie in the subdistrict of Cibinong, Gunung Puteri and Cileungsi. Manufacturing

also agglomerates along the old arterial especially

in

subdistricts Cimanggis,

road between Jakarta and Bogor, Cibinong,

and

Kedunghalang.

In

Tangerang, manufacturing industries are distributed in several subdistricts such

as Cikupa - Pasar Kemis - Jatiuwung, particularly along the toll road JakartaMerak.

The government of West Java has allocated around 18,000 hectares to industrial areas, and for Botabek around 7,100 hectares (see Table 3.18, p. 90)

owned by 29 firms. In Botabek, the total area that has been prepared is

5,554 hectares, however the sold area was 1,838.1 hectares. Industrial development will be discussed in more detail in Chapter 4.

Overall patterns of land use conversion can be summarised by showing development in built-up areas in Jakarta and in Kabupatens (districts) surrounding the region (see Table 3.19, p. 90). Table 3.19 shows that in 1971 the

built-up area in DKI Jakarta was 31.4 %, and in 1994, it increased

dramatically to be 82%. In Bogor, built-up areas have increased from 14.7% in 1974 to 19, % in 1994. In Tangerang the built-up area in 1992 was three times

87

FOOD AND BEVERAGE INDUSTRY TEXTILE. CLOTHE AND

A LATHE INDUSTRY PRINTING PAPER AND PUBLISHER INDUSTRY

WOOD AND RATTAN INDUSTRY CHEMICAL INDUSTRY

PHARMACY METAL INDUSTRY MINERAL INDUSTRY

0

5

10. I

Km

Figure 3.7 Distribution of Industrial Domestic Investment Source : Adapted from BKSP, 1994

15

i

FOOD AND BEVERAGE INDUSTRY

TEXTILE. CLOTHE AND LATHE INDUSTRY PRINTING PAPER AND PUBLISHER INDUSTRY

WOOD AND RATTAN INDUSTRY CHEMICAL INDUSTRY

PHARMACY METAL INDUSTRY MINERAL INDUSTRY

Figure 3.8 Distribution of Industrial Foreign Investment Source : Adapted from BKSP, 1994

the figure for built-up areas

in

1980. Likewise in Bekasi, there was a

tremendous increase in built-up areas from 2% in 1973 to 18.4% in 1993, almost a nine fold increase.

Table. 3.18 The Development of Industrial estates in Botabek and 1996. Allocation for In-

Region 1. Tange rang

Unit of Firms -

dustrial Estates (Hectares) 3,000 3,600 500 7,100 18,000

Area Prepared (Hectares)

Sold Area (Hectares) 277.6

1,848.6

14

29.9 500.0 12 2. Bogor 1,530.6 3,205.5 3 3. Bekasi 1,838.1 5,554.1 29 Botabek 2,289.7 10,755.1 60 Jawa Barat ... Source : Kanwil BF'N Propinsi Jawa Barat 1996, cited in Bappeda ot Wes Java 1997a. _

.19 Develo ment of Built-up Areas in Jabotabek. Year Area (hectares) I Region Jakarta 17878 1971 I

%*)

I

31.4 57.3 61.5 82

1982 1988 1994

37021

1974 1980 1987 1994

33150 36569 60659 64782

14.7

1980 1989 1992

14033 34162 42214

11

39734 54506

Bogor") 13.1

17.7 19

Tangerang 27 34.5

Bekasi 2 2678 9.6 14310 10.7 15905 18.4 27378 Source: The National Land Agency, adapted from Firman *)As a percentage of the total administrative area **) Including the district (kabupaten) of Bogor and the municipality (kotamadya) of Bogor.

1973 1980 1988 1993

90

3.4.3 Environmental Issues The rapid development of manufacturing industries and settlements in

Jabotabek has led to environmental and social problems. Basically, most manufacturing industries established by foreign investment have involved the relocation

of

industries from

Developed

Countries

(DCs) - and

Newly

Industrialising Countries (NICs). Soegijoko, BTS (1997) has argued that the

economic contribution of industrial development to the national economy is undoubted, but, the relocation of 'sunset industries' which are highly polluting

to countries which have lower environmental awareness and more flexible environmental regulation is not desirable. As a result of these trends,

Jabotabek has been experiencing rapid degradation of environmental conditions. Soegijoko, BTS gives examples of rivers through Jakarta and the

Jakarta Bay that

have high concentrations of BOO (Biochemical Oxygen

Demand) and COD (Chemical Oxygen Demand). The concentration of BOO in

the Citarum river is around 5.2 - 3.1 mg/I, while the concentration of COD is around 233-267 mg/I. Jakarta also is one of the most air-polluted cities in the world.

Juoro (1995) makes similar points arguing that the main target of the relocation of industries from DCs and NICs is Southeast Asia. The investors

who relocate to Southeast Asia (including Indonesia) are attracted by the growing market, that has resulted from high economic growth in the region and

weaker environmental standards. Juoro also recognised that industrial relocation contributes by providing jobs, transferring technology, supporting industrialisation and

providing foreign

exchange revenue. Nevertheless,

industrial relocation can create social and environmental problems. The

relocated industries which are mostly located in urban areas, attract large number of unskilled workers seeking jobs. They have low wages, inadequate housing and other public facilities. This can bring about serious social tension.

In addition, the standard of environmental regulation is too weak, and there is weak law enforcement, industries do not obey the environmental laws. Hence, it

91

is not surprising that the relocation of industries has caused air and water pollution. Table 3.20 shows that on average industrial waste accounts for more than 40% of river pollution.

Industrial development also contributes significantly to air pollution.

Tables 3.21 and 3.22 indicate that transportation contributes the highest amount followed by the manufacturing sectors. Almost 90% of air pollution is mainly due to transportation. In terms of Sulphur Oxides (S0x), manufacturing contributes the highest level of pollution (almost 63%). The contribution of CO Table 3.20 Industrial Water Pollution in West Java Municipal Industrial Industrial % of Waste COD Point COD River tonnes/day tonnes/day Total 55 75 62 Tangerang Cisadane 4 8.7 31 Pejompongan Banjir 2 4.6 30 Pulogadung Sunter 11.2 23 3.4 Cileugi Bekasi 42 68 38 Jatiluhur Citarum 7 14 67 Cimanuk Tomo 42 29 40 Cikawung Citanduy Source: IHE (Institute of Hydraulic Engineering) Monitoring, cited in Juoro 1995. Table. 3.21 Sectoral Contribution of Air Pollution in Jakarta Unit: tonnes/ ear Manufacture Transportation Settlements Garbage Pollutant 378 378 3,782 373,662 CO 230 2,012 3,333 15,388 NOx 56 17,687 7,476 3,018 SOx 185 339 1,118 13,717 HC 619 1,076 2,433 3,525 TSP Source: National Account of Population and Environment (Juoro 1995). =

Table. 3.22 Sectoral Contribution of Air Pollution in Jakarta % Transportation Settlements Garbage Manufacture Pollutant

Total

CO NOx

98.8

0.1

1

0.1

100

73.4

9.6

1.1

15.9

100

SOX HC

26.5

10.7

0.2

62.6

100

89.3

2.2

7.3

1.2

100

46.1

31.8

8.1

14.1

100

TSP 5.0 91.9 1.8 1.3 Total Source: National Account of Population and Environment (Juoro 1995).

100

92

(carbon monoxide), NOx (Nitrogen Oxides)

,

HC (Hydrocarbon), and Total

Suspended Particulate (TSP) of air pollution prodOced by the manufacturing industries is 0.1%, 16%, 1.2% and 14.1% respectively. The total percentage of Carbon Monoxide (CO) in the air is almost 84% which is the main substance in polluted air.

Tobing (1995) argued that,

in Bekasi,

the industrial sector has

contributed positively to regional economic development, but this sector is also

blamed for creating environmental and social problems. By quoting data from Kompas newspaper (18 July 1995), Tobing noted that 211 of over 500 existing

industries in Bekasi dumped their liquid waste in the sea via rivers. Only 12 of

106 factories :producing toxic liquid waste disposed their waste through the _

Centre for Ind_ustrial Waste Processing in Cileungsi (Bogor). All others dumped

their toxic liquid waste into the rivers, making the water darker and foul smelling. Only 154 industries are committed to ANDAL (Analisis Dampak Lingkungan / the environmental impacts analysis), the rest are still in the process of doing so. The Citarum river had been polluted by 7.6 tonnes per day

of pollutants, mostly from textile factories, with 29 factories being warned not to dump unprocessed waste into the rive?.

Tobing (1995) also quoted a story from the same newspaper, Kompas (17 July 1995), explaining how 3,500 hectares of Bekasi which are mainly slum

areas, had been converted into an 'exclusive' industrial enclave, with 10 factories, and other facilities such as large houses, schools, parks, hotels and

other benefits for those employed there, while very few local people were involved in the projects due to their poor education and training. This created problems of social divisiveness and envy.

Tobing (1995) adds that the conversion of land from agricultural into industrial use led to a socio-economic transformation, particularly for those 2

The local agency responsible for 'warning' factories about not dumping waste is Badan Pengendalian Dampak Ungkungan Daerah or Bapedal Daerah (Regional Agency for Environmental Control).

93

whose life was originally based on farming. Dharmapatni and Firman (1995) also describe the displacement of the local community, farmers and people

who are working in traditional and small scale industries, as being a serious problem in Jabotabek. In Botabek alone, during 1980-1990, it was reported that

around 24,000 people were

displaced

by housing and non housing

developments. This excludes unrecorded displacements (Dharmapatni and Firman 1995).

One of the most important environmental issues in Jabotabek is the

condition and use of water. The water supply for Jabotabek is a critical problem, particularly during the dry season, because housing and tourism developments have encroached on the uplands of Bopunjur (Bogor-PuncakCianjur) that

function as the water catchment area of Jabotabek. Likewise,

groundwater and surface water are also in short supply, depleted by the water

consumption of households, government and private office buildings, and industries. As a consequence of the inability of the limited water systems to supply adequate water, groundwater has been withdrawn at an alarming rate,

which has resulted in seawater intrusion as far as 12 km beyond Jakarta's perimeter (Douglass, M 1991). Sujarto (1997) adds that some new towns, particularly in Bogor are located in water recharge areas for Jakarta. The direct

use of groundwater resources by the sporadic development of new towns is inefficient. Likewise, the rivers and Jakarta Bay have been polluted by solid waste produced by residential areas and large scale industrial activities.

Other examples of the impact of rapid physical development and the

increase in socio-economic activities that have created pressures on the environment (eg. problems of pollution, congestion, water shortage, loss of

agricultural land), are the movement of farmers into upland areas and the growth of Bopunjur (Bogor, Puncak, and Cianjur) that would ruin an aquifer recharge area (Douglass 1989). Douglass (1991) asserted that agricultural activities are displaced to the hill and upland areas which are not suitable for

94

these uses. This leads to soil erosion, severe downstream impacts, silting of rivers, flooding, reduced water flow in dry season and desertification. Moreover,

the evidence shows that there

is

also deviation from the Jabotabek

Metropolitan Development Plan with such major projects as the 'new town' of

Bumi Serpong Damai (BSD), and the plans for Kapuk lndah -luxury housing

and golf course- to be built in a coastal wetland reserve zone (Leaf 1996).

Keppres (Presidential Decree) 53/1989 clearly states that industrial and housing development should not take place in conservation and preservation

areas or on prime agricultural land. However, economic and market forces through the role of the private sector are more powerful than regulations and community rights (Dharmapatni & Firman 1995).

The government has a series of plans to address the environmental degradation of the Jakarta Metropolitan Area. The major feature of the plans is

to guide urban industrial development out of DKI Jakarta toward a selected

number of growth centres and interurban corridors. However, because of locational benefits, low wages, and avoiding high land prices in industrial zoned land, industrialists, especially those providing domestic investment, are happier

to choose locations outside designated estates (see Chapter 4). Moreover, in

these undesignated areas, the enforcement of environmental regulations is weaker. It is still questionable, therefore, whether land use planning

can

influence industrial development significantly (Leaf, 1996). This thesis attempts

to explore the reasons why industrialists locate outside planned areas in some detail. Firstly, however, the planning context is established in section 3.5.

3.5.

Planning Strategies in the Jabotabek Region This section will review the principal planning strategies/studies that have

sought to influence the development of Jakarta. The review will be divided into

five periods: 1. from colonial era to 'light house' policy; 2. Master plan of DKI Jakarta 1965-1985; 3. Jabotabek Metropolitan Development Plan/JMDP (1981-

2005); 4. Master Plan of DKI Jakarta (1985-2005) or Jakarta 2005; 5.

95

Jabotabek Metropolitan Development Planning Review/JMDPR (1993-2010); and other studies that support Jabotabek plan.

3.5.1 From Colonial Era - Light House Policy The core city of Jabotabek region, DKI Jakarta, originally called Sunda Kelapa, a small trading port at the mouth of Ciliwung river, was founded in the

1300s. After Prince Fatahilah took over the Sunda Kelapa, he changed the name of the port town to Jayakarta. The Dutch occupied Jayakarta in 1621 and

changed the name of Jayakarta to Batavia. At that time the growth of the city was limited to the immediate area near the coast. Subsequently the city grew

from 6.1 hectares in 1621 to 107 hectares in 1770 and 142 hectares in 1800 (The Master Plan of Jakarta 2005, 1991).

The development of a new residential area for the European settlers was

ordered by William Daendles, the first Dutch Governor General, in 1808, about five kilometres inland in the southern part of old Batavia. This was probably the first formal space restructuring process. The objectives of the restructuring were

to prepare the city to be a centre of the colonial system for administering agricultural surpluses (Suryomiharjo 1977 cited by Winarso and Kombaitan 1997). According to Taylor (Marcussen 1990), in 1811 Batavia's population comprised 552 Europeans, 1,455 persons legally recognised as Europeans and 45,000 Asians.

During the Japanese Colonialisation (1942-1945), a plan for a new satellite town was made for an area of 730 hectares in Kebayoran, Southeast of

Batavia. The town was intended to accommodate around 100,000 inhabitants.

Delayed by the war, the implementation of the plan commenced in 1948. Further growth followed, with expansion into Grogol, Rawamangun and other neighbouring areas. In 1948 the population of Jakarta was about 2 million, with

an area of 20,000 hectares, including Kebayoran Baru, the new town in the South (The Master Plan of Jakarta 2005, 1991). In 1950, after the recognition

96

of the independence of the Republic of Indonesia internationally, the name of Batavia was changed into Jakarta and it became the capital of the new nation.

According to Giebels in 1986 (cited in Forbes 1990), after independence, Indonesian urban planning was still influenced by Dutch legislation. In 1951 the draft of a Physical Planning Act was prepared with Dutch assistance. The continuing development of the new suburb of Kebayoran, started in March

1948, reflected the historical trend for the city to expand away from the lowlying coast and towards the more elevated south (Suryomihardjo 1977).

In 1953, a Jakarta Plan was prepared and issued, but proved largely ineffective (Forbes 1990, p. 11). The development of Jakarta was influenced by its role as capital of the republic and as a national and international city. Former

President Sukarno, who was also an engineer, contributed to the planning of

the city (Abeyasekere, 1987) and espoused the

'lighthouse policy' (1959-

1965), which sought to develop Jakarta as the focus of Indonesia's emergence

as a new global force. This was expressed by the construction of prestige

buildings, such as the complex built at Senayan for the Asian Games in 1962 and the national monument in Merdeka Square. The emphasis in city

planning was on the prestigious public areas and streets, while residential areas had less attention. There was no real plan for the city as a whole, only for 'protocol streets' and luxury buildings (Suryomihardjo 1977). Meanwhile,

Winarso and Kombaitan (1997) state that in the period 1945-1965, there was a transformation

from colonial society to free nation. This change of socio-

economic conditions was reflected in the development of Jakarta. The first Master Plan for Jakarta of 1952 described a future urban area following the principles of Ebenezer Howard's Garden City - an urban area with a ring road

as the limit and surrounded by a green belt

-

but again this was not

implemented.

97

3.5.2 Master Plan of DKI Jakarta 1965-1985 On May 3, 1965 , a Master Plan for the Special Region of Jakarta (DKI

Jakarta) was accepted by the People's Council of Jakarta Municipality. A balanced expansion in all directions was proposed, with tlie National Monument

lying in the middle of historic Merdeka Square as the central point for the development. The radius of this balanced development of the city was to be fifteen kilometres from the centre (Suryomihardjo 1977). The major focus of the Master Plan was to be concentric physical expansion of the city. The growth

of Jakarta itself was to be slowed, and population was to be directed to growth

centres beyond the city's border. In the master plan, economic policies, the financing of urban development, or the means of translating land-use maps into

programs and projects received little attention. Sectoral plans were anticipated for transport, water supply, sewerage, railways and toll roads, but the level of coordination between the departments responsible for these activities was poor.

The Master Plan also acknowledged some general problems facing Jakarta's urban development - housing shortage, the bad condition of the roads, lack of clean water, danger of floods, and the poor functioning of traffic,

the telephone, and other parts of the infrastructure. Under the leadership of

Governor Ali Sadikin and People's Council, the Three Years Rehabilitation Scheme (1967-1969) for the Jakarta municipality was issued. In the late 1970s it

was realised that city-wide planning alone could not cope with the

urbanisation process, and local governments were increasingly encouraged to

develop urban plans (Forbes 1990). According to Surjomihardjo (1977) the Master Plan of Jakarta Municipality and the Three Years Rehabilitation Scheme

acknowledged that planning needed to seek harmony, a balance between the

social and economic life and the physical form of the city. Order, regulation, guidance and leadership of the Jakarta municipality were seen to be closely related to the goal of prosperity, formulated as follows (Suryomihardjo, 1977, p 78):

1. A tranquil and safe life (Moral and material protection)

98

1619

1900

1973

1700

1800

1955

1965

1978

1980

Figure 3.9 Directional Urban Development of Jakarta from 1619 to 1980 Source : Jakarta 2005iViaster Plan 1991

Freedom of worship Guarantee of a safe and healthy place to live. Guarantee of employment or source of income A place for the development of culture and civilisation. A place for recreation Prevention of catastrophes.

However, in this master plan, land use plans for settlements and industries (see Figure 3.10, p. 101) were very simple, incomplete and poorly explained. They provided only limited guidance to implementation, therefore.

In terms of industrial development planning, the master plan of 1965-

1985 allocated around 7000 hectares for industrial areas. A general classification of industries planned had been mentioned by the master plan, but

it did not mention explicitly the types of industries. The industries planned were

divided into three categories: firstly, industries that needed to be located away from residential settlements - especially large industries which needed large amounts of space. According to the plan, these industries were allocated to the east of the city by considering four aspects:

1.Physical geography: nearness to the sea to develop a sea port; there are many rivers for water industrial supply and flowing industrial waste to the sea

via the rivers; availability of natural gas; and the land is suitable for large industry.

Labour: most labour was to be found in the east of the city; most migrant labourers were from the eastern areas such as Karawang ; and the availability of skilled labour. Facilities: administrative facilities such as availability of institutions of

government, international offices and banks; and physical facilities such as sea

port `Tanjung Priok', the road from the east to Jakarta, by-pass roads from

100

Heavy industry region Light industry Home industry/small scale industry Settlement Directional growth

.Figure 3.10 Land Use Plan for Settlements and Industries Source: Rentjana lnduk Djakarta 1965-1985 (The Master Plan of Jakarta 19651985)..

101

LEGEND Public buildings !Mixed building I

Shopping centres

Park, green belts, & graveyards Ricefields

Swamps and fish pond Dams

Arteries/rail way Industries/warehouse

Rivers

Settlement/Mixed farming

Idle land

Mixed farming

Figure 3.11 Land Use of DKI Jakarta 1980 Source: Jakarta 2005 Master Plan 1991.

Jakarta-Bogor-Ciawi, a railway, and a gas project.in Tanjung Priok in producing energy for industries.

4. The availability of capital and raw materials.

The second category of industries were those- that are least likely to disturb settlements. These industries were to be located in the northern part of

the city around Ancol and Pluit. The consideration was that this location provided sea port facilities, Pasar lkan (fish market), railways, road facilities,

warehouse and water for industry. The third category comprised small industries. These industries were located in the settlement (home industries).

The Master Plan of Jakarta 1.965-1985 was not effective in guiding physical _

development:

the growth and direction of the physical development of Jakarta over the last 20 years has not entirely followed the stages in the Master Plan 1965-1985. Many of the growth stimuli were determined by the available infrastructure. (Jakarta 2005 Master Plan 1991, p. 8)

Jakarta 2005 also added that the obstacles (eg a rapid growth of population) in

implementing the plan and the lack of integration of the plans with the surrounding region have led to the city of Jakarta being uncontrolled.

3.5.3 Jabotabek Metropolitan Development Plan (JMDP) In 1965 the population of Jakarta was about 4 million. By the 1980 census the population was more than 8 million. Between 1965-1985 the growth

of the city was directed by the Master Plan for DKI Jakarta. The rapid growth was

not

accompanied

by

adequate infrastructure and spilled out into

surrounding parts of West Java, Kabupatens of Bogor, Tangerang and Bekasi

(Botabek). This highlighted the urgent need for coordinating the growth and

urban management of Jakarta with the surrounding regions. This also encouraged the development of a plan for the whole metropolitan region.

103

A report was assembled for the Directorate General of Human Settlements (Cipta Karya) in 1973 on Jakarta and its hinterland of Bogor,

Tangerang and Bekasi. 'The report argued for the bundled deconcentration of

the city into self-contained growth centres. These could be spread either linearly from the city or concentrically around it

'(Forbes 1990, P. 113).

Presidential Instruction No.13 of 1976 ordered the development of a new set of principles for the planning of the Jabotabek area.

Botabek (Bogor, Tangerang, and Bekasi) which surrounds DKI Jakarta,

has 5924 square kilometres and comprises six second level regions, namely Kotamadya (municipality) Bogor,

Kabupaten (district) Bogor, Kabupaten

Tangerang, Kota Madya Tangerang, Kabupaten Bekasi and Kota Madya Bekasi. All of these second level regions are part of the province of West Java

(Jawa Barat). The Indonesian government was receiving technical assistance at this time in the physical planning of Jakarta and its surrounding area from the Netherlands government, through the International Bank for Reconstruction and

Development/IBRD (Stolte 1995). A Jabotabek Planning Team was formed,

together with a Technical Advisory Team which began to work in 1978, and completed a Jabotabek Metropolitan Development Plan (JMDP) at the end of

1980 (Ministry of Public Works 1981). This plan provided

for the social,

economic and financial aspect of urban development, and not merely for the provision of infrastructure (Forbes, 1990).

The JMDP which represented an integrated plan for the period until the

year 2005 (and which was revised by Cipta Karya in 1983), according to

Soegijoko, BTS (1996, p. 404), was 'the most comprehensive plan for a metropolitan area ever made in Indonesia'. She adds, however, that the plan has no legal basis. Likewise, according to Stolte (1995):

The Jabotabek Metropolitan Development Plan, however, never received more than advisory status and the Province of West Java, encompassing the adjacent regencies and the town Bogor,

104

did not adopt Jabotabek as its basic concept. Especially to the south this resulted in some conflicting objectives. (Stolte 1995, p. 229)

Despite the lack of legal basis, Forbes (1990) considers that the Jabotabek plan has had an important influence on the subsequent planning of

the city, because, in the plan, the relationship between social and economic

planning and urban planning which had been

previously concerned by the

Bappeda DKI Jakarta (Jakarta Regional Planning Board), has received more

attention including coordinating the formulation and implementation of the strategies for Jakarta's development. Stolte (1995) recognised

that although

the JMDP has no legal status and the levels of government have different objectives,

the plan nevertheless was taken seriously directly or as reference for the various medium and large scale infrastructure development investment programs co-financed by the major donors - International Bank for Reconstruction and Development, Asian Development Bank, Japan, the Netherlands, and France. (Stolte 1995, p. 230)

Soegijoko, BTS (1996) and Stolte (1995), however, are critical that many recent

developments of Jabotabek clearly violate that plan. Forbes (1996, p.89) also notes that the plan is not powerful, 'failing to make much of an impact on either the Jakarta or West Java administrations'. Firman (1997) also states that:

in fact, the land use plan (Rencana Tata Ruang) has simply been rendered ineffective. Almost no sanctions against plan violations,

the false impression has been created that the plan is negotiable. (Firman 1997, p. 1041)

In other words, the land use plan could be disobeyed and changed without clear sanctions, depending only on how strong the 'bargaining power' was of the investors.

In relation to the Botabek region, Bappeda of West Java (1997b) also recognised that:

105

pembangunan fisik yang berlangsung di wilayah Botabek cenderung semakin tidak terkendali dan melebihi batas daya dukungnya. Konsep untuk menciptakan hinterland Jakarta dengan beberapa kota seperti Bekasi, Tangerang, dan Bogor sebagai penyangga atau kota sate/it praktis tidak tercapai sebagaimana mestinya, bahkan cenderung menyatu dan tidak memiliki fun gsi yang jelas lagi.

pola yang ada ini telah mengarah pada bentuk yang acak (urban scatter), sebagai akibat dari investasi pembangunan yang

lebih men garah pada kepentingan ekonomi tan pa men gikuti kaidah tata ruang. (Bappeda of West Java 1997b, pp.10-11) Literally translated

physical development of Botabek tends to be uncontrolled and overcapacity. The concept of creating hinterland of Jakarta and buffer cities or satellite towns of Bekasi, Tangerang and Bogor seems unsuccessful, and Jakarta and Botabek tends to be a unity without clear functions.

the existing pattern tends to form urban scatter due to the

importance of the economy as the main consideration of investment without considering an existing land use planning principles. (Bappeda of West Java 1997b, pp.10-11) Hidayat (1996)

has argued that investors

in

DKI

Jakarta have

theoretically had three options in choosing a location for their activities. The first was to buy an existing building and space which is probably costly and may not

be compatible with land use planning. The second was to seek a location outside Jakarta, but, if the infrastructure is not suitable, they are reluctant to

locate their activities outside Jakarta. The third, is the most interesting one. Hidayat (1996) states that investors:

mencoba melakukan 'deal' dengan (pejabat) Pemda balk yang 'legal' maupun yang terselubung. ( Hidayat 1996, p. 26) Literally translated:

try to make 'a deal' with (officials) the local government 'legally or illegally'. (Hidayat 1996, p. 26)

106

For the third choice, although the spatial plan (RBWK/Rencana Bagian

Wilayah Kota) and IMB thin Mendirikan Bangunan or Building Construction Permit) has been fixed, the investor can propose through the 'evaluation of spatial planning mechanism' that it has a possibility to make a 'correction of the

plan' as what investors need. An example of 'a legal deal' may be indicated by

the case of 'triple deckers' project owned by investors who have a very close

relationship with the central power. Basically, the project is not stated in the

land use plan of DKI Jakarta (Master Plan Of DKI Jakarta 1985-2005), but,

through 'formal revision' carried out by the government, the project finally became apart of land use planning of DKI Jakarta (Republika, 16 Sep. 1997).

An example of 'an illegal deal' may be indicated by the case of 'peta

buta' or 'blind map', as quoted from the news paper Media Indonesia, September 1997, Suady, Rahman; and Helmy (1997) indicated that:

memang men gakibatkan sering

disinyalir

peta buta' itu ada permainan terjadi pelanggaran peruntukan di

lapangan....cukup banyak kasus lahan hijau berubah menjadi

perumahan. Bahkan di atas lahan fasus and fasos berdiri ini diduga ada kolusi antara okmun tata kota....Itulah lika-liku mencari uang dengan memajang peta buta' yang dapat menyesatkan masyarakat. (Media Indonesia 18 Sep.1997) bangunan

Literally translated:

....there is an indication that 'blind map3' tricks led to manipulation , there are many violations of of the land use plan in the field

land use plan eg. green area became housing; and public and it is suspected that there is social area became buildings collusion done by some of officials....the blind map which cheats society, (bribe)

is

by the officials

to (Media Indonesia 18 Sep.1997) used

get some money

3 Blind map may be a part of spatial plan map which is published by the local government without clear explanation.

107

This indication is supported by Asbah (cited in Kompas newspaper 5 Dec. 1997) stating that Dinas Tata Kota (The Local City Planning Agency) just shows

the maps of city planning, but not all members of society understand how to read the maps, especially 'blind maps'. Kompas newspaper (1997) criticises that Dinas Tata Kota (the Local City Planning Agency) as lacking transparency in explaining the spatial plan to the society. The lack of transparency of spatial

planning information brings about confusion for those who plan to develop buildings and they are quite easy to fool.

Soegijoko, BTS (1996) argued that 'marketing geography' underlies the

JMPD. A hierarchy of centres of growth whose order depended on their economic significance was determined by the dominant pattern of links between consumers and resources within the region. The Jabotabek Metropolitan Development Plan was the first plan to identify explicitly the existence of a metropolitan area

larger than the official boundaries of DKI

Jakarta and to cover more than one province in a single regional development plan (Douglass 1989). Five tasks were given to the project:

To formulate alternative development strategies and spatial plans, and to select a preferred plan

To identify resource needs and the planning agencies to be in charge of their allocation

To identify immediate action projects consistent with the national plan. To appraise project standards, development processes and programs. To identify the implementing mechanisms, institutional arrangements and manpower resources needed to begin taking action.

The main Strategies of JABOTABEK Metropolitan Development Plan were (Stolte 1995, p.229): 1. An integrated growth and investment strategy for the metropolitan region.

108

A promotion of future developments towards the east and west to avoid further contamination of the groundwater and to protect the important groundwater recharge areas in the south from urban development.

A minimisation of developments in the environmentally sensitive wetlands and poor soils of the northern coastal areas.

A major emphasis on provision of utilities and infrastructural services such as roads, water supply, sanitation, kampung improvement, and flood protection.

A guided Land Development mechanism allowing structuring of informal developments into residential and industrial areas by providing primary infrastructure such as roads and drains.

According to the Jabotabek Metropolitan Development Plan (JMDP), only 50% of DKI Jakarta's land area including the entire southern half of the

city, would be favourable for urban and industrial development. In 1990, generally, the three Kabupaten of Botabek were far more densely populated than the province of Jawa Barat (West Java) or Jawa (Java). This reflects the

impact of DKI Jakarta as a metropolitan area on the surrounding region of Botabek where Tangerang is already the most developed Kabupaten in Botabek followed by Bekasi and Bogor (Jakarta 2005 Master Plan 1991).

The Jabotabek Metropolitan Development Plan separates Jabotabek into five zones (see Figure 3.12, p. 110). The third one is seen to be suitable

for major urban and industrial development. Land rises from the low-lying coastal plains of zone I and II, and here natural drainage is good and flood risks are low. The soil is reasonable for building upon. Within zones I and II, land use

is mostly limited to agriculture suited to fishponds in zone I and rice growing in

zone II. In both zone I and zone II, the soil is poor for building upon. Zone IV allows only limited urban development, because of steep slopes. Due to higher

rainfall, the area is especially suitable for agriculture, although the soil itself is

reasonable for building, zone V is a natural mountainous forest area where

steep slopes limit agricultural land use to plantations and complicated

109

Km 0

Zone 0

Zone 00:

-low lying coastal strip -Flat, bad drainage -Subject to flooding -Agricufture suited to fish pond -GrowId water saline and undrinkable -Poor soils for building upon

-Low lying plains -Flat to bad drainage -Subject to flooding

-This area enchroaching on zone saline intrusion increases

LI

-Excellent rice growing especially if irrigated. -Ground water fresh but easily polluted. -Poor soils for building upon

Zone 000 -Higher land raising from coastal plain. -Reasonable gradient so good to natural drainage -Low flood risk -Ground water fresh and leaching soils limit pollution -Poorer agriculture -Reasonable soils for building upon 1:

14

21

-

Zone V

Zone OV - Steeper zone

7

sloping

-Good natural drainage -No flooding

-Limited ground water and no deep aquifers -Reasonable agricul-

ture because more rain fall -Reasonable soils for building

-Steep mountainous zone.

-Rapid run off, but limited by vegetation -Natural forest areas -Agriculture limited to complicated terrace constructions -Subject to rapid -erosion if forests cleared

in urban area

Figure. 3.12 Physical Conditions of Jabotabek. Source : Adapted from Jakarta 2005 Master Plan 1991.

110

terrace constructions. Clearance of forests results in rapid erosion. Zone V is the water catchment area of Jabotabek. Therefore it has to be preserved, but might be used for tourism

.

While zone I is of relatively little importance with

about 318 km2 (4.7%), zones II, Ill and IV are approximately the same size with

1405 km2 (20.6%), 1589 km2 (23.3%) and 1350 km2 (19.8%) respectively. Zone V is the biggest one with 2154 km2 (31.6%) located in Kabupaten Bogor.

As a consequence, 64% of the total area of Kabupaten Bogor is not suitable

for any urban or industrial development. Zone III has the best potential for urban and industrial development. About 760 km2 (47.8%) of zone III was in Kabupaten Tangerang, while the shares of Bekasi and DKI Jakarta are similar

in size with 357 km2 (22.5%) and 318 km2 (20.0%) respectively. Kabupaten Bogor again is a less favoured area with only 155 km2 (9.6%).

3.5.4 Jakarta 2005 Master Plan

By incorporating the two plans, the JMDP and the Draft Jabotabek Structure Plan of 1983, the DKI Jakarta Structure Plan 2005 (1985-2005) was

designed and approved by Local Government Regulation in 1984 (Perda No.

5 1984 legalised by Decision No. 650.31-752 of the Minister of Home Affai rs/M HA).

The 1985-2005 Master Plan sets out long term guidelines. In operational

development terms, the plan, together with the Five Year Development Plan (Repelita) are the basis of development for each five-year period. The Master Plan has been integrated with Jabotabek development policy which has as its

main concept, to develop the east-west axis in order to reduce environmental pressure in the southern parts. The Master Plan sees the development of the

Jabotabek region based on Jakarta as a core city and the centres of cities

outside of Jakarta (Tangerang, Bekasi, Depok, Serpong and Kota Madya Bogor) (Jakarta 2005 Master Plan 1991).

11I

The direction of development until the year 2005 is proposed to be as follows (Jakarta 2005 Master Plan of DKI Jakarta 1991, p.13):

1. To encourage development, or primary urban growth, to the west and east, chiefly in the West and East Development zones.

To delay and restrain development in the Northwest and Northeast Development zones.

To limit and tightly control development in the South Development zone.

Industrial development in the Jakarta Structure Plan 2005, has been planned explicitly. At the end of 2005, in the northern zone area of Jakarta, the total of industrial establishment including small scale industries will be 353,900,

in the south around 40,200 and in the East-West zones around 252,500. The

large and medium industries that still will be developed in the industrial development zone are in the Pluit, Ancol, and north western part of Jakarta. The medium sized industries also will be developed in the western, eastern and

central Jakarta. The aim of even distribution of industries is to reduce congestion or transportation problems.

Until 2005, the land required for the large and medium size industries is

projected to be around 4,868 hectares. Meanwhile, the small scale industries need 396 hectares, so that the need for industrial area will increase from 2,442

hectares in 1980 to 5,624 hectares by 2005. The Master Plan, however, does

not mention explicitly the types of industries that will be developed. Nevertheless,

there

are general

guidelines

for

industrial development

mentioned in the Jakarta 2005 Master Plan (1991, p. 17) which are as follows: 1. Industry developed in Jakarta must be : industry with a low pollution rating. industry which uses high technology in its production process. industry which does not require much water nor a large land area.

2. The development of large and medium scale industry is to be directed mainly to the Northwest and Northeast Development Zones for industry.

112

.1

)

Lk-

q_,

kc)i, _

LEGEND Utilisation for commercial or trade and service development Development of offices and trade with low density Industrial and commercial mixed development area Settlement area with all facilities Industrial development area

I

J

0 0

_

Settlement area with.all its facilities povemmint and public facility area Agriculture/green belt rith.low density settlement Priority for agriculture/green belt. Recreation Security area to prevent floods

411.1-1)

Primary Centre Secondary Centre Tertiary Centre Centres growing of intersections (Ribbon)

acf\ary\." 0 1 Km

Figure 3.13 Structure Plan of MO Jakarta Source : Jakarta 2005 Master Plan 1991.

2345

PRI: Pengembangan yang diprioritaskan (The priority areas for development) PBK: Pengembangan Terbatas dengan perbaikan/ peremajaan (Limited development with improvement/rehabilitation) PRM: Pengembangan terbatas dengan peremajaan (limited development with rehabilitation/renewal) RT: RekreasVTaman (Recreation Park) RO: Rekreasi/Olahraga (Recreation/Sports) RH: RekreasVCadangan hutan (Recreation/ forest reserve)

Small scale industry which is directly related to the dwelling areas of its accompanying workforce may be located within settlement areas, in small scale industrial estates.

Small scale industries in which the production processes have a working relationship with large and medium scale industries should be located close to these latter industries.

Industrial location will be selected on the basis of proximity to communication facilities and other supporting infrastructure.

3.5.5 Jabotabek Metropolitan Development Plan Review (JMDPR). The review of the JMDP issued in 1993 by the Directorate of Cipta Karya

(Human Settlements)-Ministry of Public Works, has a time horizon to the year 2010. The general objective of the JMDPR (1993h, p. I) has been to: update the Metropolitan Plan for Jabotabek, and

formulate a package of proposals to improve the capacity of DKI Jakarta

and the Botabek local authorities to manage and implement the planning process throughout the region.

The JMDPR argued that the review of JMDP is required due to the dramatic explosion of growth in Jabotabek region. The JMDPR evaluated the original Jabotabek Metropolitan Development Plan (JMDP) issued in the early 1980s and which had a time horizon to the year 2000. The JMDPR noted that population growth in DKI Jakarta was slower than expected (8 % over 10 years)

and that Botabek had grown substantially faster than projected (some 30 % over 10 years).

It also noted, according to JMDPR (1993h), that new town developments (for example Bumi Serpong Damai and Lippo City) were not compatible with the

JMDP, and the establishment of the University of Indonesia in Depok and the

Institute Pertanian Bogor in Bogor had produced significant impacts on population distribution patterns. JMDPR (1993d) suggested a balanced

114

population growth of approximately 4% to the east, west and south. The JMDPR also analysed the resources and the recommendations institutional development and strategies for supporting infrastructure and services. ..

JMDPR (Stolte 1995) evaluated three possible alternatives for the guidance of Jabotabek development, referred to as paradigm AAA, paradigm BBB, and paradigm CCC. Paradigm AAA suggests a semi circle of new towns

at 50 kilometres from Jakarta to accommodate the additional population (see

Figure 3.14, p. 116).

It

is

predicted, however, that the violation of

environmentally sensitive areas and the pressure on the Jakarta road network could ruin the benefit of a green belt around Jakarta. The second alternative is

paradigm BBB, a five finger development (see Figure 3.15, p. 117). This paradigm may promote a creative interplay between urban and greenbelt functions. However, the traffic problems in Jakarta will be more serious than in

the new towns, because the role of Jakarta as nodal point for all transport will

increase. Hence, 'this paradigm does not help to alleviate the burden of continuous congestion in the centre (DKI Jakarta)' (Stolte 1995, p. 236). The third alternative which is strongly recommended by JMDPR (1993h) is paradigm

CCC (see Figure 3.16, p. 118), which promotes the development of the eastwest linear city, and the consolidation of growth along the southern axis. This

alternative may reduce the congestion problems of Jakarta. The reduced pressure on the environmentally sensitive parts of Jabotabek is one of the advantages of this paradigm. The preferred CCC paradigm was designed to (JMDPR 1993h, p. 31):

promote efficiency of investment in transportation systems;

foster relatively straight forward development control (no presumption to

resist urban sprawl type infilling of areas between new towns or between development 'fingers'); allow a good match between major residential and employment areas;

115

Java Sea

±4111.111_

&_-41A

MUrban Agglomeration

111 Not suitable for development

New TOWELS Green Wedges

Figure 3.14 Paradigm AAA, _Source: Adapted from JMDPR (Stolte 1995).

116

Java Sea

AVt-

AMA-

NIL

NIEL

-NS

Urban Axis

Not suitable for development

UrbanAgglomeration

IS New Towns

I

Green Wedges

Figure 3.15 Paradigm BBB Source: Adapted from JMDPR (Stolte 1995).

Java Sea

Au&

Urban Axis

-.11LALALk

Not suitable for development

Urban Agglomeration New Towns.

® Green Wedges Open Area

Figure 3.16 Paradigm CCC Source: Adapted from JMDPR (Stolte 1995).

118

be in broad sympathy with the environmental zoning model;

align with the general development prognosis of the external model for West Java; and

be capable of extension to include Karawang/Cikampek and Serang in an " integrated linear metropolitan chain.

In terms of industrial development planning, JMDPR predicts that the total additional area required for industrial development in Jabotabek 1990-

2010 is 13,490 hectares. However, SK Gubernur (Governor Decree) Jakarta No. 1209/1988, restricts industrial development in DKI Jakarta, and there is a

commitment to restrict industrial development in Kabupaten Bogor in order to

protect the environment and to encourage development in the east-west corridor. Therefore JMDPR mainly allocated the total

13,490

additional land required for industry in Kabupaten Tangerang and

hectares Bekasi.

Serang and Karawang that are regions adjacent to Jabotabek have enjoyed a

'spin off' from the rapid industrial development. The increasing price of land, especially for industrial estates, leads to rising demand for cheaper land further out along the main east-west development axis.

JMDPR has constructed the Strategic Land Use Plan of Jabotabek (see

Figure 3.17, p. 120) by integrating eight component maps namely landscape; environment; urban form paradigm; residential space requirements; industrial space requirements; transportation infrastructure; urban centre distribution /

hierarchy; and urban articulation / greenbelt system. JMDPR (1993h, p. 53) states that the land use plan could be used as a guidance framework for local and action plans.

3.5.6 Other Studies and Policies With reference to the Regional Land Use Planning of West Java 1994, the Province of West Java has also proposed a Botabek Structure Plan Policy followed by local land use planing of the Kabupatens and Kotamadya of Bogor, Tangerang and Bekasi in order to accommodate any spillover from Jakarta.

119

Existing residential

Residential structure plan Residential year 2000-2010

Low density residential area Existing Industries

Industrial structure plan Industry year 2000-2010 Commercial Airport Water

Li 11.

Wetland Dry land Plantation Forest

Greenbelt

\

6 Primary centres O Secondary centres

6

000 0000 000

0

Tertiary centres Proposed tertiary

New development Heavy rail Light rail

Figure 3.17 Strategic Land Use Plan of Jabotabek 2000 to 2010 Source: Adapted from JMDPR 1993h.

Toll road

Table 3.23 The Selected Main Planning Strategies/Studies Issued Colonial Era Light House Policy. Master Plan Of DKI Jakarta

Jabotabek Metropolitan Development Plan (JMDP) Jakarta 2005.

Planning Period - 1965

Administrative Boundary

Approval

Jakarta

-

By the government of Jakarta 1965

1965-1985

Jakarta

Approved by People's Council of Jakarta in 1967

By Cipta Karya Human Settlements, Ministry of Public Works 1981 By the government of DKI Jakarta 1984

1981-2005

Jabotabek (Jakarta, Bogor, Tange-

-

rang and Bekasi) 1985-2005

DKI Jakarta

Approved by Perda (Regional Regulation) No. 5/ 1984 and legali-

sed by

Decision

No. 650.1-752 of the Minister Home Affair Jabotabek M etropol itan

Development Plan Review

By Cipta Karya / Human settlements Ministry of Public Works 1993

1990-2010

of

Jabotabek (J akar-

ta, Bogor, Tangerang, and Bekasi)

The Botabek region is seen as a buffer zone which provides agricultural production for Jakarta's consumption and land for large-and medium-scale industry. The proposed planning policy of Botabek states that the development

of Botabek should be linked to the development of the corridor west-east (Serang-Cikampek-Cirebon), through the development of Bojonegara and the

increasing function of Cirebon in reducing the movements to Jakarta and in increasing economic activities. The plan adopts a polycentric approach or multi

nucleated metropolitan structure functionalised by the unity of transportation systems. The plan also nominates Jakarta as a service city, while Botabek will

be a region of industry and settlement that will have a self-sustaining city character in order to buffer spillover from DKI Jakarta. In this region, the land allocated for industrial zones is 7,100 hectares (Bappeda of West Java, 1997a).

However this proposed planning policy seems still to be an introductory effort,

requiring further coordination and agreements with other institutions and especially with the Government of DKI Jakarta, BKSP and other related institutions.

121

Recently, a study of Jabotabek incorporating the two other kabupatens of Serang and Karawang or Jabotabek-Sekar named 'Strategi Pengembangan Kawasan Jabotabek dan Sekitarnya (The Development Strategy of Jabotabek

and Surrounding Region)', was issued by the Directorate General of Human Settlements (Cipta Karya), Public Works Department in March 1997. It argues that, in the last 3 decades, the rapid growth of Jabotabek has overstressed the region and it now needs to be enlarged to include the two kabupatens, Serang and Karawang to be considered. The objectives of the strategy are:

To achieve an integrated urban area of Jabotabek and its surrounding regions by considering sustainable development. To achieve a balanced growth distribution and a linkage between Jabotabek and its surrounding region.

To achieve integrated planning and synchronised development for government and society in Jabotabek and its surrounding regions

To achieve efficiency and effectiveness of investment of government and society in the development of Jabotabek and its surrounding regions.

To achieve an appropriate institutional mechanism in order to manage planning and controlling of the development of Jabotabek and its surrounding regions by government and society.

The importance of Jabotabek-Sekar or the Northern Region of West Java (NRWJ) or Pantura (Pantai Utara) has also been pointed out by Stolte (1995) ( see also Firman 1997). Stolte (1995) explains that NRWJ will be an important economic entity, with Jabotabek as a centre point embracing the new residential and industrial estates of Karawang Regency to the east and

the port activities of the Serang Regency to the west. However, again the study of Jabotabek-Sekar is only conceptual at this stage and further work is needed

in order to handle and reduce the complicated problems of Jabotabek's dramatic growth.

122

0000./

Provincial boundary Kabupatan boundary Road Railway

MOO Northern Region of West Java JAVA SEA

10

20

30.

40 km INDIAN OCEAN

Figure 3.18 The Northern Region of West Java, Indonesia. Source: Firman, 1997

At the national level, the Indonesian Government, has a strategy for urban development called National Urban Development Strategy (NUDS) introduced in 1985. As described by Soegijoko (1992, p. 293), the NUDS views

cities as areas which can 'stimulate the pattern of population settlements and mobility,

as well as the nation's economic activities

centres, including

employment opportunities'. The process of the implementation of the policy will,

in turn, influence land use development. This also may affect the national development framework. Hence, according to Soegijoko (1992) national urban

policy is involved with economic development within a spatial framework, concentrating on urban areas and land development specific to each urban development strategy, which is a broadscope strategy at the national level. For the Jakarta area, NUDS recommends that it improves its internal structure and

it also suggests more orderly and compact expansion on the major urban

fringes, along with the accelerated growth of sub-centres at reasonable distances from the centre.

The sub-centres would be developed around existing towns that had

already been established. The new residential areas should consider an incremental low cost approach based on the principles of Guided Land Development, with early application of Kampung Improvement Program techniques to structure residential growth (United Nations, 1989). Further, one of the tools to achieve development and more efficient provision of basic urban

infrastructure (eg., kampung improvement, water supply, drainage, sanitation and urban roads), is the Integrated Urban Infrastructure Development Program

(lUIDP). This program emphasises the need for better coordination and decentralisation in planning and implementation using

the province as the

basic unit (Soegijoko 1992).

BKSP (1996) concluded that many studies of development planning strategies of Jabotabek had been issued by both the central government and local government, but, most have no comprehensive strategy or legality. BKSP (1996) stated that it is difficult to realise comprehensive and strategic

124

development in Jabotabek, because much of the authority is held by the central

government. Soegijoko, BTS (1996) also noted that the role of the central, provincial, and local/kabupaten governments in Jabotabek is unclear. The Jabotabek region is governed by the two provinces of DKI Jakarta and West

Java which have different regional objectives and constraints

in

their

development programs. Cooperation between DKI Jakarta and West Java is still sectoral and partial.

This has produced difficulties

in

planning and

implementing for development of the Jabotabek region.

Wijogo, former Governor of DKI Jakarta explained in the newspaper Harlan Ekonomi Neraca 12 June 1997 that:

penyebab lain yang menurut Wijogo menyulitkan pelaksanaan

konsep pembangunan regional adalah adanya tumpang tindih kewenangan antara kebijaksanaan DKI dan Pusat. Selama tumpang tindih itu tidak di atasi, ketidaktertiban tata kota di Jakarta tak akan terselesaikan juga... (Harlan Ekonomi Neraca 12 Juni. 1997) Literally translated:

According to Wijogo, another problem that makes it difficult in implementing regional planning concepts, is that there are

overlapping of policies between DKI Jakarta and the Central Government. As long as this problem can not be handled, the uncontrolled development of Jakarta will continue.... (Harlan Ekonomi Neraca 12 June. 1997) Formerly the secretary of BKSP, Syafrudin (1998, 47-111) argued that the

institutional model handling Jabotabek's development (the involvement of Provincial

Government,

Departments,

and

Bappenas)

leads

to

poor

coordination. Syafrudin stated precisely as follows: Selama ini, ada kelemahan koordinasi antara pihak yang mengelola Jabotabek, yaitu antara Pemda, Departemen-

departemen, dan Bappenas. Kenapa bisa demikian ? Itu ada hubungannya dengan siapa yang memegang leading sector.

perilaku yang berwenang belum sepenuhnya men ghormati

125

perlunya koordinasi dengan instansi lain. Kasamya ada egosectoralism. Jadi, karena merasa wewenangnya dominan, munculah ego itu. (Ummat on line 47-III 1998) Literally translated:

At present, there is weak coordination between the Provincial Government, Departments and Bappenas. Why? This is related , the behaviour of to those who are handling the leading sector

those who have authority does not recognise the need for coordination. In other words, there is ego-sectoralism. Those who have authority feel dominant, and the ego will appear. (Ummat on line 47-1111998)

The analysis of the institutional structure involving the role of local, provincial and central government in the planning process in Jabotabek region will be discussed in more depth in section 3.6.

3.6

Institutional Structure and Planning Process This section will review the institutional structure and planning process in

Jabotabek. The review will be begun with the description of the role of selected institutions involved in planning at central and regional level in general, followed

by the description of planning process within Jabotabek region.

The main

sources of this review are JMDPR (1993), Koestoer (1991), and official publications of the central and local government.

3.6.1

Institutional Structure The national goals of Indonesian development are stated explicitly in the

State Policy Guidelines or Garis-garis Besar Haluan Negara or GBHN, produced by People's Consultative Assembly or Majelis Permusyaratan Rakyat or MPR. The GBHN consists of short, medium and long term physical and nonphysical development objectives. The physical development concerns resource

endowment development such as land, agriculture and forests. The nonphysical development refers to social, economic and political potential. The

GBHN and Acts which are produced and approved by the People's 126

Representative Council or Dewan Perwakilan Rakyat (DPR) together with the

president, are the foundations for the Indonesian government to run the country's development process.

There are various institutions involved in supporting the development

planning process (see Figure 3.19,

p.

128). The central agencies are

predominantly responsible for planning processes at the top level and work sectorally. The bodies at regional level run the development planning process

regionally. The president instructs ministers and heads of non-departmental institutions to execute the national development programs stated in the State Policy Guidelines.

The institutions which are directly involved in supporting Jabotabek development at central Government levels are: 1. Ministry of Home Affairs

(MHA), through the Directorate General of Bangda (Regional Development) and Directorate General of Pemerintahan Umum dan Otonomi Daerah/PUOD

(General Administration and Regional Autonomy) play an important part in urban development; 2. Ministry of Public Works (MPW), through the active role

of Directorate General of Cipta Karya (Human Settlements) which closely concerned with urban development; 3. Ministry of Finance (MOF) that sets and

manages the budget and investments for development; and Bappenas (National Development Planning Agency), a non-departmental institution which

is responsible in formulating and coordinating national development plans. Bappenas is responsible for inter-provincial coordination and vertical integration

between central government, provincial government, and local government agencies. Other central institutions that are indirectly involved in Jabotabek Development are : 1. Ministry of State Apparatus Enhancement (Menpan); 2. Ministry of Living Environment ; 3. National Land Board (BPN); and 4. Urban Development Co-ordination Team (TKPP).

127

Widen

National Developmen

Ministry of the Cabinet.i*: Department of Public Works, Home Affairs, etc.

PIannin Agency or.Bappenas

Provincial Development

Pjoiolo.Agency 'Al.:PO:0-

OVerriOr

a

DistriOt.:peye,OPtheh 00-rxii.OgrA0-10:611:P(

BUpátiiWalikóta

87op.torai..

Agencies-'

Ofa ñçies

fiqPPecta4/

eve o ment VVo rea Unit (UDKP)

Resilience Community Organisation

lira

.., ,

(L1k1V1

Note: National Level Provincial Level District/Municipal Level D, Subdistrict Level E. Village Level Bappenas: Badan Perencanaan Pembangunan Nasional Bappeda: Badan Perencanaan Pembangunan Daerah UDKP: Unit Daerah Kerja Pembangunan LKMD: Lembaga Keamanan Masyarakat Desa Bupati/walikota: head of district/municipality Camat : head of Subdistrict Lurah: head of villages

Figure 3.19 Administrative Planning Bodies Source.: Adapted from Kartono et al (cited in Koestoer 1993, p. 98) 128

At provincial level (Tingkat I Government level) of both DKI Jakarta and West Java, various bodies responsible for urban development, are: 1.Setwilda Tk 1 (Provincial Secretariat), and its related agencies; 2. Bappeda Tingkat

I

(Provincial Development Planning Agency); and 3. Kanwil and Dinas PU (Provincial Office and Dinas of Public Works)

At

district

level

Kabupaten/Kotamadya

(Tingkat Bogor;

Government Level)

II

Kabupaten/Kotamadya

of West Java,

Tangerang;

and

Kabupaten/Kotamadya Bekasi, various bodies that are responsible for urban

development are :1. Setwilda Tk

II

(District Secretariat), and its related

agencies/Dinas; and 2. Bappeda Tingkat

11

(District Development Planning

Agency).

Various provincial and local institutions along with Bappeda and Setwilda

at the respective levels of government are responsible

for development

planning, programming and budgeting at province and local levels. Usually, these agencies prepare local plans and programs which are medium and small

scale in nature. In the regions, however, the central government, coordinated by Bappenas, also prepares many sectoral development plans and programs

that are usually of large scale and have widespread impact. The two types of plans are consolidated in the Rakorbang (Rapat Koordinasi Pembangunan or

Development Coordinating Meeting) at the Tingkat

11

and Tingkat

I.

The

Bappeda Tingkat I and Tingkat II have responsibility for the consolidation of the plans.

According to JMDPR (1993f,

p.

1-4),

the development planning,

programming and budgeting in Jabotabek is unique, because it does not precisely follow the national standard process mentioned above. This is due to the involvement of the two provincial governments of DKI Jakarta which has six non-autonomous municipalities and West Java (for Botabek region). Therefore,

the development planning of Jabotabek needs to address not only ordinary

129

intersectoral and bottom-up/top-down integration but also incorporate interregional integration.

Based on the Keputusan Bersama (Joint Decree) of the Governor of West Java and DKI Jakarta strengthened by Instruction of Minister of Home

Affairs, Badan Kerja Sama Pembangunan Jabotabek or BKSP Jabotabek

(Development Cooperation Board of Jabotabek) has responsibility to coordinate the planning, programming, and budgeting in Jabotabek region. The Joint Decree has clearly stated that BKSP Jabotabek has the following tasks (JMDPR 1993f, p. 1-4):

Co-ordinate,

integrate,

synchronise,

and

simplify

the

solutions

of

developmental issues in Jabotabek.

Consult with the Central Government on all developmental issues in Jabotabek.

In performing these tasks, BKSP has the following functions (JMDPR 1993f, p. 1-4):

Coordination of physical and non-physical development planning within Jabotabek.

Defining regional and sectoral programs for Jabotabek.

Find solutions to economic, social, and spatial developmental issues and maintain order in governmental administration within Jabotabek.

Control all developmental activities in order to be able to co-ordinate integrate,

synchronise, and

simplify the regional and sectoral

projects

conducted within Jabotabek.

JMDPR (1993f, p. 1-4) noted that that it is difficult for BKSP Jabotabek to

carry out its responsibilities as stated in the Joint Decrees due to several reasons:

1. ambiguity in the implementation of the given task and responsibilities, since no operational guidelines (petunjuk pelaksanaan) are available;

130

no adequate resources support of enforcement tools are made available to BKSP to carry out its responsibilities properly; BKSP's

role in the

planning, programming, and budgeting of the

development in Jabotabek is not clearly defined; and

There are other central and provincial agencies whose responsibilities overlap those of BKSP, such as BAPPEDA Tingkat I of West Java and DKI Jakarta, Team Perencanaan, and Team Teknis Perencanaan Pembangunan Jabotabek.

Bappeda Tingkat I of West Java and DKI Jakarta have responsibility to

arrange and

support the 5-year and annual expenditure programs and

financing plan for the proposed national, provincial, and local development projects, including Integrated Urban Infrastructure Development Program

(lUIDP) by considering agreements achieved during the Rapat Koordinasi Nasional (Rakornas) or the National Coordinating Meeting.

Team Perencanaan Pembangunan Wilayah Jabotabek (Development

Planning Team of Jabotabek) called Team Perencanaan and Team Teknis Perencanaan Pembangunan was established by Keputusan Menteri Negara Perencanaan Pembangunan Nasional / Ketua Badan Perencanaan Pemba-

ngunan Nasional (The Decree of State Minister of National Development Planning/Chairman of Bappenas) No. 125/K/10/1983 dated October 17, 1983. It has responsibilities of (JMDPR 1993f, p.I-5):

Preparing plans that will include the outline (garis besar) of the development

of the Jabotabek region based on the directives provided by Menteri Perencanaan Pembangunan National/Ketua Bappenas and its operational stipulation.

Coordinating and controlling development activities in the Jabotabek region,

and providing advice to departments, non-departmental agencies, and the

regional governments and to resolve problems related to development in Jabotabek.

131

c. Observing the development occurring within Jabotabek and providing advice

to resolve strategic development problems in Jabotabek to Menteri Negara Perencanaan Pembangunan Nasional/Ketua Bappenas.

Local Governments (at the Tingkat II level) are responsible for preparing and

implementing

urban

infrastructure development

plans.

They have

responsibility to arrange detailed spatial planning (with assistance from Direktorat Tata Kota dan Tata Daerah of the Direktorat Jenderal Cipta Karya), local expenditure plans and budgets, and revenue plans with close consultation with the Bappeda, and other related Central Government bodies.

Sectoral Agencies at the central, provincial, and local level have the

responsibility to prepare sectoral plans and carry out feasibility studies by referring to the approved master plans or IUIDP Development Assessment Plans (IDAPs), and considering directives issued by BAPPENAS, BAPPEDA Tingkat I or BAPPEDA Tingkat II.

Tim

Koordinasi

Pembangunan

Perkotaan

(TKPP)

or Team for

Coordination of Urban Development has the responsibility to assemble the policies of urban development as well as the guidance to implement the IUIDP

approach in urban infrastructure development to central, provincial and local government agencies, especially those that are financed by the World Bank.

The TKPP also has the responsibility to assess and approve the Jabotabek sectoral plans as well as the 5 year expenditure plans.

Recently, based on Ministerial Decree of the State Minister of National Development Planning/Chairman of Bappenas no. 892/KET/8/1997, Tim

Koordinasi Pembangunan Jabotabek (Team for Coordination of Jabotabek

Development) was established. The team has the task to coordinate the development of Jabotabek, with regard to land use, water resources, managing lakes,

dam, swamps, rivers, flood problems, transportation problems,

132

distribution settlements and industries, open green space, and population. This team started to work in September 1997.

As described above, JMDPR (1993f) noted that the involvement of so many agencies at the central, provincial and local levels, can lead to a very complex process in urban development planning, programming and budgeting for the Jabotabek region. This brings about many potential points of conflict and scope for poor coordination.

3.6.2 Planning Process The planning process involves institutions in local, provincial and central government. The local governments (Tingkat II / Kabupaten / Kotamadya level)

are responsible to produce two plans, namely the Five Year Development Plan

for District Level, known as the Rencana Pembangunan Lima Tahun Daerah

Tingkat II (Repelitada Tingkat II) and the Annual Plan represented by the Rencana Anggaran Pendapatan dan Belanja Daerah Tingkat II (RAPBD Tk II) or Draft of District Budget.

a.

Repelitada Tingkat II

Bappeda Tingkat II has the responsibility of preparing the Five Year Development Plan and actively seeks inputs and information from the vertical

agencies and the kecamatans, particularly for their medium term plans. Bappeda Tingkat ll also actively asks advice from Bappeda Tingkat I. After the Garis-garis Besar Haluan Negara (GBHN) covering the period of the respective

Five Year Development Plan (Repelita), has been decreed by MPR, the preparation of Repelitada becomes more intensive. Communications and co-

ordination are maintained through a series of workshops (lokakarya) with different participants. The Repelitada Tingkat II, however, can only be codified

after the Repelitada Tingkat I and the National Repelita have been declared, since the Repelitada Tingkat II is intended to complement them.

133

JMDPR (1993f, p. 1-10) sees that in terms of

the formulation of

Repelitada Tingkat II, there is no adequate attention given for inter-regional co-

ordination, whereas there is a significant effort to conduct vertical integration.

Each Repelitada which should be approved by the respective Dewan Perwakilan Rakyat Daerah Tingkat II (House of Representative Level II) and

decreed by the Bupati or Walikota, Repelitadas

of

surrounding

Kabupaten/Kotamadya

Bogor,

is

prepared independently of other

Daerah

Tingkat

Kabupaten/Kotamadya

Ils.

Meanwhile,

Tangerang,

and

Kabupaten/Kotamadya Bekasi have a similar process in preparing their Repelitada Tingkat II. Therefore JMDPR (1993f) argued that the process is less

appropriate to be used for the-pFeparation of Botabek's Repelitada Tingkat II, because the growth of Botabek is very closely interrelated and influenced by DKI Jakarta. JMDPR also suggested that the Bogor,Tangerang, and Bekasi's Repelitadas should be co-ordinated not only with each other but also with DKI Jakarta.

In general, the Repelitada Tingkat II contains four sections.

An overview of the

condition and potential of the region. This section

presents a comprehensive, quantitative and qualitative description of the existing condition of the region.

The goals of development. The goals are categorised according to the development sectors and they are expressed in terms of Tolok Ukur (Detailed Implementation Plan) connected to those sectors or sub sectors.

The development of regions. This section

describes the administrative

region divided into Wilayah Pembangunan (development regions). The

characteristics of the regions and the development programs are identified. The programs are categorised in terms of the development sectors.

The development budget. This section describes the sources of funds namely public sources (APBN/National Budget, APBD Tk I/Provincial Budget,

and APBD Tk II/District Budget), and private sources (foreign investment,

134

domestic investment, and community resources or swadaya). The budget is set for each fiscal year of the five year plan.

b.

The Annual Planning process for Kabupatens/Kotamadyas The annual planning process is classified into a bottom-up cycle and top-

down cycle. The bottom-up planning cycle (from April to December) comprises

the determination of development programs in the coming fiscal year and an

indication of the projects derived from the programs. The top-down process

(from January to March) has activities to adjust development programs by adopting top-down directives received, leading to the formulation of the annual provincial budget plan (Rancangan Anggaran Pendapatan dan Belanja Daerah Tingkat II or RAPBD Tingkat II). The Figure 3.20 (p. 136) represents the annual

planning cycle. The preparation of the development programs and projects will be carried out by the Bappeda Tingkat II based on proposals from the sectoral

agencies, the Kecamatans (subdistricts), and other Tingkat ll agencies. The proposal expresses local hope and needs to be prepared with minimal formal directives from higher authorities. In preparing the Repelitada II for the coming year, the Bappeda Tingkat II will also refer to achievements of the Repelitada in

previous years, and to the policies of central and provincial government. The selection and co-ordination of the proposal submitted by the sectoral agencies,

the kecamatans, and other government agencies are carried out by the Rapat

Koordinasi Pembangunan Tingkat II

(RAKORBANG Tingkat II) or District

Coordinating Development Meeting which will produce a program proposal and

an indication of projects (Rancangan Program dan Indikasi Proyek). The program proposal and indication of projects resulting from Rakorbang Tingkat

will be discussed at Rakorbang Tingkat

I.

In this meeting, interregional

cooperation does not get much attention since the Rakorbang is a meeting conducted among officials of a particular daerah tingkat II.

During the top-down process, the national and provincial development planning policies will be known by the local government for the next fiscal year.

135

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subdistrict ...level

.

.,....-; ,-,..

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

JAN

FEB

MAR

APR

Note: A: National Level; B: Provincial Level; C: District/Municipal Level; D: Subdistrict Level; Rakorbang II: Rapat Koordinasi Pembangunan Daerah Tingkat II (District Development Coordinating Meeting); Rakorbang I: Rapat Koordinasi Pembangunan Daerah Tin gkat I ( Provincial Development Coordinating Meeting) DSP: Daftar Skala Prioritas (List of Priority); DUP: Daftar Usulan Proyek (List of Project Proposal); UP: Usulan.Proyek (Project Proposal); MHA: Minister of Home Affair Bappenas: Badan Perencanaan Pembangunan Nasional (National Development Planning Agency) ; APBN: Anggaran Pendapatan dan Belanja Negara (State Budget); DIP: Daftar Isian Proyek( Project Implementation Plan) ; DIPDA I: Daftar lisian Proyek Daerah Tingkat I (Provincial Project Implementation Plan); DIPDA II: Daftar lsian Proyek Daerah Tingkat II ( Ditsrict project Implementation Plan).

Figure 3.20 Bottom-up and Top-down Planning Process Source : Adapted from JMDPR 1993f

The local government through the Bappeda Tingkat II will reformulate the program proposal by considering top-down directives into RAPBD Tingkat II (Draft of District Budget Plan ).

c.

Repelitada Tingkat I Basically, the planning process at the daerah tingkat 1 level is similar to

the process done at the Daerah Tingkat II. Bappeda Tingkat Repelitada Tingkat

1

by accommodating Repelitada Tingkat

II,

1

prepares provincial

sectoral agencies, Kanwil of sectoral departments, and other provincial agencies. The Bappeda Tingkat 1 co-ordinates a series of workshops in order to

formulate the Repelitada Tingkat I. JMDPR (1993, p. 1-15) notes that this plan is

made independently of other Repelitada Tingkat I from neigbouring regions. Nevertheless some co-ordination is required for the development of boundary regions.

The structure of Repelitada Tingkat 1 is similar to Repelitada Tingkat 11,

containing an overview of the conditions and potentials of the respective province, the objectives of development, the classification of the regions of development, and the development budget plan.

The preparation of the Repelitada Tingkat

1

of West Java and DKI

Jakarta follow the similar process described above. Efforts are also conducted

by the two provincial governments to co-ordinate the development of the Jabotabek area. According to JMDPR (1993f), however,

there are no explicit indications that both provincial governments will abide by mutually agreeable common strategy in pursuing medium term development in Jabotabek. Up to now, interregional cooperation and coordination of development between Jawa Barat (West Java) and DKI Jakarta is still conducted on a case by case basis. (JMDPR 1993f, p.1-16)

137

Therefore, it is not surprising if there are some conflicts between two

regions dealing with development. An example of a conflict might be represented by the statements of two governments as follows:

Pemda DKI sesuai dengan Rencana Tata Ruang Wilayah,

(di perbatasan Jakarta Selatan) menetapkan sebagai daerah resapan air. Tapi yang terjadi selama in!, di perbatasan Jakarta Selatan justru pembangunan perumahan terjadi sangat gencar. Nuriana (Gubemur Jawa Barat) tidak melihat bahwa keadaan itu merugikan Pemda OK!. (Republika 3 Nov. 1997) Literally translated

Regional Land Use Plan of DKI Jakarta states that the border

area between South Jakarta and Bogor is used for water catchment area. However, in that area, the Government of West Nuriana (the Java has built settlements at a rapid rate

Governor of West Java) argued that the development of the settlements will not endanger DKI Jakarta. (Republika 3 Nov. 1997)

d. The Annual Planning Process for Daerah Tingkat I Bappeda Tingkat I pioneers bottom-up planning at the provincial level to

produce a development program proposal to be implemented by the Tingkat I

government. The material of the program proposal is based on the inputs proposed by daerah tingkat II, provincial sectoral agencies, provincial agencies,

and also the Repelitada Tingkat I and its implemented achievements during the

last few years. The program proposal which is discussed in the Rakorbang Tingkat I, comprises a priority list of the prospective projects in the next fiscal year, the expected outputs from such projects, the locations of the project, the cost estimates, the source of funds, and the sectoral or executing agencies that will be in charge of the projects.

The program proposal produced by Rakorbang Tingkat I will be delivered to the Regional

Consultation Meeting.

In

this meeting proposals are

138

communicated and coordinated with neighbouring provinces, particularly for

projects that will be implemented in boundary areas such as Jabotabek. Theoretically, this meeting is the best opportunity to make mutually agreed development programs.

The top-down process has activities of adjustment in the program proposal produced in Konsultasi Regional (Regional Consultation) with available directives, development programs, or planned subsidies and

assistance issued by the central government through Bappenas, sectoral

departments, or the Department of Home Affairs in the form of a Nota Keuangan and Rancangan AnggaranPendapatan dan Belanja Negara (RAPBN or Draft of National Budget Plan). This is usually done after the meeting of all governors held by the end of January. The Rancangan Anggaran

Pendapatan dan Belanja Daerah Tingkat

I

(RAPBD Tingkat

I

or Draft of

Provincial Budget Plan) is the final result of the top-down process.

The descriptions above illustrate the complexity of coordination among institutions involved in Jabotabek development.

3.7. Concluding Remarks The Jabotabek' population growth in recent years has been dramatic. The population in 1980 census was 12 million, and in the 1990 census it was

17 million and it is predicted that by the year 2010 it will reach 30 million (JMDPR 1993f). The rate of population growth in the core city area of DKI Jakarta has slowed, while the population growth rate in the Botabek region has

tended to increase. The pressure of the rapid population growth has led to an increasing demand for land for industry and for social facilities. Land is limited

in the core city area and prices are high. Industrial activities and residential development have been shifting to the Botabek region, therefore, in search of lower land prices. Botabek is relatively accessible to Jakarta city and it

is

understandable that it has attracted high numbers of migrants as Indonesia's 139

economy has boomed under the influence of foreign investment. In Jakarta city,

land use changes have seen residential areas, including slum areas, converted

into commercial activities. In Botabek agricultural land has been converted into industrial and residential areas

The rapid industrial, residential and commercial developments

in

Botabek have clearly contributed to the national economic development by providing jobs, increasing regional income, and attracting foreign exchange. However, this rapid growth has tended to be unmanageable, and as a result, there are negative consequences - especially environmental degradation and socio-economic problems. Most industries that have developed in Botabek are

'sunset industries' which are highly polluting, often relocated from other countries in pursuit low wage workers and weaker environmental standards.

Lack of adequate infrastructure to accommodate rapid growth and the dislocation of low-income residents and agricultural workers, moreover, have created a complex set of problems including congestion, air pollution, poverty, misery and social tension.

Government has planning strategies which have sought to guide the

development of the region. Earlier parts of this chapter have traced developments prior to independence when planning was directed to support the

colonial system. Since Independence, Jakarta was first subject to Sukarno's 'lighthouse policy'. There followed the Master Plan for DKI Jakarta (1965-1985)

which underlaid formally the development of Jakarta city. The master plan

sought balanced expansion in all directions and physical development expanded concentrically outwards with a radius 15 kilometre from the National

Monument. The third plan of significance was Jabotabek Metropolitan Development Plan (JMDP) issued in 1981 and covering Jakarta, Bogor, Tangerang and Bekasi. It had a time horizon to the year 2000. In this comprehensive plan, the spatial form of the city was to spread outwards to the east and west. This plan was recognised as the most comprehensive plan for a metropolitan area ever made in Indonesia, but it lacked legal status and support

140

and it has been repeatedly ignored or violated. Scholars have shown that the

plan lacked teeth, failing to make much of an impact on either the Jakarta or the West Java administration. The impression was widely held that the plan's

provisions were negotiable. Nevertheless, the plan was taken seriously as a reference for a number of medium and large scale infrastructure development

investment programs. Jakarta 2005, the Master Plan of DKI Jakarta (19852005), adopted JMDP as the main reference for development of the Jakarta city. In

1993 JMDP was reviewed. The review was called Jabotabek

Metropolitan Development Plan Review (JMDPR). It had a time horizon to the

year 2010. The JMDPR evaluated the original Jabotabek Metropolitan Development Plan (JMDP). The plan promoted the urban development paradigm "CCC", an east-west linear city and consolidation of growth along the

southern axis. This paradigm advocated development to the east (Bekasi) and

West (Tangerang) and the consolidation of development to the south (Bogor).

JMDPR claimed that this concept has considered market trends, economic

efficiency and ecological sustainability. Furthermore, the government still played an important role in directing and influencing growth processes. JMDPR also

analysed

the

resources

and

recommendations

for

institutional

development and strategies for supporting infrastructure and services. In this

review, the private sector and market priorities were regarded as major considerations.

Most recently, in March, 1997, the Public Work Department proposed a

planning study for Jabotabek and two other kabupatens (districts) of Serang and Karawang. It was argued that the Jabotabek planning area needed to be

extended to incorporate these additional districts to relieve pressure on Jabotabek itself. At the time of writing this latest plan is still in its infancy, but it indicates the continuing pressure to accommodate outward growth.

Concern for the spatial dimensions of industrial development began with

the Master Plan of DKI Jakarta 1965-1985, followed by the JMDP, the Jakarta

141

2005, and the JMDPR. However, the implementation of the industrial development plans in spatial dimension was different than planned. It appears

that, in order to minimise costs and to avoid high land prices in industrially zoned land, industrialists, especially those providing domestic investment, have

tended to choose locations outside designated estates. The dominance of

economic and market forces, the weakness and poor co-ordination of administrative processes and the ineffectiveness of law enforcement are suspected as the major causes of the Jabotabek's uncontrolled development in

general, and of industrial development in particular. The next chapter explores

the industrial planning and development process in more detail to provide the

foundation for a better understanding of location decisions on industrial developers.

142

CHAPTER 4 PLANNING and STRUCTURE of INDUSTRY within the JABOTABEK REGION 4.1

Introduction This chapter will review the development of the planning and structure of

industry in the Jabotabek region. The review will focus large and medium firms

in the region, both economically and spatially. The discussion concerning how

existing industrial development violates spatial planning policy has received particular attention in this chapter.

The industrial development policy of DKI Jakarta refers to the national industrial development policy. Meanwhile, the industrial development policy for the Botabek region refers not only to the national policy but also to the industrial

development policy of West Java. Hence, the planning policies and existing structure of industry will be examined at both national level and for West Java.

This chapter comprises four sections. Section 4.2 explains industrial planning policy at the national level, followed by a description of the structure of

industry, particularly during the Repelita V (the Fifth Five Year Development

Plan) period 1989-1993, and Repelita VI (the Sixth Five Year Development Plan) period 1994-1998. The comparison of national planning policy with actual

outcomes will also be examined. Section 4.3 describes industrial development

planning policy and the structure of industry in West Java. Section 4.4 examines the procedure of industrial investment, as well as the structure of industry and the industrial planning policy, both economically and spatially, in

Jabotabek. Attention is paid to the gap between plans and outcomes, with a focus on analysing the industrial development of large and medium firms, both inside and outside of industrial estates. Section 4.5 is the concluding remarks.

143

4.2

National Planning and Structure of Industry

4.2.1. Economic Aspects of the National Planning and Structure of Industry.

The industrial development of the Indonesian nation is focused on changing the economic structure gradually to achieve a balance between manufacturing industry and agriculture. In the long-term plan, the industrial sector will play an important role in balancing an economic structure that is

based on an advanced industrial sector supported by a strong agricultural sector. In order to achieve such a balance, the Indonesian government intends

to implement the objectives of industrial development plans proposed in the State Policy Guidelines or Garis-Garis Besar Haluan Negara (GBHN) that was

decreed by the People's Consultative Assembly or Majelis Permusyawaratan

Rakyat (MPR). The plan was divided into several stages called Repelita, or Rencana Pembangunan Lima Tahun or Five-Year Development Plans. Repelita

I, or the First Five-Year Development Plan (1969-1973) put an emphasis on the

agricultural sector, and the already developed industrial sector that supported the agricultural sector. Repelita II, or the Second Five-Year Development Plan

(1973-1978) put an emphasis on the agricultural sector, and the already developed industrial sector that concentrated on processing raw materials into basic commodities. Repelita III or the Third Five-Year Development Plan (1978-

1983) emphasised self-sufficiency in clothing and basic necessities, and an industrial sector that could produce durable consumer goods. Repelita IV, or the Fourth Five-Year Development Plan (1983-1988) continued a focus not only

on self-sufficiency in clothing and basic necessities, but also on a developed industrial sector producing machines for heavy and light industries. Repelita V, or the Fifth Five Year Development Plan (1988-1993) aimed for relative balance

in an economic structure where there is a strong industrial sector supported by a strong agricultural sector.

The five stages of plans from Repelita I to Repelita V were called PJPT I

or Pembangunan Jangka Panjang Tahap I, or the First Long-term Develop-

144

ment period of 25 years (1968 -1993). The development of a manufacturing

industry in this period has contributed significantly to national economic

development. This can be seen from economic indicators such as growth, contribution to the national GDP, employment and investment. The total growth

of the manufacturing industry (including oil/gas manufacturing) during PJPT I was 11.8% per year. This growth is relatively higher than the projected target

(8.5%) and the average national economic growth for that period (6.8% per

year) (see Table 4.1, p. 146). The table shows that the total growth of the manufacturing industry during Repelita V was more than 9% per year. In 1990,

the growth reached 12.5%, but at the end of Repelita V, in 1993, the growth of the manufacturing industry declined slightly to 9.4%. The table also shows the

contribution of this sector to GDP, employment, and investment. The average

contribution of the manufacturing industry (including oil and gas) during Repelita V was higher than the projected target. In 1989, the contribution of this

sector to Indonesia's GDP was 18.1%, and it increased to 22.3% in 1993. Meanwhile the contribution of the non-oil/gas manufacturing industry to GDP

increased from 14.9% in 1989 to 19.2% in 1993. In the first year of the implementation of Repelita

I,

the

manufacturing industry employed an

additional 741,797 workers and, in 1990, this sector employed 1,092,922 additional workers; but at the end of Repelita V, there was still an increase although the additional workers absorbed had decreased to 684,584. During

Repelita V, the highest investment occurred in 1990, where the amount of capital invested by domestic investors (PMDN), foreign investors (PMA) and non-PMA/PMDN was Rp. 39,850 billion, US$ 5,647.9 million, and Rp. 4,292.3 billion respectively.

The success of industrial development during PJPT I, was represented

not only by industrial growth higher than the projected target, and the rate of

national economic growth, but also by the growth of a variety of additional industrial products. At the beginning of Repelita I, Indonesia produced only 28

145

Table 4.1. The growth of Manufacturing Industry in the First Long term Development (PJPT I) and the Fifth Five Year Development Re elita V, 1989-1 993 Re elita V Sector

'

Growth (To)

Realisation of PJPT I 11.84

Target Projected

1989

1990

1991

1992

1993

8.5*

92*

12.50*

10.06*

9.68*

9.35*

10 0"

11.57** 18.14*

12.97"

10.88"

10.96"

11.59"

19.89*

20.96*

21.76*

14.88"

16.17"

17.21"

18.41"

22.33* 19.20**

741,979

1,092,922

779,821

585,888

684,584

12,760

39,850

27,624

19,079

24,032

2,938

4,292

2,660

2,535

2,281

4,169

5,648

3,970

5,670

3,443

7.46

7.24

6.95

6.46

20.0

Contribution to GDP (%) Additional Employment (persons) Investment -PMDN (Billion Rupiahs) -Non PMA/PMDN (Billion Rp)

-PMA (million US$) National Economic Growth (%)

6.76

5.00

6.50

Source : Adanted from Deaartemen Perindustrian dan Perdaaanaan/Pusdata (Ministry of Industry and Trade/Pusdata) 1997. Note: 1. The economic and sector growth of PJPT I was based on 1973/1983 constant prices, and 1989 constant price for Repelita V 2. The contribution of the sectors to GDP was based current prices 1 The value-added of manufacturing industries + the value added of oil and gas. **) The value-added of manufacturing industries GDP= Gross Domestic Product, PMDN=Penanaman Modal Dalam NegerVDomestic Investors, PMA=Penanaman Modal Asing/Foreign Investors

types of industrial product; subsequently, at the end of Repelita V or PJPT I, Indonesia was producing 399 types of industrial product.

Part of the success of national development during the First Long-term Development Plan (PJPT I) during 1968-1993, or the first 25 year development

phase, can be represented by the rate of economic growth. Table 4.1 shows that the national economic growth during PJPT I was 6.76% per year which is

higher than the projected target (5%). The average national economic growth

during Repelita V was almost 7% per year. During this period, the industrial

146

sector contributed significantly to the success of national economic growth as a whole.

The Second Long-term Development Plan, or the Second 25 Year Development Plan, or Rencana Pembangunan Jangka Panjang Tahap Kedua (PJPT II), was started by Repelita VI (1993-1998). The Ministry of Industry and Trade of Indonesia stated that the aim of industrial development was as follows:

Indonesia aims to be a newly industrialised country by the end of

its second long-term development plan (2019/2020) with the industry and trade sector as its primary engine of economic growth. By that time its industrial sector. will play a major role in earning foreign exchange revenues, boosting national income and providing employment opportunities. (Ministry of Industry and Trade 1996)

In PJPT II, the Indonesian government projected the contribution of manufacturing industry to GDP to be around 32.5%. In the same period, this sector was also estimated to employ 19 million people, therefore, at the end of

PJPT II, the industrial sector may be able to absorb 28.8 million workers. To achieve the targets, the government projected industrial growth in PJPT II at around 9.2% per year, and the growth of job opportunities at around 4.4% per year.

Based on the aim of national development stated above, Repelita VI

(1993-1998) was crucial, especially for industrial development, which is a strategic part of the national economic development program. The Repelita VI

Plan put an emphasis on the sectors of economic development by creating linkages between the industrial and agricultural sectors as well as other sectors;

the plan also put a high emphasis on improving of the quality of human resources. Industrial development in the Repelita VI Plan was directed to strengthening, deepening, increasing, expanding and distributing industrial development throughout the country. The strong structure of national industry, improving the linkage between upstream, midstream, and downstream

147

industries in the large, medium and small-scale industries including household industries, and other sectors, was the main target for industrial development in

Repelita VI. The plan also stressed that the geographical distribution of industries outside of Java was to encourage industrial growth centres

in

creating job opportunities and optimising the use of local resource bases by considering the sustainability of the ecology.

The targets of Repelita VI were:

To achieve high industrial growth in value added, job opportunities, and exports.

To create a strong industrial structure supported by advanced technology and the ability to use economic resources optimally.

To strengthen the degree of competitiveness of products that could enter international markets and reduce dependence on imports. To develop small and medium industries including rural industries, in order to

increase the community productivity.

To distribute industrial locations throughout regional areas, including the eastern part of Indonesia in order to develop economic growth centres and natural

resources potential

in

the

regions and to create equality of

development.

The quantitative targets for industrial development in Repelita VI can be

seen in Table

4.2 (p.

149).

The average growth of the industrial sector,

including oil and gas manufacturing, was projected to be around 9.4% per year.

The average growth of non-oil and gas manufacturing alone was projected to

grow to 10.3% per year. The growth of agro-industry including food manufacturing, wood manufacturing, leather and rubber manufacturing, and pulp and paper manufacturing was predicted to be 8.2% per year. Meanwhile,

the basic metal industry, capital goods industry; chemical industry; and other

important industries were predicted to grow by

12.6%, 9.7%,

and 13%

respectively.

148

The contribution of the total manufacturing sector to GDP at the end of the Repelita VI was projected to be around 24.1%, whereas for non oil and gas

industries alone, their contribution to GDP was estimated at around 21.3%.

The projected export growth of industrial products was 17.8% per year. Table 4.2 The Annual Growth Rate of National Targets for the Industrial Sector in the Re elita VI for the Periods 1994/1995-1998/1999 °/(:. 1994/95 1995/96 1996/97 1997/98 1998/99 Average Sector GDP

Manufacturing Industry 1 Non-oil/gas manufacturing Industry 1.1 Agro-industry 1.2 Basic metal & capital good industry 1.3 Chemical good industry 1.4 Other important industries

6.0 9.4 10.0

6.0 8.9 10.1

6.2 8.9 10.3

6.4 10.0 10.5

6.6 9.7 10.7

6.2 9.4 10.3

12.3

8.2 12.4

8.3 12.6

8.3 12.8

8.4 13.0

8.2 12.6

9.2 12.4

9.4 12.6

9.6 13.1

10.0 13.2

10.3 13.7

9.7 13.0

8.1

Source: Adapted from Repelita VI

(1994/1995-1998/1999) Industrial Sector

the Ministry of Industry of Indonesia.

Table 4.3 Indicators Targeted for National Industrial Development at the End of the Re elita VI Indicators Targets Contribution to GDP (c)/0) 24.1%* 21.3%** Export growth (%) 17.8% Employment (persons) 3,020,000 12,960,000 (additional) (Total) New Unit Firms Established 23,000 Source: Adapted from the Repelita VI (1994/1995-1998/1999) of Industrial sector, the Ministry of Industry 1993. * Manufacturing industry (with oil and gas) ** Non oil and gas manufacturing industry.

Meanwhile, the projection of additional workers and new firms established

was 3,020,000 workers and 23,000 firms respectively. Therefore, by the end of

the Repelita VI period, the industrial sector would employ around 13 million people (see Table 4.3 above).

In general, to achieve these targets described above, the government had several policies, as follows: 149

Creating a competitive business and investment climate that supports industrial development, and industrial business to be structured efficiently.

Improving the capability of national industry, particularly through the mastery

of technology, human resource development, the organisation of industry, and the development of industry by considering the physical environment.

Improving the capability of small and medium industries, followed by the development

of

institutions

that

support

the

distribution

of

industrial

development to regional areas, which are, therefore, part of a strongly integrated system within an advanced national system of industry. Encouraging the development of industrial priorities.

The performance of the manufacturing industry (non oil and gas) in the

first three year of Repelita VI's implementation, seems successful for several

economic indicators in achieving the economic targets planned. Table 4.4, below, shows that the growth of this sector was more than 13% during 1994-

1995, and although the rate of growth decreased to 11.7%

in

1996,

nevertheless the average growth during 1994-1996 was still higher than the growth targeted (10.3% per year). The growth of this sector was also higher than the national economic growth.

Table 4.4 The Growth (D/0) of National GDP of Manufacturing Industry (non oil and as) at 1993 Constant Prices, 1994-1996 1994 1995 1996 ISIC (International Standard of Industrial Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufacturing ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coals, rubbers and plastics products ISIC 36. Non metallic mineral products except petroleum and coal ISIC 37. Basic metal industries ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries

Manufacturing Industry Growth of National GDP Growth of National GDP (including oil and gas) Source: BPS (Central Bureau of Statistics).

18.8 7.0 5.9 13.9 11.1

19.7 6.5 9.7 12.4 13.5 7.5 7.8

16.5 10.4 3.0 14.4 11.3 20.3 18.1

7.5 10.8 13.0 8.1 9.1

17.2

8.7 3.2 6.9 9.1

11.0 8.0 4.6 9.7 11.7 8.0 8.3

150

Based on the International Standard of Industrial Classification (ISIC),

five subsectors of the manufacturing industry have higher growth rates than

those targeted, namely ISIC 36 (non metallic mineral products except petroleum and coal); ISIC 31 (food, beverages and tobacco); ISIC 34 (paper and paper products, printing and publishing), and ISIC 39 (other manufacturing

industries). However, the growth of these subsectors tends to decrease on the

three year period. The growth of ISIC 36, for example, decreased from 19.7% in 1994 to 11% in 1996. Over the same period, ISIC 31 decreased from 18.8% to 17.2%, likewise ISIC 34 decreased from 13.9% to 6.9%.

Table 4.5 shows the contribution of each subsector to the manufacturing

industry's GDP, and the combined contribution of the manufacturing sector to national GDP. Repelita VI included a target in which the average contribution of

this sector (without oil and gas) should be 21.3%. The table shows that in the

first three years of Repelita VI (1994,1995, and 1996), the contribution of the

manufacturing sector to national GDP was 22.4%, 23.4%, and 24.1% Table 4.5 Distribution of Subsectors' Contribution to the Manufacturing Industry's GDP, and Total Share of National GDP at 1993 Constant Prices Durin 1994-1996 ISIC (International Standard of Industrial 1994 1995 1996 Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufacturinq ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coals, rubbers and plastics products ISIC 36. Non metallic mineral products except petroleum and coal ISIC 37. Basic metal industries ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries Total In Billion Rupiahs Share of National GDP (with oil/gas) Share of National GDP (without oil/gas)

43.6 10.2

45.4 9.8

47.7 9.6

7.7

7.0

6.4

4.2

4.2

4.0

13.1

12.9

12.6

3.3

3.5

3.5

3.4 13.8

3.6 13.1

3.5 12.2

0.6

0.6

0.6

100 72,380.2 20.2 22.4

100 81,854.7 21.3 23.4

100 91,395.8 22.1 24.1

Source: BPS (Central Bureau of Statistics). 151

respectively. Therefore, the three-year of Repelita VI's development seems successful in achieving the targeted goal. Table 4.5 (p. 151) also shows that the

three sub-sectors with the highest contributions are ISIC 31 (food, beverages and tobacco), ISIC 35 (chemical, petroleum, coal, rubber and plastic products)

and ISIC 38 (fabricated metal products, machinery and equipment). ISIC 31, with the highest contribution, was at 43.6% in 1994, and it slightly increased to 47.7% in 1996. Meanwhile, ISIC 35 decreased from 13.1% in 1994 to 12.6% in

1996, and likewise, during the same period, ISIC 38 decreased from 13.8% to 12.2%.

Table 4.6 shows that, of the new establishments in large and medium

manufacturing industries, more than 50% are represented by ISIC 31 (food, beverages, and tobacco), ISIC 32 (textile, garments, and leathers), and ISIC 33

(wood products and other wood products manufacturing). The two lowest contributions of subsectors to the growth of the manufacturing industry were Table 4.6 Number and Distribution of Established Large and Medium Manufacturina Firms in Indonesia 1994-1996 ISIC (International Standard of Industrial 1994 Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufacturing ISIC 33. Wood products

&

other wood products manufacturing

ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coal, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal

ISIC 37. Basic metal industries

ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries Total

5,016 (26.2%) 4,401

(23.0%) 2,520 (13.2%) 805 (4.2%) 2,252 (11.8%) 1,586 (8.3%) 130 (0.7%) 2,033 (10.6%) 397 (2.1%) 19,140 (100%)

1995

1996

5,191

5,452

(24.2%) (24.1%) 4,958

5,130

(23.2%) (22.7%) 2,913 (13.6%) 905

3,175 (14.0) 946

(4.2%) (11.0%) 2,412

2,491

(11.3%) (11.0%) 2,027 (9.5%) 198

(0.9%) 2,369

2,174 (9.6%) 184 (0.8%) 2,575

(11.1%) (11.4%) 442 (2.1%) 21,415 (100%)

488 (2.2%) 22,615 (100%)

Source : BPS (Central Bureau of Statistics) and Pusdata Department Perindustrian (Centre of Data Processing of the Ministry of Industry).

152

ISIC 37 (basic metal industries) and ISIC 39 (other manufacturing industries).

Table 4.7 shows that the subsector ISIC 32 (textile, garments, and leathers) was the highest contributor to employment in this sector during 1994,1995,

and

1996,

employing

around 37.1%, 31,5%,

and 32.2%

respectively. This was followed by ISIC 31 (food, beverages and tobacco) and

ISIC 35 (chemical, petroleum, coal, rubber and plastic products). Meanwhile,

the two lowest contributions were from ISIC 37 (basic metal industries) and ISIC 39 (other manufacturing industries).

Table 4.7 Number of Persons Engaged in Large and Medium Manufacturing Establishment in Indonesia 1994-1996 ISIC (International Standard of Industrial 1994 1995 1996 Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufactu ring

ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coal, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal ISIC 37. Basic metal industries ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries

Total

692,430 (19.8%) 1,301,052 (37.1%) 393,522 (11.2%) 112,772 (3.2%) 441,386 (12.6%) 129,830 (3.7%) 31,613 (0.9%) 346,755 (9.9%) 55,595 (1.6%) 3,504,955 (100%)

884,466 937,744 (21.3%) (29.8%) 1,312,768 1,523,610 (31.5%) (32.2%) 538,938 587,375 (13.0%) (12.4%) 149,016 167,442 (3.6%) (3.5%) 472,334 567,948 (11.4%) (12.0) 179,847 226,096 (4.3%) (4.8%) 97,798 48,760 (2.4%) (1.0%) 449,640 561,350 (10.8%) (11.9%) 77,936 111,264 (2.4%) (1.9%) 4,162,743 4,731,589 (100%) (100%)

Source : BPS (Central Bureau of Statistics) and Pusdata Department Perindustrian (Centre of Data Processing of the Ministry of Industry).

Based on the economic indicators mentioned above, after the first three

years of Repelita VI, by 1996, industrial development seemed successful; however, it would seem that in the immediate future, the growth of the industrial

sector would decline dramatically. This is because Indonesia has been facing

an economic crisis since July 1997. This will ruin the industrial development targets in particular, and economic development in general. Based on a survey

153

conducted by BPS (Central Bureau of Statistics) as quoted from the Media Indonesia newspaper, 8 August 1998, around 822 large and medium firms

were made bankrupt from 1997 to June 1998. In addition, 690 other firms reduced their production scale, hence, it is likely that the firms reduced their workers.

4.2.2 The Spatial Dimension in the Planning and Structure of National Industry In terms of the spatial dimension, the Ministry of Industry and Trade (1997) programmed the concept of Wilayah Pusat Pertumbuhan Industry, or

WPPI, or Regional Industrial Growth Centres. In Repelita VI, the Indonesian regions were divided into eight WPP1s, as industrial growth centres:

WPPI of North Sumatera has a resource based potential of gas, oil, and

electricity production, and the product of plantations etc. It comprises the

industrial zones of Aceh Besar, Lhok Seumawe, Medan, Porsea, Kuala Tanjung, Pekan Baru, and Padang.

WPPI South Sumatera, including Banten, has an economic resource potential that includes tin, oil, gas, coal, kaolin and gypsum, and energy.

It

comprises the industrial zones of Palembang and Baturaja, Lampung, and Cilegon.

WPPI Java (with exception of Banten and Bali) has an economic resource

based potential, including a good infrastructure, the availability of skilled workers, the availability of energy, and good agricultural potential. It comprises

the industrial zones of Jabotabek, Cikampek-Karawang-Purwakarta, Bandung Raya, Cirebon, Tegal-Pekalongan, Cilacap, Yogyakarta-Surakarta, Semarang, Madiun-Kediri,

Gerbang

Kertosusila,

Malang-Probolinggo-Pasuruan,

and

Jember-Banyuwangi.

WPPI East Kalimantan has economic based potential that includes gas, oil, wood, coal etc. It comprises the industrial zones of DAS Mahakam-BalikpapanBontang, and DAS Barito.

WPPI Sulawesi has economic resource based potential that includes fertile

soil, fisheries, geothermal resources, nickel, asphalt, kaolin, cement and a 154

paper industry. It comprises the industrial zones of Ujung Pandang, Palu and Minahasa.

WPPI Maluku-Irian Jaya has an economic resource based potential that includes as wood, sea products/fisheries, sago palm, geothermal resources,

copper and barytes. It comprises the industrial zones of Seram, Halmahera, Biak, and Merauke.

WPPI Bali-Nusa Tenggara-Timtim has an economic resource based potential

that includes sea products/fisheries, salt, phosphate, cement and a craft industry. It comprises the industrial zone of Kupang.

WPPI Batam-Pontianak has the economic resource based potential of wood,

fisheries, horticulture and mining, and it is a strategic location politically and economically. It comprises the industrial zones of Batam and Pontianak.

In Indonesia, around 95% of industrial activities are dominated by the private sector. The Ministry of Industry (1997) recognised, however, that not all

industrial zones planned achieved the goals targeted. Some of the industrial

zones planned were not able to grow, whereas some regions that were not stated as industrial zones, have grown rapidly to become industriaF zones.

Therefore, there was a shift in the WPPI system from eight WPPIs to six WPP1s, consisting of 53 industrial zones (see Figure 4.1 p 156).

The six WPPIs and 53 industrial zones are divided into three categories:

Priority I/Orde I, are industrial zones, which are projected as the main engine

for industrial development in Repelita VI (the sixth five years development plan).

Priority II/Order II, are industrial zones, which are projected as accelerator of industrial development in Repelita VII.

Priority III/Orde III, are industrial zones, which have the opportunity to grow in the later Repelitas in the second long-term development period (PJP II).

155

\ 'wpm,

\\ 41 41

41

28

hn

WPPI

40

41 ""''''St4"C"igi3

20 211..%.

....

.

.

...

.... ....

.....

WPPI III WPPI II

WPPI I

Sardangun Bangko Tanjung Jabung Bengkulu Palembang Ogan Komering Ulu Lampung Pontianak Kelapang Sarong Jakarta Bekasl-Karawang Bandung Cirebon

Aceh Utara Medan Asahan Bengkalis

BatamRiau Padang

.ss

/ .

I,

WPPI III

.

. -..

VI

WPPI V WPPI IV

Cilacap. Pekalongan Semarang Yogyakarta Kediri Surabaya Sumenep Pasuruan Banyuwangi Ball Kotawaringin Timur Palangka Raya Banjar Kota Baru

Saniarinda Bulungan Palu Gorontalo Manado

WPPI VI

WPPI V

3. Lombok Barat 40. Sumbawa 41. Sikka 42. Ujung pandang 43. Wajo 44. Tana Toraja

Kendari Maluku Ulara Maluku Tengah Maluku Tenggara Sorong Fak-fak Biak Num! or Jayapura Metauko

Industrial Zone of Pelita VI Industrial Zone ol Polita VII C;) Industrial Zone of the lollowing Pelitas

Figure 4.1" The Stages of the'development of Industrial Zones: iii the Second Long-term Development Period (PJPT II). .

.

.

WPPI=Wiliyah Pusat:Pertumpuhan IndUstri or Regional Industrial Growth Centre

Source:.Departemen Perindustrian dan Perdagangan 1997 (Ministry of Industry and Trade, 1997).

The Ministry of Industry defined 'industrial zone' (zona industri) as the

part of each WPPI that has the most potential as a region to stimulate regional economic development through industrial activities, as the main engine

in accelerating the economic growth of the region. In other words, a 'zone industri' is a region where economic activities are dominated and stimulated by

industrial activities, which, in turn, form the agglomeration of interrelated economic activities. Therefore, a 'zone industri' consists of main and supporting _

economic activities, as follows : - Industrial

activities that dominate economic growth, such as industrial

complexes, industrial estates, and the location of small-scale industry.

- Other economic activities which have a- relationship with agriculture, mining, trading, banking and tertiary industries.

- Supporting activities such as settlements, education facilities, health and praying facilities.

The government also classified such industrial zones into three categories:

Industrial zones that are oriented to the market and the level of growth, and have grown at a rapid rate, particularly in Java.

Industrial zones that have a strategic location to capture the globalisation of the economy (eg. the industrial zone of Batam).

Industrial zones that are oriented to natural resource potential requiring the intervention

of the

government in encouraging

industrial development,

particularly in the Eastern Part of Indonesia, or Kawasan Timur Indonesia, or KTI.

The Ministry of Industry also defined industrial areas into several categories: 1.

Industrial Estate is defined as an area of agglomeration of industries,

facilitated by infrastructure built and managed by the firms in the industrial estates which have been permitted by the government. The industries located

157

in the industrial estate should not have inter-linkages with each other. Industrial

estates have been provided for investors seeking industrial land. Some of the advantages of the development of factories inside industrial estates are: -The industrial estates' firms will help to provide the letter of permits.

-The site plan has been designed properly and is ready for factories to be built.

Land title documents such as the HGB (Building Rights on Land) provided by the industrial estates' firms. -The availability of drainage and waste water systems.

-The availability of electricity, water, telephone, waste treatment and supporting facilities.

- Investors do not require a Nuisance Act Permit or ANDAL (Analisis Dampak

Lingkungan or Environmental Impact Assessment) because the industrial estates' firms provide such permits.

Kawasan Berikat (Export Processing Zone) is defined as a zone that can be

both an industrial estate and a warehousing area. In this zone, the industries have special financial incentives.

Kompleks lndustri (Industrial Complex) is defined as a concentration of industrial activities

in

a

region

where most industries have economic

interlinkages with each other, or there is an integration of industries from upstream industries to downstream industries.

Lahan Peruntukan Industri (Land Use for Industry) is an area for industry based on the regional land use planning policy.

Kantong lndustri is defined as an area that allows industrial activities based

on the process of local resource base. The infrastructure in this area has not

been developed, therefore the industries develop the infrastructure by themselves, eg. Kantong Industries in the Eastern Part of Indonesia.

158

Based on the classification of industrial locations described above, Industrial Estates, Kawasan Berikat (Export Processing Zone) and Lahan Peruntukan Industri (Land Use Planning for Industry) all exist in Jabotabek. Theoretically both the industrial estates and the Export Processing Zone are under the category of land use planning for industry.

In this research, an industrial estate is defined as an area that is the same as industrial estate defined above, and compatible with regional land use

planning or an industrial area zoned for industry. Industries outside industrial estates are the industries that are located outside of existing industrial estates.

Such industries-might be located either inside or outside of an industrial-zone (zona industri).

Presidential Decree (Keputusan Presiden / Keppres) No. 53/1989 gave authorisation, and promoted the concept of the private sector establishing and

managing industrial estates. The decree's objectives were: to accelerate industrial development; to facilitate firms in developing industrial activities; to

encourage firms in locating their activities in the industrial estates; and

to

provide industrial locations where the physical environment is one of the main considerations. The industrial estates are used, particularly, to develop medium

scale industries, while basic industries producing dangerous waste destructive

to land, and industries that need large spaces such as upstream textile industries,

upstream

petrochemical

industries,

cement industries, paper

industries and iron works industries, are not placed in the industrial estates. The

decree also stated explicitly that the development of industry should conform with the Regional Land Use Plan (Rencana Tata Ruang Wilayah/RTRW).

Nationally, before Presidential Decree No. 53/1989 was issued, the total

area of industrial estates was only 2,896 hectares. The decree has stimulated

the acceleration of industrial estates development. At March 1997, the total

area of industrial estates

in

Indonesia was 52,882 hectares, or almost an

159

18-fold increase compared to 1989. Around 38,206 hectares, or 72.25% of the

total area, is in Java (West Java, DKI Jakarta, Central Java, and East Java).

Jakarta and West Java have around 78% of the total industrial area of Java. Table 4.8 shows the distribution of the number of industrial estates throughout Indonesia.

As quoted in Kompas newspaper 4 March 1996, the Minister of Agraria/ Head of the National Land Agency stated that the total area of industrial estates

that has been used was just 3,921 hectares, or around 7.4% of the national total area provided for industry. The Ministry of Agraria/National Land Agency

(cited in Media 14 March 1997) also stated that a number of industrial firms which prefer not to locate their factories in industrial estates for reasons such

as the relatively high price and the only partially developed infrastructure (telephone, water and energy) of some industrial estates. Table 4.8 Number of Firms and Total Area of Industrial Estates In Indonesia at March 1997 Number of Firms Total Area (Hectares) No. Province 1,841 1 8 North Sumatera 70 1 West Sumatera 2 3 4 5 6 7 8 9 10

Riau

15

8,811

1 1,442 South Sumatera 1 300 Lampung 28,479 89 West Java 3 1,206 DKI Jakarta 12 2,523 Central Java 5,998 East Java 30 117 1 West Kalimantan 1 95 11 Central Kalimantan 2 190 South Kalimantan 12 820 2 East Kalimantan 13 208 1 South Sulawesi 14 100 1 Central Sulawesi 15 362 2 North Sulawesi 16 1 120 17 Maluku 1 200 18 Irian Jaya 172 52,882 Total Source :Tim Koordinasi Kawasan lndustri 1997 (Team for Co-ordination of Industrial Estates 1997)

160

The government has directed all firms to locate their factories in the industrial estates in order to accelerate the growth of the industrial estates. For

example, the government issued Presidential Decree No.41/1996 to regulate the acceleration of procedures for obtaining location permit for industrial estate

establishment; the possibility for industries that have clustered in industrial zones to become an industrial estate; and the possibility of the issue of HGB, or

Hak Guna Bangunan, or the Building Rights on Land for industry, even though

the master of HGB has not yet been issued (Media 14 March. 1997) (see also section 4.5.1).

To implement the Presidential Decree described above, the Ministry of

Agraria/Head of National Land Agency has issued some policies such as (quoted in Media, 14 March, 1997) :

- The government has stopped the issue of location permits for new industrial estates in the regions of Botabek, Kabupaten Karawang, and other regions that

already have industrial estates. All industrial firms should be directed to locate their factories in the existing industrial estates.

- In the regions that have no industrial estates, the location permit for industrial

firms can be issued if the industrial location proposed by the firms is

in

accordance with industrial zones in the Regional Land Use Planning (RTRW). -

The

proposed

location

permit for

new

industrial

estates

in

the

district/municipality of Tangerang should be banned, because the existing industrial estates could accommodate new industrial firms. - It is prohibited to use industrial estates for other purposes.

The major laws and policies related to environmental aspects and spatial

dimensions in handling physical development, including the industrial sectors, which have been issued by the Indonesian Government, can be seen in Table 4.9 (p. 162). The Indonesian government has made laws number 4/1982 and

number 23/1997 to regulate environmental aspects; law number 51/1984 to

161

Table 4.9. Selected Major Laws/Policies of Industrial Development Linked to Environmental Aspects & Spatial Planning. Description. Law/Policies -

,

2.Law Number 23/1997

The Indonesian First Law of the Principles of Environmental Management, consisting of 24 articles on The Indonesian Law Environmental Second Management consisting of 52 articles which is based on the first law that has been improved

3.Law Number 51/984

The Law of Industrial Affairs consisting of 32 articles.

1.Law Number 4/1982

Articles 2 and 21 state that industrial development should

4. Law Number 24/1992 5.Presidential Decree No. 53/1989

consider environmental factors. The law of Spatial Planning, consisting of 32 articles

The first Presidential Decree, regulating industrial estates, consisting of 14 articles. The decree gave authorisation, and promoted the private sector in establishing and managing industrial estates. One of the objectives of the Decree is to encourage firms in locating their factories in the industrial

estates. The Decree also says that the development of industry should consider Regional Land Use Planning (RTRW).

6.Presidential Decree No. 98/1993

An expansion of the first decree regulating industrial estates. One of the additional statements of this decree is that plans for industry should be compatible with local land

use planning, or the second level of land use planning (RTRW Dati II). The local government also is responsible

7. Presidential Decree No. 4/1996

for issuing location permits. The latest Presidential Decree regulating industrial estates

consists of 21 articles. The decree improves on the two previous decrees, stating, for example, the simple procedure for obtaining location permits; the possibility for existing industries that have clustered in industrial zones to become an industrial estate; and the possibility of the issue of a Building Rights on Land (HGB) for each industry even though the master of HGB has not been issued.

Source: Departemen Perindustrian (Ministry of Industry) 1996.

deal with industrial affairs; and law number 24/1992 to regulate about spatial

planning. To regulate the development of industrial estates, the government also produced at least three major Presidential Decrees, namely, Presidential Decree No 53/1989, Presidential Decree No. 98/1993 and Presidential Decree

No. 4/1996.

4.3

Planning and Structure of Industry in West Java As explained in section 3.6 which examined institutional structures, the

guidance for the development of a provincial region is the Repelitada Tingkat I, 162

accommodating all planning inputs, including sectoral plans. Therefore, in this section, the main resources in reviewing the planning and structure of industry

are based on the Repelitada Tingkat I of West Java issued by the Provincial

Government of West Java; the Sectoral Plan of Industry issued by Kanwil Perindustrian (Regional Office of Industry Ministry) of West Java; RTRW, or Rencana Tata Ruang Wilayah, or Regional Land Use Planning, and other such documents.

4.3.1. The Economic Dimension of Planning and Structure of Industry in West Java.

The program for industrial development in West Java always refers to the national development planning of industry. Particularly in the Repelita V Plan, the program also refers to the policies of industrial development in West Java, as follows:

Accelerating the growth and deepening the structure of industry through creating linkages inter-industry; promoting linkages between industrial sectors

and other economic sectors; and increasing the export of non oil and gas related commodities, particularly for those that use local raw materials.

Ordering industrial areas according to the regional development potential of agriculture and urban development.

Developing small-scale

industry and

handicrafts by

using

available

resources, community potential, and the transfer of technology.

Developing industries, particularly those producing capital goods, equipment and agricultural infrastructure.

Developing industries that are oriented towards not only increasing value added production, but also considering the environment (Kanwil Perindustrian Jawa Barat or Regional Office of Industry of West Java, 1994).

The Repelitada Tingkat

I

of West Java for the Repelita VI period

(1994/95-1998/1999) claimed that industrial development in the First Long-term

Development (PJPT I) has succeeded in changing the economic structure by

creating a balance between a strong industrial sector and other sectors.

163

Industrialisation was claimed to be a vehicle for stimulating economic growth,

job opportunities, foreign exchange income, transfer of technology, and regional development.

The contribution of the manufacturing industry to the Gross Regional Domestic Product (GRDP) of West Java in 1973, or at the end of the Pelita I (the First Five-Year Development ), was 8.8%. In 1993, or at the end of Pelita V

(the Fifth Five Year Development), the contribution of this sector to GRDP increased to 27.9%. It increased again to 34.7% in the third year of Pelita VI, or

in 1996 (see Table 4.10). In contrast, the agriculture sector decreased from

78.8% at the end of Pelita Ito 17.3% at the end of Pelita V, and to 13.9% in 1996. Therefore, the government claimed that there was transformation in West

Java's Development from an agricultural base in Pelita I to an industrial base in Pelita VI.

Table 4.10 The Contribution of the Manufacturing Industry to GRDP of West Java at the End of Pelita I, II, Ill IV, V, and VI* Sectors II III IV V VI* I 1973 1978 1983 1988 1993 1996 78.8% 30.6% 26.4% 19.8% 17.3% 13.9% Agriculture 10.6% 10.0% 34.7% 18.9% 27.9% 8.8% Manufacturing Industry 63.6% 67.3% 54.8% 52.4% 58.8% 51.4% Others Source: the Bappeda of West Java in RTRW of West Java 1994; and BPS (Central Bureau of Statistics). Note: VI* is to the third year of Pelita VI -

The growth in the manufacturing industry's contribution to GRDP during

PJPT I, reached 13.9% per year. The number of establishments, workers employed by industry and the amount of investment at the end of Repelita V were 234,907 units; 1,753,345 people; and Rp. 22.8 billion respectively (Kanwil Perindustrian Jawa Barat or Provincial Ministry of Industry of West Java 1994).

The performance and structure of large and medium industry in West Java from the last three years of Pelita V to the first two years of Pelita VI can

164

Table 4.11 Value-Added at Current Price (millions Rp) and the Contribution of Each Manufacturing _ Sector to Total Value-Added % in West Java. ISIC (International Standard of Industrial Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufactu ring

ISIC 33. Wood products and other wood products manufactu ring

ISIC 34. Paper and paper products, printing and publishing

ISIC 35. Chemicals, petroleum, coal, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal ISIC 37. Basic metal industries ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries

Total

' 1993 919,591 (6.2%)

4,869,959 (32.7%) 569,220 (3.8%) 398,426 (2.7%) 2,522,066 (17.0%) 818,328 (5.5%) 1,860,282 (12.5%) 2,721,221 (18.3%) 194,851 (1.3%)

1994 1,304,111 (6.5%)

6,721,242 (33.6%) 841,771 (4.2%) 527,594 (2.6%) 3,057,867 (15.3%) 1,145,356 (5.7%) 2,118,433 (10.6%) 4,010,967 (20.0%) 289,351 (1.5%)

1995 1,565,874 (6.3%) 8,290,345 (33.2%) 1,099,667 (4.4%) 1,008,402 (4.0%) 3,626,179 (14.5%) 1,029,726 (4.1%) 2,704,407 (10.8%) 5,311,985 (21.3%) 317,696 (1.3%)

14,873,944 20,016,692 24,954,281 (100%)

(100%)

(100%)

Source : BPS (Central Bureau of Statistics).

be seen from indicators such as value-added, number of establishments, and

employment. Table 4.11 above shows the value-added of industrial sectors, by ISIC classification (International Standard of Industrial Classification). It can

be seen from the table that at the end of the Pelita V (in 1993), the total value

added was Rp. 14,873,944 millions. ISIC 32 (textile, leather products and

footwear manufacturing) contributed the highest value at around 32.7% followed by ISIC 38 (fabricated metal products, machinery and equipment) with

around 18.3%, and ISIC 35 (chemicals, petroleum, coal, rubber and plastic

products) at around 17%. The first two years of Pelita VI, 1994 and 1995, recorded total value added at Rp. 20,016,692 millions and Rp. 24,954,281

millions respectively; the composition of the distribution was not relatively

changed. ISIC 32 (food, beverages and tobacco manufacturing), ISIC 38 (fabricated metal products, machinery and equipment), and ISIC 35 (chemicals,

petroleum, coals, rubber and plastic products) still dominated in producing value-added. During 1993-1995, the overall of the total value-added by the

manufacturing industry at current prices, increased from Rp. 14,873,944 millions in 1993 to 24,954,281 millions in 1995.

165

The total number of established large and medium manufacturing industries in West Java increased from 3,505 firms in 1989 to 5,976 firms in

1995 (see Table 4.12). At the end of Pelita V, in 1993, the total number of establishments was 4,832 firms. ISIC 32 (textile, leather products, and footTable 4.12 Number of Established Large and Medium Manufacturing Industries in West Java, 1989-1995 ISIC (International Standard of Industrial Classification) ISIC 31. Food, beverages and tobacco manufacturing

1989

1993

1994

1995

709

826

872

942

(20.2%) (17.1%) (16.7%) (15.8%) ISIC 32. Textiles, leather products and footwear manufac1057 1728 1530 1612 turing (30.2%) (31.7%) (31.0%) (28.9%) ISIC 33. Wood products & other wood products manufac205 328 395 476 turin. 5.8% 6.8% 8.0% 7.6% ISIC 34. Paper and paper products, printing and publi169 119 181 195 shine 3.4% 3.5% 3.5% 3.3% ISIC 35. Chemicals, petroleum, coal, rubber and plastics 539 676 735 779 iroducts 15.4% 14.0% 14.1% 13.0% ISIC 36. Non metallic mineral products except petroleum 426 538 590 833 and coal 12.2% 11.1% 11.3% 14.0% ISIC 37. Basic metal industries 7 44 42 60 0.9% 0.2% 0.8% 1.0% ISIC 38. Fabricated metal products, machinery and 382 614 662 833 eiluiment. 10.9% 12.7% 12.7% 13.9% ISIC 39. Other manufacturing industries 61 107 117 130 1.7% 2.2% 2.2% 2.2% 3,505 4,832 5,206 5,976 Total 100% 100% 100% 100%

Source : BPS (Central Bureau of Statistics).

wear manufacturing) dominated the composition of existing industries with around 31.7% of the total, followed by ISIC 31 (food, beverages, and tobacco

manufacturing) with around 17.1% and ISIC 35 around 14.0% (chemicals, petroleum, coals, rubbers, and plastics). In the first two years of Pelita VI, in 1994-1995, the composition was relatively unchanged, and ISIC 32, ISIC 31 and ISIC 35 still dominated.

Likewise the total number of persons engaged in the large and medium manufacturing firms, increased from 571,144 in 1989 to 14,668,873 in 1995. At

the end of Pelita V, in 1993, the total number of workers was 1,239,770 (see Table

4.13, p.167).

ISIC 32 (textiles, leather, products and footwear

166

manufacturing) employed the highest number of workers with around 52.7% of the total, and the remaining industries employed less than 12% each. In the first

two years of Pelita VI, in 1994-1995, the total number of persons employed in large and medium firms were 1,048,207 and 1,466,873 workers. Again, during that period, ISIC 32 employed the highest number of workers. Table 4.13 Number of Persons Engaged in Large and Medium Manufacturing Establishments in West Java durin 1989-1995. !SIC, (International Standard of Industrial 1989 1993 1994 1995 Classification) ISIC 31. Food, beverages and tobacco manufacturinq ISIC 32. Textiles, leather products and footwear manufacturing ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coal, rubber and plastics products ISIC 36. Non metallic mineral products except petroleum and coal ISIC 37. Basic metal industries

ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries

Total Source : BPS (Central Bureau of Statistics).

61,196 (10.7%) 262,658 (46.0%) 33,021 (5.8%)

15,170 (2.7%) 80,300 (14.1%) 33,594 (5.9%) 8,012 (1.4%) 68,788 (12.0%) 8,405 (1.5%) 571,144

97,470 (7.9%) 653,612 (52.7%) 64,096 (5.2%) 30,288 (2.4%) 132,918 (10.7%) 61,845 (5.0%) 17,403 (1.4%) 140,656 (11.3%) 41,482 (3.3%)

79,609 (7.6%) 536,887 (51.2%) 45,002 (4.3%) 24,492 (2.3%) 150,815 (14.4%) 48,575 (4.6%) 7,852 (0.7%) 128,201 (12.2%)

26,774 (2.6%)

118,165 (8.1%) 756,712 (51.6%) 71,954 (4.9%) 40,932 (2.8%) 145,228 (9.9%) 79,562 (5.4%) 18,237 (1.2%) 194,589 (13.3%) 41,494 (2.8%)

1,239,770 1,048,207 1,466,873

In Repelita VI, the policy to develop industry in West Java refers not only

to the direction of the GBHN (State Policy Guide Lines), but also to policies strengthening the industrial sector, which are as follows: Developing industry is directed towards infilling existing industrial estates. Developing the supporting infrastructure, particularly water, electricity,

telecommunication and roads.

Increasing the inter-industry and inter-sector linkages, between industries and other sectors, and improving the business climate to stimulate investments.

Optimising the use of local resources such as domestic engineers and domestic raw material and components.

167

Developing raw material resulting from the agricultural sectors, to increase the amount of value-added in the production process.

Increasing the competitive advantage of industrial products, particularly for international markets, by considering environmental factors. Creating a business climate that supports industrial development. Supporting strategic industrial development, step by step.

Making use of the results of research and development in science and technology to increase the value-added of industrial products.

Developing the application of appropriate technology, the establishment of

small scale industries, and increasing handicrafts in rural growth areas and small scale industrial areas.

Increasing partnerships between large, medium and small-scale industries. Developing agro-industry supported by strong agriculture.

13 Applying a 'clean production concept', that continually applies an integrated

preventive strategy to protect environment. Economising on the use of raw materials and energy and reducing the negative impact of the application of technology and recycling of industrial waste.

In Repelita VI, the government of West Java projected quantitative targets, reflected in Table 4.14. The table shows that industry was estimated to grow at 11% per year, and its contribution to GRDP was expected to be around 27%. The industrial sector was also expected to export products valued at US$

12.32 million, and its growth rate was to be at 21.8%. Investment in this sector

was projected to be in around Rp. 16.53 billions and it would employ 346, 567 additional workers.

Table 4.14 Quantitative Targets of Industrial development of West Java in Re elita VI Indicators Target Growth 11% Contribution to GRDP 27% - Export Value US$ 12.32 millions 21.8% - The growth of export Rp. 16.53 billions Investment Additional Employment (persons) 346,567 Source: Kanwil Departemen Perindustrian Propinsi Jabar or Provincial Ministry of Industry 1994.

168

4.3.2 The Spatial Dimension of Planning and Structure of Industry in West Java.

One of the policies of the Repelita VI Plan in West Java, was to direct industrial development towards existing industrial estates where protection of

the environment is one of the main considerations. The development of industrial estates in West Java refers to Presidential Decree 53/1989 describing

industrial estate regulations, and Presidential Decree 33/1990 describing land

use regulation for industrial estates. The government of West Java alone has

regulated the provision of land for industrial estates. Governor Decree (SK Gubernur) 593/SK.629-Bappeda/90 stated that 18,000 hectares was to be developed as industrial estates. The distribution of the areas can be seen in Table 4.15 (p. 170). The table shows that Botabek, combined with Serang and Tangerang, will have 86% of the total area of industrial estates planned in West Java; meanwhile Botabek alone has 36% of the total.

In terms of land use of the industrial area, the sectoral development of industrial plans issued by the Regional Office of Industry of West Java (Kanwil

Perindustrian Jawa Barat 1994) referred also to the concept of the Regional Land Use Planning (RTRW) of West Java issued by the Government of West

Java. The concept of the RTRW stated that around 399,192 hectares will be allocated for urban development including industrial areas. According to Kanwil

Perindustrian (1994), however, the details of industrial land use, at that time, had not been stated clearly, and the RTRW had not been approved. Therefore, the sectoral plan of industry issued for Repelita VI, had not been included in the

detailed industrial land use plan. The sectoral industrial plan also claimed that

the uncontrolled agglomeration of industry surrounding Serang, Botabek and

Bandung was, at least, due to the unreadiness of detailed land use plans in each region.

169

Table. 4.15 The Distribution Of industrial Estates Planned for Each DistrictlMuniciDalitv in West Java. Region (District/Municipality) Total area (hectares) Serang 3,500 Tangerang 3,000 Bogor 500 Bekasi 3,000 Karawang 5,500 Purwakarta 1,000 Bandung 600 Sumedang 400 Cirebon 500 Total 18,000 Source: Kanwil Departemen Perindustrian Propinsi Jawa Barat 1994.

Rencana Tata Ruang Wilayah Jawa Barat, or RTRW Jawa Barat or the

Regional Land Use Plan of West Java was approved by the Minister of Home

Affairs on 14 July 1995, and was listed as Perda No. 3/1994 (Regional Regulation No.3 1994). The aim of the RTRW was to make use of regional

space appropriately and optimally by considering the people's heeds, the

capacity of the environment, and the national and regional development

policies. The RTRW of West Java stated that industrial activities and settlements were to dominate the urban area. The demand for urban areas was

predicted at 400,000 hectares. Beside the industrial zone that has been developed, the lands for industrial estates were allocated at around 18,000 hectares in order to accommodate industrial growth. Industrial activities were to

grow, surrounding the industrial estates of

:

Cilegon; Cikande; Balaraja-

Cikupa; Citeureup-Cileungsi; Cikarang; and Industrial estate of KarawangCikampek. The expansion of Industrial estates in Bogor-Bekasi-Karawang should be limited due to the limited water availability.

Development of optimisation

of

the

industrial

industrial land,

areas was directed towards the

infrastructure

development

such

as

telecommunication, electricity, water, transportations, and anticipation of the possibility of developing a mega urban area around the surrounding industrial

estates. Industrial estates in Serang and Purwakarta, and an industrial zone

170

rea CY"'"'

4i)

java

!It

/111141.

O

/

Sea

1

JAKALIA

111%1

Iii

./AWA 11140A14

Hindian Ocean

Km 0

11:03

20

40

Protected Area

C:f Upland Area Development Wetland Area Development Industrial Estate Industrial Zone

Urban Area

Nig Tourism Area

=1 National Road E3 Toll Road =1 Provincial Road

Figure 4.2 Regional Land Use Plan (RTRW) of West Java. Source : The Bappeda of West Java 1995.

= Rail Way Cl Toll Road (Planned)

=I Dam

along the Serang-Purwakarta corridor, are located along a toll road.

It is

predicted that the industrial land needs were 36,800 hectares. The area was also identified as needing infrastructure in anticipating the growth of cities along

the corridors that function as central business and settlements. Around 500

hectares of industrial estates were planned in the Kecamatan (subdistrict) Kapetakan, Kabupaten Cirebon. Around 400 hectares of industrial estates will

be developed in Kecamatan (subdistrict) Cikeruh, Kabupaten Sumedang. Meanwhile, Kabupaten Bandung will develop 500 hectares of industrial estates surrounding Kecamatans Rancaekek and Cikancung.

Meanwhile, at present, the availability of location permits for industrial

development has been limited. The Head of BPN Jabar or the Head of the Regional Land Agency of West Java, Masry Asyik (Kompas 21 Sep. 1996) stated that the location permits for new industrial zones will be stopped. This is

because the development of industry in the industrial zones tends to be uncontrolled. The development of industries, then, will be directed to industrial estates. More precisely he stated this as follows:

Dan i pada mengeluarkan ijin baru buat zona industri, lebih balk men garahkan investor untuk membangun di kawasan industri. Pembangunan pabrik di zona industri cenderung tidak terkontrol

and cenderung membebani Pemda. Sebagai contoh, akibat kehadiran industri di luar kawasan yang disiapkan, daya dukung listrik dan persediaan air untuk penduduk terganggu. Masry juga menyebutkan, 30% pen ggunaan lahan di kawasan industri disiapkan untuk sarana dan fasilitas pendukung, termasuk jalan akses dan sistem pengolahan limbah, sehingga dampak buruk

bagi masyarakat di sekitamya bisa di tekan di bandingkan dengan zona industri. ( Kompas 21 Sep. 1996) Literally translated

Instead of issuing a location permit for a new industrial zone, it is better to direct investors to build their factories in industrial estates. The industries built in the industrial zones tends to be uncontrolled and to overload the local government. For example,

172

due to existing industries outside prepared industrial estates, this will place excessive demands on the supporting infrastructure

(eg. the capacity of electricity and water) in the local urban environment. Masry also stated that 30% of the use of land in industrial estates was prepared for supporting facilities including roads for accessibility and waste treatment systems, in order to reduce the negative impact of industries on the society surrounding the area. The negative impact of industrial estates on society is relatively smaller than for industrial zones. (Kompas 21 Sep. 1996)

Susilo (1997), as quoted in the Kompas newspaper 23 April 1997, noted

that 50% of the industries in Jabotabek had been throwing out non-standard liquid waste, because they have no efficient waste processing; therefore, the water pollution has spread out and increased. In the same newspaper, this was

recognised by Romdani (1997) who is Head of the Environmental Control

Bureau of West Java. Romdani (1997) stated that the liquid pollution in Botabek was due to industrial waste. He identified that 50% of 600 industries in

Botabek threw industrial liquid waste out into the rivers. The Head of the Environment Division of Tangerang, Permana (Kompas 23 Apr. 1997), also stated that 46% of the 270 industries that he examined had no provision for

waste standards. Likewise, Rasidi (Kompas 23 Apr. 1997), Head of the Environmental Division of Bogor, identified that around 40.3% of industries such as textile industries, leather and food manufacturing, were making no efforts to improve waste water treatment for their industries. Therefore, the government policy was to enforce investors to choose to locate in the industrial

estates, where infrastructure was provided in order to reduce the negative impacts of industrial activities on the environment and surrounding urban areas, which seems quite significant.

173

4.4. The Planning and Structure of Industry in Jabotabek 4.4.1 The Economic Dimension of the Planning and Structure of Industry in Jabotabek. According to the government of DKI Jakarta (1995), the target for industrial development in DKI Jakarta, in the Repelita VI Plan, was to reduce

the contribution of this sector to GRDP from 26.3% at the end of Pelita V to 23.4% at the end of Repelita VI. This is a part of efforts to develop DKI Jakarta

to be a Service City. The target could be achieved by relocating several types

of industries outside Jakarta, therefore the average of growth rate would decrease from 9.2% in Pelita V to 5.04% in Repelita VI. Table 4.16 shows that

the units of industries projected in Repelita VI was 35,000 firms. At the same Table 4.16 Quantitative Target of Industrial Development in DKI Jakarta in Re elita VI. Repelita VI 1998/99 1997/98 1996/97 1994/95 1995/96. Target of Subjects Repelita VI

33,500 690,000 48,850

34,100 700,180 48,850

34,450 706,225 49,500

34,700 728,700 49,950

35,000 750,000

20,800

21,500

22,750

23,500

25,000

24.1% 25% 24.8% 25.3% 23.4% Contribution to GRDP Source : Adapted from the Government of DKI Jakarta 1997.

23.4%

Unit of firms Employment Production

35,000 750,000 >50,000

Value (billion Rp.)

25,000 Investment value (billion Rp.)

period, this sector was also estimated to create job opportunities of around 750,000 workers. The projection of production value and investment value was more than Rp. 50,000 billion and Rp. 25,000 billion respectively.

In general, DKI Jakarta's policies in achieving the targets are : 1. Developing business climate and investment.

174

Increasing the capability of industry, particularly through the mastery of technology, human resource development and industrial organisation, and industrial development that takes account of the environment.

Developing small scale, household, and medium industrial firms followed by the development of supporting institutions. Creating the systematisation of industrial location. Making a priority of industrial development.

In 1990, there was a total number of 2,704 large and medium firms in

DKI Jakarta. ISIC 32 (textile, leather products and footwear manufacturing) contributed 40:6%T4ollowed by ISIC 35-(chemicals, petroleum, coal, rubber and

plastic products) and ISIC 38 (fabricated metal products, machinery and equipment) which were around 16.1% and 15.2% respectively (see Table 4.17,

p.176). In 1994, or in the first year of Repelita VI, the total number of firms decreased to 2,375, however, the composition of the number of firms was not relatively changed.

Table 4.17 (p.176) also shows that, in 1990, the structure of employment

of the large and medium industries in DKI Jakarta, was still dominated by ISIC 32 (textile, leather products and footwear manufacturing), followed by ISIC 38 (fabricated metal products, machinery and equipment) and ISIC 35 (chemicals,

petroleum, coal, rubber and plastic products). In 1990, the large and medium industries employed 363,733 workers. ISIC 32, ISIC 38 and ISIC 35 had shares

of employment of around 38.1%, 21.7% and 16.4% respectively. In 1994, total

employment absorbed by large and medium industries increased to 431,668 workers, but the composition of the employment structure of large and medium industry was still relatively unchanged.

The Central Bureau of Statistics (1995) also noted that in 1990, the large

and medium industries in DKI Jakarta produced Rp. 4,466,481 millions (at current prices) value added. ISIC 38 (fabricated metal products, machinery and

175

Table. 4.17 Number of Firms and Workers in 1990 and 1994 in DKI Jakarta.

Type of Industry

1994

1990

ISIC (International Standard of industrial Number of firms Classification) 253 ISIC 31. Food, beverages and tobacco (9.4%) manufacturing 1,099 ISIC 32. Textiles, leather products and (40.6%) footwear manufacturing 177 ISIC 33. Wood products and other wood (6.5%) products manufacturing 218 ISIC 34. Paper and paper products, (8.1%) printing and publishing 434 ISIC 35. Chemicals, petroleum, coal, (16.1%) rubber and plastic products 47 ISIC 36. Non metallic mineral products (1.7%) except petroleum and coal. 27 ISIC 37. Basic metal industries (1.0%) 410 ISIC 38. Fabricated metal products, (15.2%) machinery and equipment. 39 ISIC 39. Other manufacturing industries (1.4%) 2,704 Total (100%)

Workers 22,301 (6.1%)

138,534 (38.1%) 16,392 (5.5%) 21,668 (6.0%) 59,666 (16.4%) 13,310 (3.7%) 5449 (1.5%) 79,041 (21.7%) 7,372 (2.0%) 363,733 1100%)

Number of Firms 213 (9.0%) 932 (39%)

Workers

135 (5.7%) 201

(8.5%) 383 (16.1%) 40 (1.7%) 36 (1.5%) 379 (16.0%) 56 (2.4%) 2,375 (100%)

25,864 (9.0%) 162,553 (37%) 18,850 (4.4%) 24,363 (5.6%) 64,820 (15.0%) 16,323 (3.8%) 9131

(2.1%) 98,566 (22.8%) 11,198 (2.6%) 431,668 (100%)

Source: BPS (Central Bureau of Statistics).

equipment) contributed 45.7% of the total value-added, which is the highest contribution, followed by ISIC 35 (chemicals, petroleum, coal, rubber and plastic

products) and ISIC 32 (textile, leather products and footwear manufacturing) which at 17.3% and 14.2% respectively. In 1994, the total value added of large

and medium firms increased to Rp. 11,255, 428.1 millions. Again ISIC 38 was the highest contributor to total value added.

Based on the indicators described above, it can be argued that ISIC 32

(textile, leather products, and footwear manufacturing) was one of the most important subsectors of large and medium industry in DKI Jakarta in creating

job opportunities. Meanwhile, ISIC 38 (fabricated metal products, machinery and equipment) has played the most important role in economic growth in DKI Jakarta.

Industrial planning in the Bogor, Tangerang, and Bekasi

regions

(Botabek) refers to the Repelita VI of West Java as described above. 176

Nevertheless, the government of the Botabek regions also accommodated the

condition, potential, and aspirations of the local community as considerations for regional development planning in each of the regions. The classification of

industry in the Bogor municipality is rather different from other regions. Table

4.18 shows that the total number of firms and workers in the manufacturing industry in 1995 was 3,780 firms and 40,568 people respectively. In this region

the small scale industries were very dominant at around 75% of the total firms,

employing 41.8% of the total workers. The contribution of large and other industries to firms and employment was 25% and 58.2% respectively. Table. 4.18 Number of Firms and Workers of Industry in Kotamadya Bogor in 1995 Industrial Classification 1. Large firms

2. Various Industries 3. Small scale firms a. Formal

b. Non-Formal 4. Food Industry 5.Textile and leather Industry 6. Chemical and construction Industry 7. Metal industry

Workers (person)

Firms 9

(0.4%) 29 (1.3%) 1,619 (74.9%) 504 (23.3%) 1,115 (51.6%) 188 (8.7%) 44 (2.0%) 115 (5.3%) 93

(4.3%)

8. Handicraft

&

others

Total

64

(3.0%) 3,780 (100%)

2,049 (7.2%) 9,866 (34.5%) 11,966 (41.8%) 4,721

(16.5%) 7,245 (25.3%) 1,103 (3.9%) 1,174 (4.1%) 1,210 (4.2%) 996 (3.5%) 238 (0.8%) 40,568 (100%)

Source : BPS (Central Bureau of Statistics).

In Kabupaten Bogor, the total number of large and medium industrial firms increased from 584 firms in 1993, at the end of Pelita V, to 686 firms in 1996. In 1993, ISIC 32 (textiles, leather products and footwear manufacturing),

177

Table 4.19 Number of Large and Medium Manufacturing Firms in Kabupaten Bo or 1993-1996. 1993 1994 1995 1996 ISIC (International Standard of Industrial Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufacturing ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coal, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal ISIC 37. Basic metal industries ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries

Total

78

(13.4%) 118

(20.2%) 42 (7.2%) 26 (4.5%) 107 (18.3%)

83 (13.2%) 135 (21.4%) 49 (7.8%) 21

(3.3%) 132 (20.9%)

68

71

(11.6%)

(11.3%)

112

110

(19.2%) 33 (5.7%) 584 (100%)

(17.43%) 30 (4.8%)

90 (13.2%)

(19.2%)

87 (12.7%) 148 (21.6%) 57 (8.3%) 29 (4.2%) 129 (18.8%)

78 (11.5%)

78 (11.4%)

145

(21.3%) 62 (9.1%) 20 (2.9%) 131

3

3

(0.4%) 112 (16.4%) 40 (5.9%)

(0.4%) 119 (17.3%) 36 (5.2%) 686 (100%)

631

681

(100%)

(100%)

Source : BPS (Central Bureau of Statistics).

ISIC 38 (fabricated metal products, machinery and equipment) and ISIC 35

(chemicals, petroleum, coal, rubber and plastic products) dominated the structure of industrial firms in this region accounting for 20.2%, 19.2% and 18.3% of firms respectively. In 1996, the composition of the structure of industrial firms was still unchanged.

In Kabupaten Bogor, the total number of workers in large and medium industry increased from 165,124 in 1993 (at the end of Pelita V) to 187,198 in

1996 (see Table 4.20, p. 179). The first three highest contributors of the subindustrial sector to the total number of workers were ISIC 32 (textiles, leather

products, and footwear manufacturing), ISIC 38 ( fabricated metal products machinery, and equipment) and ISIC 35 (chemicals, petroleum, coal, rubber

and plastic products). The contribution of ISIC 32 decreased from 43.0% in 1993 to 35.4% in 1996, while the contribution of ISIC 38 increased from 14.1%

178

Table 4.20. Number of Workers of Large and Medium Firms in Kabupaten Bo or 1993-1996. ISIC (International Standard of 1993 1994 1995 1996 Industrial Classification) ISIC 31. Food, beverages and tobacco 11,007 9,235 12,050 12,488 manufacturing (5.6%) (6.0%) (6.5%) (6.7%) ISIC 32. Textiles, leather products and 71,007 81,324 68,962 66,197 footwear manufacturing (43.0%) (44.1%) (37.1%) (35.4%) ISIC 33. Wood products and other wood 8,474 10,594 8,243 8,886 products manufacturing (5.1%) (5.7%) (4.4%) (4.7%) ISIC 34. Paper and paper products, printing 6,353 3,390 3,841 4,470 and publishing (3.8%) (1.8%) (2.1%) (2.4%) ISIC 35. Chemicals, petroleum, coal, rubber 20,500 28,664 29,866 34,858 and plastic products (12.4%) (15.6%) (16.1%) (18.6%) .

ISIC 36. Non metallic mineral products except petroleum and coal. ISIC 37. Basic metal industries ISIC 38. Fabricated metal products, machinery and equipment.

12,580 (7.6%)

11,565 (6.3%)

18,373 (9.9%)

-

-

484 (0.3%) 30,400 (16.4%) 13,429 (7.3%) 185,648 (100%)

23,255 (14.1%) ISIC 39. Other manufacturing industries 13,720 (8.3%) 165,124 Total (100%) Source: BPS (Central Bureau of Statistics).

25,822 (14.0%) 11,918 (6.5%) 184,284 (100%)

16,171

(8.6%) 601

(0.3%) 30,111 (16.1%) 13,416 (7.2%) 187,198 (100%)

in 1993 to 16.1% in 1996. Likewise the contribution of ISIC 35 also increased from 12.4% in 1993 to 18.6% in 1996.

Table 4.21 (p.180) shows the structure of firms and employment of large

and medium industry in Kabupaten Tangerang in 1994. In this region, ISIC 38 (fabricated metal products, machinery and equipment), ISIC 32 (textiles, leather

products and footwear manufacturing), and ISIC 35 (chemicals, petroleum, coal, rubber, and

plastic products)

dominated

industrial activities. The

contribution of ISIC 38 to the total number of firms and to employment was 24.6% and 12.6% respectively. Meanwhile, the contribution of ISIC 32 to the

total number of firms and the employment structure was 20.2% and 51.6% respectively. Likewise, ISIC 35 contributed 16.9% of the total number of firms and 10.2% of the total employment.

179

Table 4.21 Number of Firms and Workers of Large and Medium Firms in Kabupaten Tangerang 1994. ISIC;(International Standard of Industrial: Firms ' .: Workers ' ' '1 (person) Classification) (units); ISIC 31. Food, beverages and tobacco manufac33 4,396 turing (6.5%) (2.7%) ISIC 32. Textiles, leather products and footwear ma103 82,432 nufacturing (20.2%) (51.6%) ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coal, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal. ISIC 37. Basic metal industries

ISIC 38. Fabricated metal products, machinery and equipment. ISIC 39. Other manufacturing industries

Total

71

(13.9%) 30 (5.9%) 86 (16.9%)

34 (6.7%) 7

(1.4%) 125 (24.6%) 20 (3.9%) 509 (100%)

13,105 (8.2%) 5,218 (3.3%) 16,329 (10.2%)

12,018 (7.5%) 1,449 (7.5%) 20,152 (12.6%) 4,780 (3.0%) 159,879 (100%)

Source : BPS (Central Bureau of Statistics).

In Kotamadya Tangerang, at the end of Pelita V (in 1993), the total

number of firms of large and medium industry was 654 firms. In 1995 the number had increased to 756 firms. Most industries, more than 50% of the

total, were located in the subdistrict of Jatiuwung followed by subdistrict of

Batuceper (see Table 4.22, p.181). Based on the spatial planning of Kotamadya Tangerang, the Kecamatans (subdistricts) with industrial growth as

their prime function are Jatiuwung and Batuceper, however, as it can be seen from Table 4.22 (p.181), other Kecamatans also have industrial activities.

The contribution of the industrial sector to the GRDP of Bekasi is very

dominant. At the end of Pelita V in 1993, the contribution of this sector to GRDP was 53.4%. Subsequently, in the first two years of Pelita VI, in 1994 and 1995, it increased to 54.07% and 55.3% respectively (see Table 4. 23, p. 181).

180

Table 4.22 Number of Firms of Large and Medium Industry in Kotamadya Tan eran 1993-1995. 1994 ' 1995 ' !190:: SubdiStricts 4 10 4 Ciledug (1.3%) (0.6%) (0.6%) 27 26 31 Cipondoh (3.9%) (4.3%) (4.7%) 170 128 135 Tangerang (22.5%) (19.7%) (19.6%) 393 367 354 Jatiuwung (52.0%) (53.4%) (54.1%) 121 127 125 Batuceper (18.5%) (16.0%) (19.1%) 27 36 12 Benda (4.8%) (3.9%) (1.8%) 687 756 654 Total (100%) (100%) (100%) Source : BPS (Central Bureau of Statistics). Table 4.23 Contribution of Industrial Sector to GRDP in Bekasi

104 '1993 Sectors 54.1% 53.4% Industry 7.6% 9.3% Agriculture 38.7% 37.3% Others 100% 100% Total Source : Adapted from Bappeda Bekasi 1997.

1995 55.3% 6.5% 38.2% 100%

By contrast, the agricultural sector decreased from 9.3% in 1993 to 6.5% in 1995. Therefore, it is understandable if the government of Bekasi has ambitions for its region to be the foremost industrial zone in Indonesia.

The structure of large and medium firms in Bekasi has the same pattern of industrial structure as in Tangerang. At the end of Pelita V, in 1993, the total number of firms of large and medium industry in Bekasi was 424 firms. ISIC 32

(textiles, leather products and footwear manufacturing), ISIC 38 (fabricated metal products, machinery and equipment), and ISIC 35 (chemicals, petroleum,

coal, rubber and plastic products) dominated industrial activities in this region

(see Table 4.24,

p. 182).

In this period, ISIC 32, ISIC 38 and ISIC 35

contributed 23.6%, 21%, and 15.1% of the total number of firms respectively. In

181

the third year of Pelita VI, or in 1996, the contribution of ISIC 32 decreased to

19%, while the contribution of ISIC 38 increased to 28.5%. Likewise, the contribution of ISIC 35 increased to 16.8%. Table 4.24 Number of Firms of Large and Medium Firms in Kabupaten Bekasi includina Kotamad a Bekasi durin 1992-1996. ISIC (International Standard of Industrial 1993 1994 1995 Classification) ISIC 31. Food, beverages and tobacco manufacturing ISIC 32. Textiles, leather products and footwear manufacturing ISIC 33. Wood products and other wood products manufacturing ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coals, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal. ISIC 38. Fabricated metal products, machinery and equipment. ISIC 37 & 39. Basic metal industries and other manufacturing industries

Total

46 (10.8%) 100 (23.6%) 45 (10.61%) 24 (5.7%) 64 (15.1%) 25 (5.9%) 89 (21.0%) 31

(7.31%) 424 (100%)

48 (9.7%) 113 (22.9%) 51

(10.3%) 29 (5.9%) 73 (14.8%) 31

(6.3%) 113 (22.9%) 36 (7.3%) 494 (100%)

51

(8.9%)

1996 58 (9.7%)

111

113

(19.1%)

(19.0%) 54 (9.1%)

52 (9.1%) 31

31

(5.4%) 94 (16.4%) 33 (5.7%) 163 (28.4%)

(5.2%)

39

(6.8%) 574 (100%)

100

(16.8%) 32 (5.4%) 170 (28.5%) 38 (6.4%) 596 (100%)

Source : BPS (Central Bureau of Statistics).

Table 4.25 (p. 183) shows the structure of employment in Bekasi during

the period 1993-1996. The number of workers increased at a rapid rate from 106,990 in 1993 to 178,606 in 1996. In 1993 or at the end of Pelita V, ISIC 32 (textile, leather products and footwear manufacturing) and ISIC 38 (fabricated

metal products, machinery and equipment) were playing an important role in creating jobs, contributing 43.6% and 18.3% respectively. In the third year of Pelita VI, in 1996, the composition of the structure was relatively unchanged.

Industrial development in Kabupaten Bekasi is one the priorities Repelita VI.

The

industrial

development

has

been

directed

in

towards

strengthening and deepening the structure of industry supported by the improved

mastery of technology. The development of this sector is also

projected to create job opportunities.

182

Table 4.25 Number of Workers of Large and Medium Industry in Kabupaten Bekasi durin 1993-1996 ISIC (International Standard of Industrial 1993 1994 1995 1996 Classification) ISIC 31. Food, beverages and tobacco 6,358 6,538 8,815 9,635 manufacturing (5.9%) (5.4%) (5.8%) (5.4%) ISIC 32. Textiles, leather products and footwear 46,606 48,789 54,849 70,009 manufacturing

ISIC 33. Wood products and other wood products manufacturing

(43.6%) (40.2%) (35.9%) (39.2%) 8,182 8,656 104,475 10,844 (7.6%) 3,999 (3.7%) 9,121 (8.5%) 3,905 (3.6%) 19,580

ISIC 34. Paper and paper products, printing and publishing ISIC 35. Chemicals, petroleum, coal, rubber and plastic products ISIC 36. Non metallic mineral products except petroleum and coal. ISIC 38. Fabricated metal products, machinery and equipment. ISIC 37 & 39. Basic metal industries and other manufacturing industries

Total

(7.1%) 4,598 (3.8%) 10,513

(6.9%) 4,639 (3.0%) 16,444

(6.1%) 5,195 (2.9%) 22,616

(8.7%) (10.8%) (12.7%) 4,589 (3.8%)

26,154

6,378 (4.2%) 39,770

8,462 (4.7%) 39,205

(18.3%) (21.5%) (26.0%) (22.0%) 9,239

11,532

11,317

12,640

(18.3%) (21.5%) (26.0%) (22.0%) 106,990 121,369 152,687 178,606 (100%)

(100%)

(100%)

(100%)

Source : BPS (Central Bureau of Statistics). In Repelita VI, the Government of Bekasi, has five targets namely :

The growth rate of industry is projected to be higher than that of agriculture and other sectors.

The industrial areas can be managed to be compatible with the pattern of the development of growth centres, in the context of regional development.

Small scale and household industry can be developed through the Bapak Angkat' 4 system and location management for small scale industries.

A firm's capabilities to sell their products to domestic and foreign markets can be increased.

Quality, design and variety of industrial products can be improved.

4 Bapak Angkat is a system of relationship/partnership between large scale industry and small scale industry where the large scale industry supports the small scale industry in production and management.

183

4.4.2 The Spatial Dimension of Planning and Structure of Industry in Jabotabek. Repelita VI stated explicitly that industrial location should be compatible

with regional land use planning (RTRW) in order to support the efficiency of infrastructure development and to avoid the friction caused by using land with other sectors. As explained in section 3.3, JMDPR predicted that the need for

land for industrial development in Jabotabek 1990-2010 would be 13,490 hectares allocated mainly in Tangerang, Bekasi and the Karawang corridor (see

Figure 4.3, p. 185). In this plan, DKI Jakarta and Bogor have no priority to develop industry because JMDPR considered that DKI Jakarta already has a

program to reduce the role of industrial development

in

its

economic

development, while Bogor has restricted industrial development in order to protect its environment and act, for instance, as a water recharge area for DKI Jakarta. Furthermore, one of the aims of the plan for industrial development in

Tangerang, Bekasi and Karawang, is to encourage development in the eastwest corridor.

However, as also explained in section 3.5, Jakarta's 2005 Master Plan

predicted that the land needed for large and medium industrial firms in DKI Jakarta would be 4,868 hectares. Meanwhile, the demand for land for small

scale industry would. be 396 hectares. This means that there would be an increase of industrial area from 2,442 hectares in 1980 to 5,624 hectares by the

year 2005. According to the plan, the large and medium industries will be built

in the industrial zones of Pluit, Ancol, and the north-western part of Jakarta, while the development of medium industries will be built in the western, eastern,

and central part of Jakarta. Therefore, the plan projected that at the end of

2005 the total industries (large, medium and small scale industries) in the north, south, and east-west of Jakarta would be 353,900; 40,200; and 252,500 firms respectively.

184

Industrial Estate - 50 Ha Industrial Estate - 100 Ha

0

Industrial Estate - 200 Ha

0

Industrial Zone

0

Proposed Industry

0

Industrial Zone

200 Ha 200 Ha

100 Ha

Industrial Zone 50 Ha

0

Km

Figure 4.3 The Distribution of Industrial Development Planned Source: Adapted from JMDPR 1993h

5

10

15

DKI Jakarta has three industrial estates, namely PT (Perseroan terbatas)

JIEP (Jakarta Industrial Estates Pulogadung) of about

570 hectares, PT

Persero KBN (Kawasan Berikat Nusantara) about 593 hectares, and PT Cakung Remaja about 43 hectares. The total area of industrial estates planned

was 1,206 hectares (see Table 4.26). However, only 46.7% of the total area planned, or 563.1 hectares consisting of 505 firms, have been used for industrial activities. In DKI Jakarta, the total area of existing industrial zones is

1,254 hectares, consisting of the Pluit industrial zone of around 810 hectares,

the Ancol Industrial zone around 100 hectares, the Sunter industrial zone of around 50 hectares, the Gandaria industrial zone around 250 hectares, and small scale industrial areas (Perkampungan lndustri Kecil) of around 44 Table 4.26 Total Area and Use of Industrial Estates in DKI Jakarta 1995. The Name of Industrial Estate

Area Planned (hectares)

Number of investtors / firms (units)

Area Used (hectares)

1. PT. Persero JIEP 570 394 2. PT. Persero KBN 593 169 3. PT. Cakung Remaja 43 Total 1,206 563 Source: Adapted from the Ministry of Industry 1996; and Tim Monitoring Kawasan Industri 1997.

369 136 -

505

hectares (see Table 4.27). In 1994, the use of land for industry was 2,846 hectares (BPN in PPST-LPUI, 1996), therefore, it can be calculated that the approximate area of land used for industry outside the industrial estates was 2,283 hectares. Around 1,029 hectares (36%) of existing industrial activities are

not only outside of the industrial estates, but also outside of the industrial zones.

Table 4.27 Industrial Zones in DKI Jakarta Region Pluit Ancol Sunter Gandaria Small Scale Industrial Area (PIK) Total

Total Area (hectares) 810 100 50 250 44 1,254

Source: Dinas Perindustrian DKI Jakarta 1996 (Provincial Ministry of Industry of DKI Jakarta, 1996).

186

Basically, the Botabek regions (Bogor, Tangerang, and Bekasi) each have their own local land use plan, all of which refer to the regional land use planning (RTRW) of West Java. The RTRW of West Java 1994 noted that the

land area planned for industrial development in the Bogor region was 500 hectares. As stated earlier, in this region, the development of industry should

be limited due to environmental considerations. One of the functions of this region is as a water catchment area for the DKI Jakarta region.

In Kabupaten/Kotamadya Bogor, the large and medium industries have

agglomerated and will be developed in Kecamatans (subdistricts) Parung Panjang, Citeureup, Gunung Putri, Cileungsi, Bogor Utara, and Cibinong.

Kuswartojo (1992) argued that the agglomeration of industry

in

Bogor,

particularly in the industrial zone of Cibinong, was a result of the availability of

natural resources such as raw materials, accessibility to the markets, the relatively low land prices, conglomeration, and the existing

industrial area.

Kuswartojo (1992) added that the industrial zone has been developing since 1973 when the textile industry was built; the agglomeration was stimulated by the infrastructure built by the cement industry, and it was stimulated also by the

development of the toll road of Jagorawi. Furthermore, the industrial policy at

that time had also provided guidelines for the area's industrial development. This accelerated the agglomeration of industry in this region. Therefore, the

frontage along 20 km of the toll road of Jagorawi agglomerated around 276 large and medium industries in 1990. Kuswartojo (1992) also examined the local government's efforts to plan and manage the area, but according to him, these were unsuccessful.

Bogor has four industrial estates covering planned land of around 547

hectares. These are PT Cibinong Centre Industrial Estate of about

140

hectares, PT. Talenta Cileungsi Perdana of about 300 hectares, PT. Menara Permai of about 87 hectares, and PT. Aspex Paper of about 20 hectares (see

187

Table 4.28). However, Lite of the planned area for induetrial activities was still -

only 8.9% of the total, or around 49 hectares, With 13 large and medium industries. In 1994, use of land for the existing industrial activities in Bogor was

4,249 hectares (BPN in PPST-LPUI, 1996). Therefore, it can be estimated that

the approximate area of industrial actiliities outside of industrial estates, was 4,200 hectares, or around 99%.

Table 4.28 Total Area Planned, and Area Used, Name of Industrial Estates in Bogor, 1995. Area planned Area Used Number of (hectares) (hectares) investors/ The Name of Industrial Estate firms (units) 1. PT. Cibinong Centre Industrial Estate 2. PT. Talenta Cileungsi Perdana 3. PT. Menard Permai 4. PT. Aspex Paper Total

_

33.8

6 7

48.8

13

140

15.0

300 87 20 547

-

-

Source: Adapted from the Ministry of Industry 1996 and Tim Kawasan lndustri 1997 (Team for Co-ordination of Industrial Estates 1997).

Based on Pola Dasar Pembangunan Kabupaten Tangerang, or the Basic Pattern of Development of Kabupaten Tangerang in 1990 (cited in

Hidayat 1994), the location of industrial development was planned in the Kecamatans of Serpong, Curug, Sepatan and Cikupa. However, through various revisions, the location of industrial development was changed. The

Regional Land Use Planning (RTRW) of Kotamadya Tangerang, issued in 1994, and the Study of RTRW of Kabupaten Tangerang, issued in 1996, stated that the allocation of industrial areas in Tangerang was to be:

Industrial estates planned in the Kecamatans of Balaraja, Tigaraksa, Cikupa, Pasar Kemis, Serpong and Legok.

Zona Industri in Kecamatans of Balaraja, Cikupa, Pasar Kemis, Curug, Tangerang, Batuceper, and Jatiuwung.

The local government of Tangerang issued regulations for industrial activities, which consisted of : 1. The suggestion to use local raw materials and local workers.

188

The direction for the development of industry to increase the value added and to create a multiplier effect for regional development.

An obligation to obey the regulation of environmental provision eg. by installing an appropriate waste treatment equipment.

Implementation of these planning regulations, however, seems to have

diverged from expectation. This was expressed in a statement from the government of Kotamadya Tangerang, as follows (1995, p. 41):

Pertumbuhan ekonomi sangat pesat, pada tahun 1993 telah tercatat zona industri yang lumbuh secara alamiah' sejumlah 1,053 industri meliputi Non fasilitas PMA/PMDN sebanyak 818 industri, PMDN sebanyak 163 industri dan PMA sebanyak 72 industri.

Literally translated:

The rapid growth of the economy in 1993 has noted that 'industrial zones grew naturally' consisting of around 1,053 industries, that is, 818 units of 'non fasilitas' industries; 163 units

of domestic investments (PMDN); and 72 units of foreign investments (PMA).

The "natural growth" of industrial development can be interpreted to mean that

the growth of industry in Tangerang was not based on the industrial plan provided. This is also supported by some studies which found that industrial development had violated planning legislation. Taqim (1997), in his study titled

'Population Dynamics Analysis on Land Functional Conversion in Tangerang

Municipality', noted that industrial development at Kecamatan (Subdistrict) Tangerang, Cipondoh, and Benda had violated spatial planning legislation. The

RTRW of Kotamadya Tangerang stated that industrial development was planned in Kecamatan Batuceper and Jatiuwung. Table 4.29 (p. 190) shows that there were industrial areas of around 3.3 hectares in Kecamatan Cipondoh in 1995. In Kecamatan Benda, the industrial area increased from 76 hectares to

98 hectares in 1995. Likewise, in Kecamatan Tangerang, the industrial area

189

increased from 154 hectares in 1992 to 189 hectares in 1995. Cipta Karya's study (1995) commented that Jatiuwung itself had grown uncontrolled and it was not uniform. Furthermore Cipta Karya (1995, p. III-3) also commented that:

Adanya zona-zona industri yang terlanjur berkembang alamiah

dan kurang tertata serta campur aduk dengan penggunaan lainnya yang berpola mix-used akan menyulitkan upaya konsolidasi dan pen gaturan pemanfaatan lahan. Literally translated:

There are the industrial zones that have grown naturally, sporadically, and in mix-use with others. This will cause difficulties in consolidating and managing the use of land.

Hidayat's study (1994) analysing the policy of spatial planning in Botabek, with

a case study of Bogor and Tangerang, argued that there are, at least, three obstacles faced by the government of Tangerang in implementing regional land

use planning (RTRW). Firstly, there was a tendency for the investors of property and industry to choose a location that is not compatible with the planning controls. These investors influenced the government to revise the plan. According to Hidayat, the investors politically and economically have Table 4.29 Industrial Areas in Kotamad a Tanaerana in 1992 dan 1995 Industrial Area in 1992 Kecamatans Industrial Area in 1995 (hectares) (hectares) Cileduk Cipondoh 3 154 Tangerang 189 Jatiuwung 625 1,002 223 259 Batuceper Benda 76 99 1,162 1,552 Kodya Tangerang Source: Taqim 1997.

'invisible hand' power in influencing the local government to change its planning. Secondly, there were some land speculators (individuals, groups, and even the firms on the property) that had thorough knowledge about the detailed

190

information of spatial planning, before the planning was issued formally. They bought large areas of land from the community and expected to sell the land at

a higher price to a developer. Thirdly, there was a tendency for the local community, for example farmers, to sell their land, because they wanted to achieve a profitable price.

At present, the development of industrial areas in Tangerang

is

categorised into two types: the first is industrial estates, each managed by a

firm; and the second is zona industri (industrial zones). However, based on Presidential Decree No. 4/1996, industrial activities should be directed towards industrial estates. The Tangerang region has 15 industrial estates covering the

planned area of around 3,345 hectares (see Table 4.30). Table 4.30 Name and Total Area of Industrial Estate Firms in Kabupaten and Kotamad a Tanaeranci 1995 Area Area Used Number of Name of Firms Planned (hectares) 75 300 150 150 250 150 200 300 150 20 500 50 100 300 250

(hectares)

Investors/ firms (units)

3.56 17 1. PT. Putra Daya Perkasa 2. PT Adhibalaraja Indonesia 3. PT. Benua Permai Lestari 4. PT. Pentabinangun Sejahtera 5. PT. Surya Karya Luhur 70 3 6. PT. Cidurian Srananiaga Permai 7. PT. Bumi Serpong Damai 8. PT. Cipta Cakra Murdaya 9. PT Mitra Indotextil 10. PT Mitra Tangerang Bumi Mas 11. PT. Citraland Estate 12. PT. Sinar Serpong Subur I 13. PT. Sinar Serpong Subur II 14. PT Graha Mitra Santosa 15. PT. Elangmas Perkasa Sejati 100 16. PT. Paramita Karya Sentosa 100 17. PT. Roge Agro Inti 200 18. PT. Tangerang Fajar Industrial Estates 20 3,345 73.56 Total Source : Departemen Perindustrian (Ministry of Industry) 1996 and Tim Koordinasi Kawasan lndustri 1997.

191

However, only around 2.2% of the planned area, or 74 hectares, consisting of

20 firms, have been used for industrial activities. In 1994, the use of land for

industry for both Kabupaten

and

Kotamadya

Tangerang

was

4,772

hectares (BPN in PPST-LPUI, 1996), hence it can be estimated that the approximate area of land used by industries outside of industrial estates was around 4,698 hectares or 99%.

Rencana Tata Ruang Wilayah (RTRW) Kabupaten Bekasi, or

the

Regional Land Use Planning of Bekasi, which was approved by Perda No.20

1993 (Regional Regulation) contains of the basic strategic policy of physical development as follows:

The first five-year plan (1993-1998) will be directed to implement the policies of:

- Restructuring the industrial area - Developing the urban area

- Developing the area of productive agriculture The second five-year plan (1998-2003), will be directed to: -

Increasing the service scale and hierarchy of Kecamatans

-

Restructuring the buffer area for industrial and agricultural activities

-

Protecting the hydrological function of water resources

-

Protecting the area of natural forest function

The Government of Bekasi zoned 9,500 hectares of land for industrial development, taking

in

the areas of the Kecamatans of Bantargebang,

Tambun, Cibitung, Lemah Abang and Cikarang. Around 3,600 hectares of industrial zones were allocated as areas for industrial estates along the toll road

of Jakarta-Cikampek in Kecamatan Lemah Abang and Cibitung. There were

around 5,900 hectares allocated for industrial development outside of the industrial estates. The industries in this area, were distributed along the main

road of Jakarta-Cikampek and along the local road to the south which originates from the main road of Cikarang-Cibarusah and Bekasi-Cileungsi. In

192

1994, the total of industries with firms of a large, medium and small scale in this

area was 13,490 firms with growth rate around 15% per year (the Government

of Bekasi, 1994). To support industrial development in Bekasi, the Governor's Decree of West Java also stated that an additional industrial area was planned

of 3,000 hectares located in the Kecamatans of Tambun, Cibitung, Lemah Abang, Cikarang, and BabeIan. Recently, the development of industries in the zona industri (industrial zones) has been limited, and investors will be directed

to build their manufacturing industries in the planned industrial estates which are supported by infrastructure.

According to the government of Bekasi, until 1996, the total number of

large and medium industries that are in the industrial zones was 415 firms consisting of 40% (165) firms in the industrial estates and 60% (250) firms outside of the industrial estates. BPS data noted that in Bekasi, the total of large and medium industries in 1996 was 596 firms. This means that around 181 firms of large and medium industries were not only outside the industrial estates, but also outside the industrial zones, which had grown sporadically. Of the 165 firms of large and medium industries inside of industrial estates, around

87% were foreign investments and 13% were domestic investments (see Table

4.31). This is evidence, according to JMDPR (1993h), that domestic investors preferred to choose a location outside the industrial estates.

Table 4.31 Number of Large and Medium Firms of Industry in Industrial Zones and Industrial Estates in Bekasi 1996. Number of Firms of Industry in Status of Industry Industrial Estates PMA (Foreign Investment) PMDN (Domestic Investment)

144 (87.3%) 21

(12.7%)

Total

165

(100.0%)

Source: Adapted from Bappeda Bekasi 1997. Bekasi has 14 firms in industrial estates, covering a total planned area of

around 3,585 hectares. PT Jababeka is the largest industrial estate, with

193

around 790 hectares, followed by PT. Lippo Cikarang around 480 hectares, and

PT. East Jakarta Industrial Park around 320 hectares (see Table 4.32). Around 30% of the total area, or 1,270 hectares, has been used by industrial activities.

In 1994, the total area used by the existing industrial activities was 1,535 hectares. Hence, the approximate area outside of the industrial estates was 267 hectares.

Table 4.32 Name and Total Area of Industrial Estate in Bekasi 1995. Area Planned Area Used (hectares) The Name of Industrial Estates (hectares) 790 393 1. PT. Jababeka 140 200 2. PT Lippo Cikarang 200 130 3. PT. Hyundai Inti Development 320 228 4. PT. East Jakarta Industrial Park 200 5.6 5. PT. Great Jakarta Inti Development 200 51.5 6. PT. Bekasi Fajar Industrial Estate 300 300 7. PT. Megapolis Manunggal 300 8. PT. Rawa Intan 250 9. PT Sarana Panca Utama 220 10. PT Jatiwangi Utama 220 11. PT. Patria Manunggal Jaya 19 52 12. PT. Gobel Dharma Nusantara 35 2.5 13. PT. Amcol Graha Electronic 25 14. PT Dharmala Tower 3,312 1,270 Total Source : Adapted from Departemen Perindustrian 1995 and Tim Koordinasi Kawasan Industri 1997.

A summary of the use of land for industrial activities in Jabotabek can be

seen in tables 4.33, 4.34, 4.35, and 4.36. Tables 4.33 and 4.34 show the land

used by existing industrial establishments in industrial estates and outside

industrial estates. In Jabotabek, the approximate total area used for their activities was 13,402 hectares. Industries in Tangerang and Bogor each consumed more than 30% of the

total of land, while, Jakarta and Bekasi

consumed 21.2% and 11.5% of the total respectively (see right hand column,

Table 4.33, p. 195). Table 4.33 also shows that around 11,447 hectares in Jabotabek was taken up by industries outside industrial estates; around 41% of

the total was in Tangerang followed by Bogor with around 36.7%. Meanwhile,

194

land used by industrial estates was 1,955 hectares. The largest area used by existing industries in industrial estates was in Bekasi, around 1,270 hectares or

65%, followed by Jakarta with around 28.8%. The same figures are analysed again in Table 4.34. Overall, around 85.4% of the total land used by industries

in Jabotabek was outside industrial estates, and only 14.6% of the total was in industrial estates (see bottom row Table 4.34).

Table. 4.33 Land Used by Industries Inside and Outside of Industrial Estates in 1994/1995.

Outside Industrial Es- Inside Industrial

Es- Total tate Area (hectares) tate Area (hectares) 563 2,846 Jakarta 2,283 (19.9%) (28.8%) (21.2%) 4,200 49 4,249 Bogor (2.5%) (36.7%) (31.7%) 74 4,772 4,698 Tangerang (41%) (3.8%) (35.6%) 1,270 Bekasi 265 1,535 (2.3%) (64.9%) (11.5%) 11,447 1,955 13,406 Jabotabek (100%) (100%) (100%) Source: Adapted from BPN in PPST-LPUI and the Government of DK! Jakarta

,Region

1995/1996; Tim Koordinasi Kawasan Industri 1997; & HKI 1997; and Departemen Perindustrian 1996.

Table. 4.34 Distribution of Land Used by Industries Inside and Outside of Industrial Estates 1994/1995. Region Outside Industrial Es- Inside Industrial Es- Total

tate Area (hectares)

tate Area (hectares)

563.1 2,846.1 2,283 (80.2%) (19.8%) (100%) 48.8 4,200 4,248.80 Bogor (1.1%) (100%) (98.9%) 4,771.7 4,698.4 73,6 Tangerang (98.5%) (1.5%) (100%) 265.4 1,269.6 1,535.0 Bekasi (17.3%) (82.7%) (100%) 1,955 11,446.5 13,401.56 Jabotabek (85.4%) (14.6%) (100%) Source: Adapted from BPN in PPST-LPUI and the Government of DKI Jakarta

Jakarta

1995/1996; Tim Koordinasi Kawasan lndustri 1997; HKI 1997; & Departemen Perindustrian 1996.

195

Tables 4.35 and 4.36 (p.197) show the area planned for industrial estates and the area used by existing industries in the industrial estates. The

total area of industrial estates planned in Jabotabek was 8,410 hectares. Tangerang and Bekasi have planned land for industrial estates at around 39.8% and 39.4% of the total respectively (see right hand column Table 4.35).

The table also shows that the used area of industrial estates was 1,955. This

means that the remaining area is still quite large at around 6,456 hectares. Therefore, it is understood, the government has banned giving new location

permits for industrial development in the industrial zones, and directed new investors to fill the 6,456 hectares of the remaining areas of industrial estates. Bekasi is the region that has consumed the largest area for existing industries in industrial estates, with around 1,269 hectares, followed by Jakarta at around

563 hectares. Meanwhile, Bogor and Tangerang have only consumed 49 hectares and 74 hectares total respectively. Overall, of the 8,410 hectares area

planned for industrial estates, only 23.2% of the total has been used for industrial activities, and around 76.8% of the total is still empty (see bottom row, Table 4.36, p.197).

Table. 4.35 Planned Area, Used Area, and Remaining Area of Industrial Estates in Jabotabek 1994/1995. Region Planned area of Used area of Remaining area Industrial estate industrial estate of industrial estate (hectares) (hectares) (hectares) 1,206 563 643 Jakarta (14.3%) (28.8%) (10%) Bogor 547 49 498 (2.5%) (7.7%) (6.5%) Tangerang 74 3,345 3,271 (39.8%) (3.8%) (50.7%) Bekasi 3,312 1,269 2,043 (39.4%) (64.9%) (31.6%) 8,410 1,955 Jabotabek 6,456 (100%) (100%) (100%)

Source: Adapted from Tim Koordinasi Kawasan lndustri 1997; HKI 1997; & Departemen Perindustrian 1996.

196

Table. 4.36 A Percentage of Planned, Used and Remaining Areas of Industrial Estates in Jabotabek 1994/1995. Planned area of Used area of Region Remaining area of industrial estate Industrial Estate industrial estate (%)

Jakarta Bogor Tangerang Bekasi Jabotabek

100% 100% 100% 100% 100%

(0/0)

46.7% 8.9% 2.2% 38.3% 23.2%

(0/0)

53.3% 91.1% 97.8% 61.7% 76.8%

Source: Adapted from Tim Koordinasi Kawasan Industri 1997; HKI 1997; & Departemen Perindustrian 1996.

It should be noted that justification of the data shown above is limited

due to the lack of secondary data provided, and some information/data collected from several institutions is confusing. Hence, some differences in the

adapted data are inevitable. Some adapted data shown above should be considered as approximate data. The important thing is that these facts support

the arguments stated earlier that land is being used not only by industrial estates that are usually planned and compatible with the formal spatial plans, but also by industries outside industrial estates that are usually unplanned.

4.5

The Industrial Investment Procedure, and Spatial Planning of Industry and its Outcomes

4.5.1

Industrial Investment Procedure The procedure for industrial investment involves the main institutions at

national, provincial and local level.

1. The Investment Co-ordinating Board, or Badan Koordinasi Penanaman

Modal (BKPM) which is a Non Departmental Government Agency directly responsible to the President of the Republic of Indonesia. The Chairman of the BKPM also acts as The Minister of Investment. The function of the BKPM is to

assist the President in formulating government policies related to investment,

and to issue investment approvals and licences, to supervise investment implementation.

197

The Regional Investment Co-ordinating Board, or Badan Koordinasi Penanaman Modal Daerah (BKPMD), headed by a Chairman who is a subordinate of, and responsible to, the Provincial Governor. The function of the BKPMD is to assist investors in implementing their investment projects.

The Agency of Provincial Land Affair, or Badan Pertanahan National Dati I (BPN Dati

I)

is the land affairs agency of first level regions, headed by a

Chairman who is a subordinate of, and responsible to, the Head of the National Agency for Land Affairs which deals with land titles.

The Agency of District Land Affair, or Badan Pertanahan Nasional Dati II (BPN Dati II) is the land affairs agency of second level regions, headed by a

Chairman who is a subordinate of, and responsible to, the Head of the BPN Dati I. The function of the BPN Dati II is to assist investors in providing land for the location of investment projects.

Dinas PU Dati II (the Local/District Public Works) is the government at the

second level regions, headed by a chairman, who is a subordinate of and responsible to, the Bupati/Walikota/Regent/Mayor. The function of the Dinas PU Dati II is to guide the investors in implementing their construction works.

The Secretary of the Second Level Regions has the task to direct investors in preventing environmental pollution from the investment projects.

To invest in Indonesia, both foreign investors (PMA) and domestic investors (PMDN) should first look at a 'List of Negative Investment' or Daftar Negative

Investasi (DNI) containing those business sectors that are absolutely closed

and those that are still permitted to be developed by the investors. Foreign investors (PMA) should apply to the BKPM for a new investment, and send one

copy of the application forms to the corresponding BKPMD where the project will be located. The BKPM will evaluate the application and submit a letter of

198

recommendation to the President, for Presidential approval. Based on this approval, the BKPM will issue a Letter of Notification of Presidential Approval (SPPP) to the investor, and copies are also sent to the related ministries and embassies.

Likewise, the domestic investor (PMDN) should apply to the BKPM and send one copy of the application forms to the corresponding BKPMD. Domestic

investment, however, does not require Presidential approval. The BKPM will evaluate the applications and issue a Letter of Approval, or Surat Persetujuan (SP), and copies are also sent to related ministries.

The next steps are that the investors should apply to obtain the following:

1. Location Permit; 2. Building Construction Permit (IMB); 3. Nuisance Act Permit; 4. Land Title; and 5. Permanent Business License (IUT/Ijin Usaha Tetap). To apply for a location permit (see Figure 4.4, p. 200), the investors of both PMA and PMDN have to submit an application, including SPPP/SP, to the

BPN Dati II, and send copies to related institutions such as the BPN Dati II, BKPMD, and Bappeda Tingkat ll or Bappeda Tingkat I (for DKI Jakarta). The application forms will be evaluated in accordance with the spatial planning

policies of the BPN Dati II. The BPN Dati ll will issue the location permit to the

investors, and send copies to related agencies such as the Bupati/Walikota (Regent/Mayor), BPN Dati I, BKPMD and Bappeda Tingkat ll or Bappeda Tingkat I (for DKI Jakarta). Once the location permit is obtained, the investors

may start their activities of land acquisition. The decision to issue location permits is authorised by the BPN Dati II. This institution, theoretically, should consider spatial planning before the location permit is issued. In other words,

the BPN II plays an important role in determining whether spatial plans are applied properly or not.

199

Application Co-ordination with related institutions

A

Based on the Location Permit License, the investors can begin: acquisition of land, and request for the Building Right on Land (KGB), and Land Cultivation Right on Land (HGU)

Location permit license issued by the Head of BPN Dati II

Copy to: The Province Land Affair The Regional Investment Coordinating Board (BKPMD) District Development Planning Board-II (Bappeda II)

Prerequisite: A copy of the letter of Approval (SP) for domestic investors (PMDN) or the Letter of Notification of Presidential Approval (SPPP) for foreign investors (PMA)

Note:

BPN Dati II: Badan Pertanahan Nasional Daerah Tingkat .SP: Surat Persetujuan SPPP: Surat Pemberitahuan Persetujuan Presiden PMDN: Penanaman Modal Dalam Negeri PMA: Penanaman Modal Asing

HGB: Hak Guna Bangunan HGU: Hak Guna Usaha BKPMD: Badan Koordinasi Penanaman Modal Daerah Bappeda II: Badan Perencanaan Pembangunan Daerah Tingkat

Figure 4.4 Procedure to obtain Location Permit

Source: Adapted from Biro Humas, the Ministry of Industry and Trade, 1996/1997.

Investors who have received a location permit and have purchased land,

are then able to submit an application for a Building Construction Permit, or gin

Mendirikan Bangunan (IMB) to the Head of the Dinas PU Dati II, or the Head of Urban Development Monitoring (for DKI Jakarta). The investors who intend to develop factories in industrial estates can submit their application for

an IMB through the industrial estate's firm. The implementation of building construction for industries can be started without waiting for the issue of the IMB. The Head of the Dinas PU Dati II will issue the IMB based on post-audit appraisal. It may then also be used as a Building Utilisation Permit.

To obtain a Nuisance Act Permit, or gin Undang-Undang Gangguan

(UUG), the investors should submit an application to the Secretary of the Second Level Regions, with attachments such as lay-out installation, machinery

and equipment, description of the production and waste prevention processes

in the form of flow charts, block diagrams etc. The Secretary of the Second Level Region, on behalf of the relevant Regent/Mayor, will issue the Nuisance

Act Permit. This permit is not necessary for factories located in an industrial estate, or those who have ANDAL (Analisis Dampak Lingkungan, or a study of impact assessment on the environment).

After acquisition of the land, the investor should submit his/her request for land rights to the Head of the BPN Dati ll for HGB (Building Rights on Land),

and to the Head of the BPN Dati I for HGU (Land Cultivation Rights on Land). The Head of the BPN Dati II will issue the HGB for land up to 5 (five) hectares. For land more than 5 (five) hectares the HGB will be issued by the Head of the

BPN Dati I. The maximum period of use for an HGB is 30 years. The decision

to issue the HGU permit is made by the BPN Dati I, and is effective for a maximum period of 35 years.

The investor can start commercial activities after they have a Permanent

Business License, or ljin Usaha Tetap (IUT). An application for the IUT is

201

submitted to the BKPM with the following attachments: 1. The Location Permit; 2. The Building Construction Permit (IMB); 3. The Nuisance Act Permit; 4. Land

Title (HGB/HGU); 5. Capital investment progress report; and 6. Statement on

readiness for commercial production. After all the documents are completed, the BKPM will issue a permanent business license.

If investors, both PMA and PMDN, have a plan to expand their existing production capacity to produce additional products of the same and/or different kind from the current ones by investing more capital in the production facilities,

the investors should submit a further application to the BKPM, with copies to

the BKPMD. The BKPM will then issue a Letter of Approval, or Surat Persetujuan (SP).

Table 4.37 The Primary Types of Permit for Industrial Investments Type of Permit

National Institution

Notification Letter of Presidential Approval / SPPP (for PMA)

Issued by BKPM

Provincial Institution

Local Institution

Letter of Approval / SP (for PMDN) Issued by BPN Dati ll Location Permit Building Construction Permit (IMB)

Issued by Dinas PU

Nuisance Act Permit (UUG)

Issued by the Secretary of the Second Level Regions Issued by BPN Dati II

Dati II

Building Rights on Land (HGB) Issued by BPN Dati I

Land Cultivation Rights on Land (HGU)

Permanent Business (IUT)

Issued by BKPM

Source : Adapted from Biro Humas, The Ministry ot Industry ana ira 1996/1997.

202

4.5.2 The Spatial Planning of Industry and Its Outcomes.

Chapter three commented that the local, provincial and central institutions

involved

Overlapping

in

Jabotabek's

development have unclear roles.

responsibilities and uncoordinated

activities are

the main

characteristics of the planning and implementation of Jabotabek'S development.

The rapid growth of the Jabotabek region is not matched by the legality of plans, regulations and laws. Jakarta and Botabek have been growing at a rapid rate, particularly since 1965-1985, and this was accelerated by the deregulation

of economic policies, in 1988/1989, dealing with the development of financial sectors which allowed foreign investment to operate in the banking sector which

previously had been strictly limited. The policies also allowed the same private

sector to develop and -manage industrial estates. Furthermore, local and provincial spatial planners have experienced obstacles in implementing their

plans. The plans also tended to be inconsistent even though they had been approved by local councils through Perda (Local Regulation). Hence, it is not

surprising if economic and market forces have played a dominant role in shaping

Jabotabek's

uncontrolled

development,

including

its

industrial

development.

The role of the market mechanism in industrial development, within the context of its spatial dimension, has received a high level of support from the central government. This was expressed in a statement of the Minister of State

for National Development Planning/Chairman of the National Development Planning Agency (Bappenas), Ginanjar Kartasasmita, which was quoted from Kompas newspaper, 30 October 1996, as follows:

Ginanjar men gatakan tidak mungkin pemerintah men galihkan industrialisasi ke luar Jawa dengan menutup Jawa dari industry. . (Kompas 30 Hal itu bertentangan dengan mekanisme pasar Oct. 1996)

Literally Translated:

203

Ginanjar stated that it is impossible for the government to remove industrialisation to the outside of Java by closing industrial

development in Java, because this is in contradiction of the market mechanism

(Kompas 30 Oct. 1996)

The Minister may have forgotten the phenomenon of market mechanism

Devas and Rakodi (1993, p.31) stated that "whilst the market

failure.

mechanism

offers

considerable

benefits

as

a

system

of

economic

management, it frequently does not produce a socially desirable outcome". Devas and Rakodi (1993, p. 31) gave several reasons:

The first

is

that markets may be imperfect or uncompetitive. The

emergence of a monopoly, where market power is owned by a few, or a single

body, could occur; therefore perfect competition conditions are not realistic. Devas and Rakodi (1993) have noted that the market for urban land is probably highly imperfect, with a few urban land owners more dominant in influencing the market.

The second reason is the phenomenon of 'externalities'. 'Externalities

arise where the pattern of benefits and costs of a particular activity to the individual(s) concerned do not match the pattern of benefits and costs to society as a whole' (Devas & Rakodi 1993, p. 31). Waste disposal, air pollution

produced by industries, traffic congestion, and the construction of buildings on neighbouring land are the examples of negative externalities that can adversely affect an individual(s) or society. Roads, drainage, street lighting, parks and fire

prevention services which are very important for society, are examples of positive externalities. The private sector is generally not interested in providing such public goods due to a lack of profitably. Hence, Devas and Rakodi (1993)

argued that government intervention may be required in order to reduce the

existence of externalities in the form of regulations and public provision services.

204

The third reason is linked to the uneven distribution of income and wealth. In the real world, land, capital, human skills and human capacities, are

not distributed equally within the society. The market mechanism distributes incomes based on the marginal products of the production factors. Hence, this

mechanism tends to reinforce the inequalities of wealth. The increase of inequalities produced by the market mechanism is due to the differences in bargaining power produced by differences in wealth and monopoly power over

capital. This has the implication that the poor may become poorer. Again, Devas and Rakodi (1993) suggest that the role of government is very important

in protecting the poor from further disadvantages and reducing the inequalities of income and wealth.

The market mechanism policy concerned, and the unclear role of the government (local, provincial, and central), led to a complicated planning process and uncontrolled development within the Jabotabek region. Therefore, It

is understandable that Botabek's plans and DKI Jakarta's plan, in some

cases, are not compatible with each other. Meanwhile, the JMDP or JMDPR, which are issued by Department of Public Works and recognised as the most

comprehensive plans, have no legal status. Royat (cited in Kompas 8 Dec. 1997) states that the rapid development of Jabotabek has not been followed by

regulations. For example, the National Spatial Planning Act (Undang-undang Tata Ruang Nasional) was only issued in 1992, and the technical guidance to

implement the Act was not issued until 1996. This brings about potential conflicts in implementing the plans. Meanwhile, the Chairman of the Secretariat

of the Development Co-operation Board (BKSP) of Jabotabek, Gunawan (1997), recognised that :

Sampai saat ini pembangunan di wilayah Jabotabek be/urn memiliki satu perencanaan yang menyeluruh atau komprehensive dan juga tidak mempunyai legalitas hukum wilayah Botabek

juga punya rencana sendiri-sendiri. Jadi be/urn terintegrasi dengan baik. (Gunawan, cited in Kompas 2 Oct. 1997) Literally translated: 205

At present, the plan for Jabotabek's development has no legal basis, and the plan has not been integrated and comprehensive. the Botabek regions also have their own plans which are not integrated properly. (Gunawan, cited in Kompas 2 Oct. 1997) Therefore, it is also not surprising that the BKSP, which theoretically has

responsibility for co-ordinating planning, programming, and budgeting in the Jabotabek region, proposed two versions of land use planning in Jabotabek.

The first version refers to JMDPR's proposal (see Figure 3.17, Chapter 3, p. 120) and the second version was to combine the land use plans of DKI Jakarta, Bogor, Tangerang, and Bekasi that are locally relevant in nature (see Figure 4.5

p. 207). The question remains as to what land use plan will be used as the main direction for Jabotabek's development. This is one of the questions facing

Jabotabek's development. Nevertheless, in practice, the local land use plans, that is, the partial plans for the Jabotabek region, issued by the local

governments of Bogor, Tangerang, and Bekasi including Jakarta, point to the

main directions for the development of each region, because they are responsible for preparing and implementing the development of urban

infrastructure plans. legal

Furthermore, most of these local land use plans have

status through Peraturan Daerah (Perda) or Regional Regulation

approved by their institutional

local

councils. As described

in

section 3.6, it was

problems that brought about overlapping responsibilities among

the institutions involved, uncoordinated development, and inconsistency of

planning. This means that economic and market forces will be stronger in controlling the development of Jabotabek, including its industrial sector.

Discussion about the industrial location decisions of firms, previous

in the

chapters, argued that many decision makers of firms, particularly

domestic investors, prefer to choose locations outside of industrial estates. Some of them have violated the spatial planning of industrial development. As described in section 4.4 (p.174), evidence showed that industrial esta-

blishments were built sporadically, not only in the unplanned area (outside of industrial estates and industrial zones) but also in the industrial zones 206

LEGEND (Land Use Planning Map)

riUrban a FP

,

,_,,,

,;

v...,

- .-

t .:! -

.

Industry

,

i;

...,...., , -

'

,,., -

\

,

_

,

- ,, ..,,

,

,

.

..

,

:.

)

.

riRural

Irrigated Area

i.----2,

,

....,_.,.\.

I

I

r--1

Cultivated Land Plantation

Fish Pond

,

ci

Tourism Mining

F-1 Forest 11744 Protected Forest. Park Government & Public Facilities Housing Project Area jr

Industrial Project Area Security Area Against Flooding

..... .

\ ....

\

.

'

'

-:"'

'

f-, A

NH ---

Dam

C

>2. i Highway Heavy Railway Light Railway

Figure 4.5 Land Use Plan of Jabotabek Source: Adapted from BKSP 1994.

ra-uLtiLt_

FOOD AND BEVERAGE INDUSTRY TEXTILE. CLOTHE AND LATHE INDUSTRY PRINTING PAPER AND PUBLISHER INDUSTRY

WOOD AND RATTAN INDUSTRY CHEMICAL INDUSTRY

A

PHARMACY METAL INDUSTRY

MINERAL INDUSTRY

DINDUSTRIAL AREA

Figure 4.6 Existing Industrial Establishment of Domestic Investments in Outside of Industrial Area Planned in the Botabek Region Source: Adapted from BKSP, 1994

FOOD AND BEVERAGE INDUSTRY

TEXTILE. CLOTHE AND LATHE INDUSTRY PRINTING PAPER AND PUBLISHER INDUSTRY

WOOD AND RATTAN INDUSTRY CHEMICAL INDUSTRY

PHARMACY METAL INDUSTRY

MINERAL INDUSTRY

INDUSTRIAL AREA

Km 6

Figure 4.7 Existing Industrial Establishment of Foreign Investments in Outside of Industrial Area Planned in the Botabek Region Source: Adapted from BKSP, 1994

12

18

themselves. Overall, particularly in the Botabek regions, violation of planning

policy could also be indicated by comparing the land use planning map for industrial development with maps of the distribution of existing industries. By

overlaying these maps, the existing location of industries outside of planned

industrial areas, can be identified (see Figures 4.6, p. 208 and 4.7, p. 209, specifically for the regions of Botabek). The two figures show that a number of industrial establishments are outside of the planned industrial areas.

4.6

Concluding Remarks. The role of industrial development in the national goals is to gradually

change

the

economic

structure

to

achieve

a

balance

between

the

manufacturing industry and agriculture. In the long term, industrial development

will contribute to an economic structure based on advanced industry supported

by a strong agriculture sector. Indonesia also has an ambition to be a newly industrialised country by the year 2010/2020. In this period, the industrial sector

is predicted to play a major role in achieving increased foreign exchange, national income and employment opportunities.

The performance of industrial development in the First Long-term Development, or PJPT I, during 1968-1993 (25 years), seemed successful. The

total growth of the manufacturing industry in this period was 11.8% per year which was higher than the target projected (8.5%). It was also higher than the rate of national economic growth (6.8% per year). Meanwhile, the contribution of this sector to the national Gross Domestic Product (GDP) at the end of PJPT I (in 1993) was 22.3%.

The performance of the manufacturing industry at the beginning of the Second Long-term Development (PJPT II) which started with the Repelita VI

(the Sixth Five-Year Development Plan) period, 1994-1998, also seemed successful, particularly, in the first three years of Repelita VI (1994-1996). The

210

growth of this sector during 1994-1996 was more than 13% which was higher

than the projected target (10.3%) and it was also higher than the rate of national economic growth (7.8%). In 1996, the contribution of this sector to the

national GDP was 24.1%.

It

is predicted, however, that, in coming years,

industrial growth will decrease dramatically. This is due to the economic crisis that has been facing the national economy since July 1997.

In West Java, the growth of the industrial sector up to 1996 also seemed

successful. During PJPT I the growth of the industrial sector was 13.9% per

year. At the end of PJPT I the total number of industries was 234,907 firms which created 1,752,345 jobs. In 1996 the industrial sector produced value-

added, based on current prices, of around Rp. 24,954,281 million. The

government of West Java also claimed that there had been structural transformation from the agricultural base to the industrial base. This can be seen from the contributions of the industrial sector and the agriculture sector to

the GRDP (Gross Regional Domestic Product) of West Java. The contribution of industry increased from 8.81% at the end of Pelita I (in 1973) to 34.9% in the third year of Repelita VI (in 1996).

The Industrial development of DKI Jakarta and Botabek had different targets. The target of DKI Jakarta's development was directed towards being a

Service City, hence, to achieve this target, the contribution of the industrial

sector to the economic development of DKI Jakarta should be reduced by relocating several types of industries outside of Jakarta. The growth of the industrial sector was projected to decrease from 9.2% in Pelita V to 5.0% in Pelita VI. The decreasing number of manufacturing firms, from 2,704 firms in

1990 to 2,375 firms in 1994, is an indication of the process of reduction of industrial activities in DKI Jakarta. By contrast, in the Botabek region, the growth of industry seemed quite impressive. In Bekasi for example, in 1993, the contribution of the industrial sector to GRDP was 53.4%. In 1995 the

contribution of this sector increased to 55.3%. Subsequently, in 1996 the

211

number of firms in this sector was 596 employing 178,606 workers. Based on

the International Standard of Industrial Classification (ISIC), the existing industrial activities in Jabotabek are dominated by three main categories: ISIC 32

(food,

beverages and tobacco manufacturing), ISIC 35 (chemicals

petroleum, coal, rubber and plastic products) and ISIC 38 (fabricated metal products, machinery and equipment).

The success of industrial development during PJPT I (1968-1993) and the first three years of Repelita VI (1994-1996) was not followed by success of

the industrial development in a spatial dimension. Industrial development in

Jabotabek has tended to be uncontrolled and sporadic. In DKI Jakarta, for example, around 36% of the total land used by existing industries is suspected

to be unplanned, or incompatible with the spatial planning policies for industry.

They are not only outside of industrial estates, but also outside of the planned industrial zones. The government of Tangerang recognised that the industrial

sector was growing 'naturally'. This means that industrial development in its region is not compatible with spatial planning in the region. In Tangerang, some

studies (see pages 189-190) argued that industrial development, including settlements, tended to be uncontrolled, and had violated existing regional land

use planning (RTRW). In Bekasi, around 181 firms of large and medium industries are suspected to be not only outside of industrial estates but also outside of industrial zones, and growing sporadically.

The role of industrial estates in handling sporadic industrial development

seems unsuccessful, even though several Presidential Decrees have been

issued. The total area consumed by existing industries in Jabotabek was 13,402 hectares. Around 85.4% of the total were outside industrial estate areas, and only 14.6% were in industrial estate areas. Basically, Jabotabek has

provided planned areas for industrial estates of around 8,410 hectares. However, only 23.2% of the total area, or 1,955 hectares, has been used by

212

industries. The remaining planned area for industrial estates provided was 6,456 hectares.

It can be argued that the uncontrolled and sporadic development of industry, and urban development as a whole, was due, at least in part, to the

unclear role of the institutions (local, provincial, and central) involved

in

Jabotabek's development. Overlapping responsibilities and uncoordinated activities in planning and implementing are problems faced by Jabotabek

development authorities. Furthermore, the operation of the market mechanism

seems to have become one of the major considerations

in

industrial

development planning policy. Therefore, it is not surprising that the negative externalities (eg. waste disposal, air pollution, and traffic congestion) produced by this policy can adversely affect individuals and society.

213

CHAPTER 5 METHODOLOGY

5.1

Introduction Two main issues of research questions were developed in the previous

chapters. The first question is why some decision-makers of firms located their factories in industrial estates, while some of them located their factories outside

industrial estates5. The second question is to what extent the government's spatial planning policy is effective in influencing industrialists in locating their factories. The methodology of how to identify the reasons of these questions will be described in this chapter. Figure 5.1 shows the general framework of the research.

This chapter consists of eight sections. Section 5.2 states hypotheses to be tested. Section 5.3 describes a research methodology approach. Section 5.4

discusses sampling methods, and sample size. Section 5.5 describes the measurement of variables examined, and the design of the questionnaires and

interviews conducted. Section 5.6 explains the statistical methods to test the hypotheses. Section 5.7 states the limitations of the research. Finally, section 5.8 is the conclusions.

5.2

Hypotheses The previous chapters have argued that some of the industrialists,

particularly for domestic investors, preferred to choose an industrial location on

the periphery of industrial estates which are suspected to be unplanned areas.

The chapters also argued that, at least, there are three general variables that

may influence the decision-makers who are in both industrial estates and non-industrial estates

in

selecting industrial locations, namely: 1. economic

and market forces, 2. government planning policy, and 3. behavioural factors. 5 The definition of industrial estate and outside industrial estate can be seen in subsection 4.2.2 page 159.

214

FORMULATE RESEARCH OBJECTIVES, QUESTIONS, AND HYPOTHESES

SELECT RESEARCH METHODOLOGY

4

EXTENSIVE AND INTENSIVE

HISTORICAL METHOD

APPROACH (PRIMARY DATA)

(SECONDARY DATA)

DESIGN DRAFT QUESTIONNAIRE AND SUBMIT TO SUPERVISORS FOR COMMENTS REVISE AND ,IMPROVE QUESTIONNAIRE FOR PILOT STUDY

PILOT STUDY: 5 QUESTIONNAIRES SENT OUT TO INDUSTRIAL FIRMS FOR COMMENTS AND COMPLETING THE QUESTIONNAIRE '1 1

MAKE SUGGESTED IMPROVEMENTS TO QUESTIONNAIRE FROM PILOT STUDY

I

DETERMINE SAMPLE RANDOMLY (600 FIRMS CONSISTING OF 350 FIRMS FROM OUTSIDE INDUSTRIAL ESTATES AND 250 FIRMS FROM INSIDE INDUSTRIAL ESTATES TO BE SENT A QUESTIONNAIRE) BY USING STRATIFIED RANDOM SAMPLING METHOD

4

SEND OUT IMPROVED QUESTIONNAIRES TO 200 FIRMS IN THE FIRST. WEEK OF SEPTEMBER

SEND OUT.. QUESTIONNAIRES TO 250 FIRMS IN THE FOURTH WEEK OF SEPTEMBER

199/

1997

"

SEND OUT QUESTIONNAIRES TO 150 FIRMS IN THE FIRST WEEK OF T. NOVEMBER 1997

FOLLOW-UP PROMPTING BY TELEPHONE 1 WEEK BEFORE QUESTIONNAIRE RETURN DATE (FOR SOME OF THE FIRMS)

164 QUESTIONNAIRES CONSISTING OF 95 FIRMS FROM OUTSIDE OF INDUSTRIAL ESTATES AND 69 FIRMS FROM INSIDE INDUSTRIAL ESTATES HAD BEEN COMPLETED AND RECEIVED. THE DECISION- MAKERS OF 13 SELECTED 11IDUSTRIAL FIRMS CONSISTING OF 9 FIRMS FROM INSIDE INDUSTRIAL ESTATES AND 4 FIRMS FROM OUTSIDE INDUSTRIAL ESTATES WERE INTERVIEWED

CODING OF RESULTS INTO COMPUTER, ANALYSIS AND INTERPRETATION OF FINDINGS

Figure 5.1 General Framework of the Research 215

Hence, there are several hypotheses that will be tested in this research (see Table 5.1, p. 217). The hypotheses will examine whether there is a possibility of one of the general variables being more dominant in influencing the decision-

maker of firms in locating a factory in both inside and outside of industrial estates than others. The previous chapters indicate that the variables of

economic and market forces are hypothesised to be more dominant than government planning policy and behavioural factors. Meanwhile, particularly in

developing countries such as Indonesia, behavioural factors are significantly

dominant and hypothesised to play a significant role in determining industrial location.

The previous chapters also argued that most of domestic investors preferred to locate their industries outside of the industrial estates. In other words, it can be hypothesised that there are differences between foreign and domestic investors' preferences linked to the decision in locating their factories. If this is related to the three general variables influencing the industrial location decision, it is also hypothesised that foreign investors are more concerned with government planning policy than are domestic investors.

As described also in the previous chapters, DKI Jakarta (core city) has

grown at a rapid rate. This brought about serious problems regarding the development of infrastructure, and the city's environmental condition. The demand for land for urban development including industries has increased dramatically. As a result, the price of land is relatively high. Therefore, it is not surprising if there is a trend that industrial firms which require land for

expansion and new investors seeking land for their factories have gravitated to

the suburbanised areas in the fringe cities (Botabek region). In addition, the

Provincial Government of DKI Jakarta has regulated to limit industrial development by placing an emphasis on strategic environmental control and

one of the aims of DKI Jakarta's development strategy is to develop DKI

216

Table 5.1 Summary of Hypotheses to be Tested.

No.,

Main Hypotheses

1

The role of economic and market forces in influencing industrial location decisionmaking is more dominant than that government planning policy for all industries both inside and outside of industrial estates.

2.

The role of economic and market forces in influencing industrial location decisionmaking is more dominant than that behavioural factors for all industries both inside and outside of industrial estates.

3

The role of behavioural factors in influencing industrial location decision-making is more dominant than that government planning policy for all industries both inside and

4

The role of economic and market forces in influencing industrial location decision-

outside of industrial estates. making is more dominant for domestic investors than that for foreign investors.

5

The role of government planning policy in influencing industrial location decisionmaking is more dominant for foreign investors than that for domestic investors.

6

The role of behavioural factors

in influencing industrial decision-making is more

dominant for domestic investors than that for foreign investors.

7

The role of economic and market forces in influencing industrial location decisionmaking is more dominant for industrialists in fringe areas (Botabek region) than that for industrialists in the core city (DKI Jakarta)

8

The role of government planning policy in influencing industrial location decisionmaking is more dominant for industrialists in the core city (DKI Jakarta) than that for industrialists in fringe areas (Botabek region).

9

The role of behavioural factors in influencing industrial decision-making is more dominant for industrialists in the core city (DKI Jakarta), than that for industrialists in fringe areas (Botabek region).

10

The role of economic and market forces in influencing industrial location decisionmaking is more dominant for industrialists outside industrial estates than that for industrialists in industrial estates.

11

The role of government planning policy in influencing industrial location decisionmaking is more dominant for industrialists in industrial estates than that for industrialists outside industrial estates.

12

The role of behavioural factors in influencing industrial decision-making is more dominant for industrialists outside industrial estates than that for industrialists in industrial estates.

13

There are significant differences of preferences between industrialists regarding factors influencing the industrial location decision. Such factors are not only traditional location factors such as various transportation aspects and its cost, raw material, and

market aspects, but also other factors such as land prices, plant on own land, regulation, location permits, and knowledge of the spatial plan.

Jakarta to become a Service City. This would mean that in the long term, industrial activities will be reduced.

It

will be very interesting, however, to

compare the opinion of industrialists where their existing factories are in DKI 217

Jakarta (core city)

with

the

opinion

of

industrialists where their existing

factories are in the fringe cities (Botabek region) related to the three general variables influencing decision-makers in selecting industrial location. Hence, it

is hypothesised that there will be differences in the opinion of industrial decision-making between

industrialists in the core city of DKI Jakarta and

industrialists in the fringe areas of Botabek.

Other hypotheses will be tested to see whether there is a difference in industrialists' preference regarding the three general variables in locating their factories in industrial estates and non-industrial estates which are suspected to

be unplanned areas. The preference of decision-makers of industrial firms in

industrial estates is hypothesised to be more concerned with government planning policy than that of the decision-makers of industrial firms outside industrial estates. Other specific significant reasons hypothesised in influencing

industrial location decision-making for industrialists in both industrial estates

and outside industrial estates are not only traditional factors such as transportation, raw materials, and market aspects, but also cheaper land price;

avoiding the strength of government planning policy; the freedom to operate industrial activities on its own areas; location permits; and the knowledge of the plan.

5.3

Research Methodology and Procedure of Field Survey Data required consisted of both primary and secondary sources. The

primary information collected was based on field surveys by using both extensive and intensive approaches. The surveys were carried out with the decision-makers of industrial firms in both industrial estates and non-industrial estates. The secondary information which was needed in examining the history

of urban and regional development of Jabotabek in general and industrial planning policy in particular, was procured from various sources. The historical

approach was used in collecting secondary data and this has been applied in the previous chapters mainly chapter 3 and chapter 4.

218

5.3.1 Intensive and Extensive Approach. According to Sayer in 1985 (cited in Allan 1993, P. 179), there are two

types of methodology in social science research. The first type is intensive research which 'involves explaining why things behave as they do by seeking to

understand their structure and their properties'. The second type is extensive

research "which is broadly 'positivist', in seeking to explain processes, and advocates the discovery of universal laws governing their behaviour". Table 5.2

(p. 220) summarises the comparison between the extensive research and intensive research methodologies.

However, Sayer & Morgan in 1985 (Allan

1993) state that extensive research methodology merely identifies the relations of similarity, dissimilarity and correlation. It does not detect substantial causality

of connection and tends to be descriptive with representative generalisation,

and hence this approach lacks explanatory power. The postal questionnaire approach is the example of the extensive research type. There are also other

examples of problems and limitations in using postal questionnaires such as those cited by Allan (1993, p. 179): - A high rate of non-response which results in non-response bias; - That it is self-reporting data;

- It requires independent checks on the validity of the data; - There is a lack of control over who completes it;

- There is a tendency towards superficiality because of the need for simplicity and unambiguity;

- A possibility that respondents misinterpret questions; and - A danger that key issues applicable to particular respondents are overlooked.

Likewise, according to Miller (1991), there are several disadvantages of

the postal questionnaire such as the non-return problem - the average rate of

postal questionnaire responses is less than 50%, hence, to increase the response rate, intensive follow-up efforts are required; and the possibility of inexperienced respondents who answer the questionnaire leading to biasing of

219

Table 5.2 Comparison of Intensive with Extensive Research Methodology.

Intensive Research Research Question

Relations Type of Groups Studied Type of Account Produced

Extensive Research

How does a process work in a

What are the regularities, common particular case or small number of patterns, distinguishing features of a cases? population? How widely are certain What produces a certain change? characteristics or processes What did the agents actually do ? distributed or represented? Substantial relations of connection Formal relations of similarity Causal groups Taxonomic groups Causal explanation of the produc- Descriptive 'representative' genetion of certain objects or events, realisation, lacking in explanatory though not necessarily a depth representative one.

Typical Methods

Are the Results Generalizable ?

Study of individual agents in their causal contexts, interactive interviews, ethnography. Qualitative analysis Actual concrete

patterns

and

contingent relations are unlikely to be `representativeVaverage' or generalizable. Necessary relations discovered will exist wherever their relation are present, eg. causal powers of

Large scale survey of population or representative sample, formal cluestionnaires, standardised interviews. Statistical analysis Although representative of a whole

population, they are unlikely to be generalizable to other population at different times and places. Problem of ecological fallacy in making inferences about individuals

objects are generalizable to other

contexts as they are necessary Disadvantages

features of these objects. Problem of representativeness

Lack of explanatory power. Ecological fallacy in making inferences about individuals.

Source: Sayer and Morgan 1985 ( cited in Allan 1993, p. 180)

the sample. Inexperienced respondents know virtually nothing about how to

complete the questionnaire or they may not provide responses or refuse to answer the questions.

Notwithstanding these disadvantages, Miller, (1991, p. 140) notes that some examples of the advantages of the postal questionnaire are: - Permits wide coverage for minimum expense, both in money and in effort; - Affords wider geographic contact;

- Reaches people who are difficult to locate and interview.; -

Greater coverage may yield greater validity through larger and more

representative samples;

- Permits more considered answers;

- More adequate in situations in which the respondent has to check information;

220

- More adequate in situations in which group consultations would give more valid information;

- Greater uniformity in the manner in which question are posed; - Gives respondent a sense of privacy; - Affords a simple means of continual reporting over time; and - Lessens the influence of the interviewer.

By contrast, as cited by Allan (1993), intensive research methodology may have the explanatory power of causality regarding the production of certain

objects or events, although this approach seems to overlook the representation of a population. Sayer and Morgan 1985 (cited in Allan 1993) claimed that:

with intensive research, the researcher is not necessarily overwhelmed with detail, complexity and differentiation, because by examining firms within the contexts that are causally relevant

to them and examining what they actually did, the logic or structure behind what seemed to be inexplicable patterns in the aggregate data becomes much clearer. (p. 179)

The interview of respondents is an example of this approach. Allan argued

that a major disadvantage with this approach is that

it

is very

demanding on resources both in terms of data collection and analysis. For example each interview can only be done by one person and unstructured interviews are very time-consuming to analyse. Likewise, according to Miller

(1991, p. 159), the personal interview has disadvantages such as: being relative costly and yielding lower response rates especially in large metropolitan

areas; an improperly trained personal interviewer brings about inaccurate and incomplete information; it is time consuming; the limited and rigid time frame to

conduct the interview; and the view of the interviewer can influence the respondent's answers leading to interviewer bias. Nevertheless, the examples of the advantages of this method are: -

It may yield a high percentage of return-especially for those who are willing

to cooperate; -

An almost perfect sample may be reached;

221

The possibility of the information that is more correct than other methods; The respondent's characteristics and environment could be identified, which may be used as valuable supplementary information; Completing items and correcting mistakes through return visits usually could be made;

The person who answers the question can be controlled; Recall of relevant material could be facilitated; The sensitive question can be handled more carefully by the interviewer; The level of language could be adapted to the educational level of the respondents to avoid misleading questions; and The refusal rates are not affected by the length of the interview.

Allan (1993) argued that the two approaches of both intensive and

extensive approaches are very important. Although they have different functions, he argues that both approaches could be complementary and that the compromise approach would largely reduce the limitations of the extensive

research and intensive approaches. The idea of combining extensive and

intensive survey research methodologies inspired by Allan (1993) will be adopted in this research project. The main reasons in adopting this approach are:

An extensive survey research methodology by sending postal questionnaires

could be used to identify and generalise about what general variables (economic and market forces, government planning policy, and behavioural

factors) influencing the decision-maker of industrial firms

in

locating their

factories in both industrial estates and non-industrial estates are. In relation to cost and time, this approach is quite efficient and effective.

The validity of the general variables influencing industrial location decisions

resulting from an extensive survey research methodology can be tested by using statistical methods such as Chi-Squared Goodness-of-Fit, Mann-Whitney

U test, and Wilcoxon signed-rank test. These are the main statistical tools in analysing the collected primary data (see section 5.6).

222

3. An intensive survey research methodology in the form of in-depth interviews of the decision-makers of firms could capture certain specific reasons in detail why they selected a certain industrial location.

In this research, however, the discussion of results and its analysis through intensive research has not been emphasised. This is because the

results of extensive research seemed powerful enough in answering the research questions. The results of extensive research from selected firms were

used as basic information which was confirmed through the intensive research technique, but additional questions were used as guidance (see Appendix E) to

capture specific information. The second reason is that, as stated in the personal letter (see Appendix C3 and C4) and in the general information cover

sheet of the questionnaire (see Appendix D), the research had to assure that the anonymity and confidentiality of the firms would be maintained. This limited

the intensive approach's analysis being explicitly presented. Nevertheless, the

results of the intensive approach were inserted or incorporated into the discussion of the extensive research to support the analysis. Each approach has clearly complemented each other in strengthening the research as a whole.

5.3.2 Historical Method. According to Leedy (1997), the historical method is an effort to explain

the cause of past events rationally by using scientific methods. Based on historical data, the historical researcher interprets the effect of such events

logically. More precisely, Leedy (1997, p. 173) states that 'the heart of the historical method is, as with any other type of research, not the accumulation of

facts, but rather the interpretation of the facts. Nothing can take the place of that. The interpretation of the data is central in all research. Without it, there is no research'.

The historical method considers not only how to document past events but also to present an explanation of why events happened. This method is an

223

in-depth investigation and attempts to seek as nearly as possible to understand

this rationale for the original events or sources which underlie the current situation. The historical researcher is primarily concerned with historiography

considering two dimensions: dimension of historical time and dimension of

historical space. Because history is inseparable from the time in which its

events occurred, therefore the preceding chronology in terms of its time

orientation and relationship should be analysed. Events also occur in a particular place. To understand the significance of historical data, the "where", or spatial dimension, is frequently as important as the "when" (Leedy, 1997)

This method should be distinguished with the chronological concept listing dates and events. The chronology is not classified as research, because the meaning of the events is not interpreted and the significance of the event as

a part of the larger events is not stated. In the historical method, the identification of the chain of events of substantive history, and the meaning and

the relationship of the events should be understood (Leedy 1997). McLoughin (Ardeshiri, 1997) states that construction of a 'periodisation' is helpful both for gathering the necessary data and reporting past events and actions.

In this research, this approach was applied to analyse the planning and

urban development of Jabotabek (chapter 3) and industrial planning policy (chapter 4). Most of the source of data were collected from official documents,

including statistical and other formal sources. The main sources of secondary data ( reports, papers, maps, spatial planning, regional economic development

planning for Repelita VI, discussions related to the research with the officials, and other issues/data) are:

- The Local Government of DKI Jakarta particularly with BAPPEDA Tingkat I (Provincial Development Planning Agency);

- The local government of West Java (BAPPEDA Tingkat I of West Java) and the Local Government of Bogor, Tangerang and Bekasi;

224

- BKSP or Badan Kerjasama Pembangunan/BKSP of Jabotabek (Jabotabek Development Cooperation Board ) ;

- Ministry of Public Work (Directorate of Cipta Karya and Puslahta/ The Centre of Data Processing and Mapping);

- BAPPENAS (National Development Planning Agency); - Ministry of Industry and Trade;

- Ministry of Production and Distribution; - Badan Pertanahan National (National Land Affair Agency); - BPS (Central Bureau of Statistics).; - BPPT (Agency for the Assessment and Application of Technology); - LIPPI (Indonesian Science Institute); - Ministry of Environment; -

- Institute of Technology, Bandung/ITB;

- Himpunan Kawasan lndustri Indonesia/HKI (Association of Industrial Estates, Indonesia).

Apart from these sources of information, materials were collected through special in-depth interviews with individual key informants from specific

government and private institutions which were considered to have detailed specialist knowledge of the processes under study.

5.3.3 Procedure and Preparation of Field Survey

The procedure to obtain a letter permit in seeking both primary and secondary data was quite complicated. The required data of regional and urban planning information were held and supplied by the bureaucratic system in both

of the provinces of DKI Jakarta and West Java. A number of government institutions were involved, because the spatial planning research required a great deal of data which were not handled by any one office. A formal letter to

undertake field research survey was forwarded to the Government of DKI Jakarta via Kantor Direktorat Sosial Politik DKI Jakarta (the Directorate of Socio-Politics of DKI Jakarta). The research proposal was enclosed together

225

with the formal letter proposed. The Directorate of Social and Politics issued two letters, the first letter being a field survey permit to seek data in DKI Jakarta

region directed to local government institutions such as BAPPEDA Tingkat I of

DKI Jakarta (Provincial Development Planning Board of DKI Jakarta), Dinas Tata Kota (Regional/local City Planning Agency), BKSP, Dinas Perindustrian

(the Local office of Industry) etc. The second letter was a recommendation which was directed to the Government of West Java in Bandung (around 250

Km from Jakarta) through

the Chairman of the Directorate of Social and

Politics in order to attain an approval in seeking data from the local government institutions in Kabupatens /Kotamadyas of Bogor, Tangerang and Bekasi which

are part of West Java Province. This office issued a recommendation directed

to the Bupati/Walikota or Mayor through the Chairman Social Politics Section who has the authority to issue a letter permit for a field survey. The complicated

procedure and the bureaucratic administrative process alone took around four weeks.

Meanwhile, to increase the response rate from industrialists who were sent a postal questionnaire, a recommendation from the Assistant Coordinating

State Minister of Production and Distribution was attached (see Appendix Cl

and C2). After an in-depth discussion of the purpose of the study with the Assistant

Coordinating State

Minister

of

Production

&

Distribution

for

Infrastructure and Services was done, the Assistant States Minister agreed to issue a recommendation to accompany the postal questionnaire to be sent to the

industrialists.

This

process

to

obtain

the

Assistant

Minister's

recommendation took around two weeks.

The field survey in obtaining the primary and secondary data was

conducted in around six months from July 1997 to December 1997 in Jabotabek, Indonesia. The total cost of the field survey was around 5000 Australian dollars.

226

5.4

Sampling Methods and Sample Size

5.4.1

Sampling Methods According to Sproull (1995), sampling methods can be classified into

random and non random methods (see Table 5.4). In a study, it is important to

use a method that can 'draw accurate inferences from the sample about characteristics of the population, and the sample must be representative of that

population' (Sproul! 1995, p. 112). Sproull strongly argues that the best chance for a sample to be representative is to use random methods. There are several methods of sampling:

Simple Random Sampling (SRS): This method is -defined as a probability sampling method where each element in the population has an equal, known

- and non-zerc-chance of being selected. The purpose is to obtain a sarriple =-

which has a high probability in representing the characteristic of its population.

The sampling is bias free. However, the disadvantage of this method is that it requires a sizeable number of elements to reach representativeness.

Stratified Random Sampling: It is defined as a probability sampling method in

which elements are randomly selected from each designated subpopulation.

To determine the strata, the researcher should associate the sample

with

major variables. The purpose of this method is to incorporate all the benefits of

random sampling and to raise the precision of the analysis due to the homogeneous grouping.

It also ensures a bias free sampling method plus

controls for the variables used for stratification. However, information of the stratification variable is needed for each element in the population, therefore

this method is more time consuming and

more costly than simple random

sampling.

The stratified random sampling has two types: the first is proportional; and the second is constant. In the proportional stratified random sampling, the sample size is determined by selecting from each stratum in a predetermined

227

Table 5.4. Sampling Method and Its Advantages and Disadvantages --Bias-Free Selected Sampling Methods . Methods RANDOM METHODS Yes Simple Random

Major '. Advantage

Stratified Random

Controls for stratification Variables

---

_

Yes

High Probability of Sample Representing Population

Major. bisadv'antage Requires Sizeable Number of Subjects of the research Often more time and cost than for simple random

NON RANDOM METHODS

Systematic

No

Convenience

No

Purposive

No

Quota

No

Cheaper, Easier and Faster with large population Quicker and Cheaper than other methods Subjects of the research posses characteristic desired by researchers Sample is proportional to population in the selected characteristic

Potentially biased method Potentially Biased Method Potentially biased method

Potentially biased method

Source : Sproull 1995.

proportion to the size of that stratum in the population, while in the constant

stratified random sampling, sample size

is

selected from each stratum

regardless of the size of the stratum in the population. Therefore, the sample of this method sample may not represent the characteristics of the population, and could reduce the generalisation of the results.

c. Systematic Sampling : This is a non random method in which every nth element is chosen from a list of numbered elements. Therefore, every element

does not have an equal chance of being drawn once the starting point is selected. This method is often treated like a simple random sample and is

228

usually referenced as a probability sampling method if there is a random start.

The advantages of this method are easier, faster and less expensive to carry

out, particularly with a large population than is simple random sampling. However, it has a potentially biased sampling method, therefore, misleading conclusions may occur, particularly, if lists are ordered (eg., from large incomes to small incomes) or periodicity exists (eg., sampling one day or seven days).

Convenience Sampling (synonyms: Grab sampling, Accidental sampling, Incidental sampling, Haphazard sampling and Chunk sampling) : This is a nonrandom sampling method in which the researcher uses some convenient group

or individual as the sample. This method is potentially biased, poor and not defensible. Often the population has not- been defined and results cannot be generalised to a non-defined population.

Purposive Sampling: This is a non-random sampling method in which the

sample is arbitrarily selected because of important characteristics of the sample. Subjects of the research possess the characteristics desired by the researcher. However, this method is a potentially biased method which may bring about large sampling errors.

Purposive sampling is usually used only

when random sampling is not feasible.

d. Quota Sampling is a non-random sampling in which elements of the sample are selected until the same proportion of selected characteristics existing in the

population is attained.

The sample is proportional to the population in its

selected characteristics. However, this method is a potentially biased sampling

method which can lead to large sampling errors. It is also poor compared with random sampling.

Sproull (1995) emphasises that simple random sampling and stratified

random sampling are the best forms of sampling methods because of their advantages and the consequent strength of the inferences. Kerlinger in 1979

229

(cited in Sproull 1995, P. 112) notes that of the several ways to draw samples 'the

only one that gives reasonable and general assurance of

representative is some form of random sample'

being

Therefore, Sproull strongly

recommends the use of random methods, because the most important objective of sampling is to obtain a sample representing the characteristics of the population, which can only be expected with unbiased methods.

This research will explore the reasons of decision-makers of manufacturing industries regarding why they locate their factories in both industrial

estates and non-industrial estates particularly for medium and large industries

and to what extent planning

policy is effective in influencing the decision-

makers of firms in industrial location decisions. Therefore, stratified random sampling is quite appropriate to be used in this research. The types of strata

are: 1. large and medium industrial firms6 both inside and outside of industrial

estates, 2. foreign

and domestic investments, and 3. the region where the

factories were located (DKI Jakarta and Botabek). The sampling frame of respondents was set by adopting the list of industrial firms from the directory of

industry and trade issued by the Ministry of Industry, Kompassindo (1997a &

1997b) and several maps informing the distribution of existing industrial activities and regional and local land use plans of the Jabotabek region. The selection of an appropriate number of elements from each stratum is

determined randomly by using a random numbers table.

5.4.2 Sample Size

In terms of determining sample size, Sproull (1995) states that the factors which are usually influential are:(1) cost; (2) how much confidence in the

results is desired; (3) how much error can be tolerated; and (4) information 6 The classification of the firm size refers to Biro Pusat Statistik (Central Bureau of Statistics). The size of firm is not based on the amount of capital or the amount of energy used, but it is based on the amount of workers employed. The size of industrial firm is classified as follows: A large industry is a firm that has 100 workers or more (=>100 workers). A medium industry is a firm that has workers between 20 and 99 people. A small industry is a firm that has workers between 5 and 19 people.

230

about the population. Meanwhile, Bouma (1993) states that the question of how

large a sample is required is very difficult to answer. Bouma (1993) proposes three basic issues in determining sample size:

First, if

statistics are going to be used in the analysis and

interpretation of data there are usually requirements for sample size. Second, the more accurately the data must reflect the total population, the larger will be the sample. Third, the more

questions are asked, then the more controls will need to be introduced, and the greater the detail of the analysis of the data, the larger the sample will have to be in order to provide sufficient data for the analysis (Bouma 1993, p. 127).

There are some methods in determining sample size representing a population statistically. However, the consideration of cost-time, money and effort which are major constraints, particularly for student research projects, argues a strong case for a limitation of sample size. Therefore Bouma (1993) argued that the most important aspect in the student research project is to learn

basic research skills, therefore a compromise of sample size could be accepted. Nevertheless, the sample size, at least, should fulfil a basic rule as

Bouma stated (1993, p. 128) that is to provide a pool large enough for even simple kinds of analysis requires a minimum of about 30 individuals. This is a

basic rule of Bouma's compromise of sample size that could be accepted. Likewise, Roscoe (1975:184) argued that 'in all research where the dependent

variable has low reliability, the use of samples 30 or larger in size

is

recommended'.

By using a random number table, 600 respondents (350 respondents

from industrial firms

in

non-industrial estates and 250 respondents from

industrial firms in industrial estates) were determined randomly. A total of 200 questionnaires were sent in the first week of September, 250 were sent in the

fourth week of September and 150 were sent in the in the first

week of

November. A total of 164 completed questionnaires were received representing

a response rate of 27.3%. The 164 completed questionnaires consisted of 69

231

industrial firms in industrial estates and 95 industrial firms in non-industrial estates. The sample size that was received is, at least, larger than Bouma's basic rule of sample size.

5.5

Measurement of Variables, and Questionnaire and Interview

5.5.1

Measurement of Variables Major factors or major variables that will be examined in this research

are the opinion or attitude of the decision-maker of firms related to what location factors of a total of 23 location factors and 29 sublocation factors were

investigated in the questionnaire which may influence them in determining industrial location.

To measure the opinion or attitude, a scaling technique is usually used.

According to Miller (1991), the role of scaling techniques is very important to construct

instruments

(eg.

questionnaire)

for

collecting

standardised,

measurable data. Scales give quantitative measures required for greater precision, statistical manipulation, and explicit interpretation. Miller (1991)

added that logical inference underlies the construction of instruments, meanwhile the assumption of a psychological continuity is required for the use of a numerical scale.

There are several instruments based on scaling technique such as Thurstone, Gutmann, and Likert scales that have acquired general acceptance in social research (Allyn & Bacon 1996). The purpose of the Thurstone scale is

to measure attitudes by using an approximate interval level scale consisting of a number of items whose locations on the scale have been selected previously

by a ranking operation performed by judges. According to Sproull (1995, p. 229), however, the disadvantages of this method are: 1.

Selection of appropriate

judges is critical. As the scale values are

determined by averaging judges' ratings, they reflect the judges' attitudes.

232

It is a time-consuming process. It is an expensive process.

The Guttman scale tries to determine the unidimensionality of a scale. If

a scale is unidimensional, then a person who has a more convenient attitude than another should react to each statement with equal or greater convenience

than the other. The disadvantages of this method, according to Sproull (1995), is that it is an extremely tedious and expensive process.

The Likert scale is one of the scaling methods introduced by Likert in

1932. The purpose of this method which is

widely used in social science

research is to estimate the attitude or opinion of subject of the research. The

respondent should choose several response categories, indicating various strengths of importance and disimportance for each location- and sublocation

factor. On a Liken type scale, the respondents respond to a statement by

checking either "very important" (scored as 4), "important" (scored as 3),"important enough" (scored as 2), 'less important" (scored as 1) or " not important" (scored as 0).

According to Mitchell and Jolley (1988), the Likert-type item has a major disadvantage where the respondents may refuse the fixed-alternative nature of

the question. Sproull (1995) also adds that, in this method, the assumption of equal value items is very difficult to meet.

Mitchell and Jolley (1988) argue, however, that Likert-type items are extremely useful in constructing a questionnaire and this type of data can be analysed by statistical tests. Sproull (1995) adds that other major advantages of

this method are: by summing or averaging, the data can become a single score

from several items; and the subject of the research can be rank ordered for the

variables. 'In order to use the sum or mean in this manner each item must be

considered of "equal value" to each of the other items and the response

233

Table 5. 5 Advantages and Disadvantages of Thurstone, Gutmann and Likent scale technique.

Instrument

Major Advantages

Thurstone scale

-Yields a scale which

Likert Type

Gutmann Scales

Major Disadvantages is

usually

treated as an interval scale

-yields a single score by summing or averaging items -Subject of the research can be rank ordered on the variables, which may useful for certain types of research projects -a less time consuming and complicated alternative -Assesses unidimensionality

-Appropriateness of scale depends on judges' attitude. -Time consuming to generate -Costly to generate

-Assumption of equal value items difficult to meet.

-the respondents may refuse the fixed-alternative question

nature

of

the

-extremely tedious and expensive process

Source: adapted from Sproul! (1995); Mutchnick and Berg (1996); & Mitchell and Jolley (1988).

categories, usually degrees of agreement and disagreement, must be the same

for all items' (Sproull 1995, p.227).

The major aim of this research is to capture the opinion of the decision-

makers of industrial firms in determining their current industrial location. It

is

estimated that the decision-makers of industrial firms have a limited time to complete a postal questionnaire, therefore a postal questionnaire design should

be constructed to be as simple as possible; not be

time consuming; or

complicated in its method. Based on the description of the three methods above which have received general acceptance in social research, the Liken type seemed to be more appropriate for this research than the others.

The 23 location factors and the 29 sub-location factors measured are

classified into three general variables namely economic and market forces,

government planning policy and behavioural factors. According to Pearce

(1992, p. 267), 'market forces are pressures produced by the free play of market supply and demand, which induce adjustment in price/or quantities traded'. The demand for the industrial location market would be influenced by factors related to the maximisation of profit or the minimisation of total cost of the industry that would be operated. This means the market will choose a place

234

that has location factors containing higher economic benefit. In other words, such location factors have power in influencing the industrial location demand

in the market. In this research, therefore location factors such as the price of land; transportation including its costs; labour aspects including cost of labour;

the availability of infrastructure; the aspects of markets; raw material aspects; interlinkages of industries; site factors; community factors; and the location area

(near rural or urban) are assumed to be economic and market variables that

could influence industrial location markets. All of such location factors/sublocation factors have Likert-type scores, and by averaging of such scores, the approximate single score of the variable of the economic and market forces can be determined.

Location factors that are categorised in government planning policy are regional land use

planning, environmental considerations, and financial

incentives (eg. tax holiday and special grant). All of such location factors/sub-

location factors dealing with government planning policy, have Likert-type

scores. By averaging such scores, the approximate single score of the government planning policy variable can be determined. This score may express the opinion of decision-makers of firms in locating their factories regarding how they dealt with the influence of such a planning variable on the industrial location decision.

Location factors assumed as behavioural factors related to non-

economic considerations, behaviour, culture and things that have relatively, to

some degree, less direct economic benefit, are the nearness to the owner's/entrepreneur's home; the factory in the owner's land; accessibility and

personal contacts with the government officials

in

supporting

industry;

expectations of flexible regulations; the nearness to a business institution (eg.

bank), and political considerations (eg. in some cases, the state firms located

factories in the fringe region in order to stimulate and distribute economic

235

development and to have political benefits). In the same way, by averaging the scores of such location factors, an approximate single score can be obtained.

The general three variables that have an approximate single score will

be analysed statistically in order to examine the research questions. Other complementary variables were measured by using not only the Liken scale (ordinal scale) but by also using nominal, interval, and ratio scales.

5.5.2 Postal Questionnaire and Interview.

Based on the research questions as a guide,

drafts of two postal

questionnaires cAnitaining the same issues-were designed for each industrial firm in both industrial estates and non-industrial estates and were submitted to Professor Stephen Hamnett and Dr. Andrew Allan, the thesis supervisors, to be

assessed and discussed in depth. Their suggestions were accommodated into

an improved questionnaire which, was then translated into an Indonesian version. In August 1997, 5 pretest questionnaires were sent out 5 to industrial firms in Jabotabek-Indonesia. This was carried out to ask the firms to complete

the questionnaire as a pilot study and to give any suggestions about improving the questionnaire. The questions dealing with financing, and the confidentiality

were the main concerns of the respondents. The feedback of the result of the

pretest questionnaire, then, was faxed to Professor Hamnett and Dr. Andrew

Allan to be assessed. Their suggestions were accommodated into the final postal questionnaire to be sent to the firms selected randomly (see Appendix D).

The first page of the postal questionnaires stated a request for participation in the survey and giving the explanation of the survey's purpose

and an undertaking guaranteeing the confidentiality of the respondents. The

colour of the questionnaire was green which was intended to attract greater attention of the respondents in completing the questionnaire.

236

Two letters accompanying the postal questionnaire (see Appendix C)

were targeted at the president/director of the firms or those who have the authority to represent the president/director such as the chief executive or general manager, who are assumed to have been involved with or know the

process of industrial decision-making, or those who are assumed to have consulted with the president/director in completing the questionnaire. The first

letter was a personal letter explaining the purpose of the survey, requesting

participation to support the survey, and providing a formal guarantee of confidentiality such as a statement that the name of the firms or person(s)/ individual(s) details were not going to be exposed in the report and divulged to

any third parties, and that all information collected would only be presented in aggregate

form. The respondents had three weeks to complete the

questionnaire. The second letter was a recommendation coming from the Assistant Coordinating

State

Minister

of

Production

&

Distribution

for

Infrastructure & Services formally asking the President/Director of the firms to

support the research project. A stamped self-addressed envelope was also attached with the questionnaire.

The final questionnaire consisted of 26 questions. Questions number 1 and 2 asked the person who had an authority for decision-making in choosing the industrial location for a firm, and whether the decision maker used foreign

or domestic consultants in choosing the current industrial location. These questions were quite essential in relation to the following questions.

Question number 3 reconfirmed the address of a firm to determine whether the respondent was really inside or outside of industrial estates. This address was matched with the directory of industrial firms and maps.

Open questions number 4, 5, 6 and 7 were very important ones. The questions asked, for a minimum of the three most important reasons as to why a firm located its plant in that area. The purpose of this open question was used

237

with the hope that the respondent could answer more freely without directing the answers provided. This is important in investigating consistency and to be complementary with the main question (question number 19) which related to

the opinion of firms' decision-makers on the degree of importance of location factors in choosing the location of their industry.

Questions number 8, 9 and 10 asked about the status of the company, the status of land/ building factory and asked the year the firm had received

final approval from the government of Indonesia (BKPM). The year of final

approval would be important in examining the firm's relationship to the chronology of -policies dealing with the planning of industrial development in particular, and spatial planning in general. The degree of difficulties in obtaining the permits was also asked.

Question number 11 asked whether the respondents knew about spatial planning where the factory was located. At least, this question was intended to determine to what extent firms appreciated spatial planning policy.

Question number 12 asked about the major products produced by the firm. Based on the answer for this question, the classification of the firms could

be determined. Chapter 2 argued that industrial location decisions will also be influenced by the type of products that are produced.

Questions numbers 14, 15, and 16 asked about the country of origin of foreign investors, and asked the percentage of ownership of a firm at the initial stage of the project and the initial total investment of the manufacturing plant.

Question numbers 17 and 18 asked about where the residence of the domestic investor was located and asked when the firm started its operation and the structure of the employment in the factory.

238

In

this survey, question number 19 is the most important one in

measuring the opinion of the decision-maker of the firm in choosing an industrial location. This question consists of 23 location factors and the 29 sub-

location factors measured by a Liken scale in the framework of the degree of

importance, "very strong = 4"; "strong=3"; "moderate=2"; "weak=1"; and "not important=0". These enabling location/sub-location factors are considered to

have influenced the decision of a firm

in locating its plant

in an area.

Hypotheses in Table 5.1 from number 1 to number 12 required data that resulted from this questions. Meanwhile, hypothesis number 13 required data not only from question 19 but also from questions number 4, 10,11, and 17.

Question number 20 asked whether, at the current time, there were any

location/sub-location factors that were causing problems or difficulties for the firms' business operations.

Questions 21, 22, and 23 asked about the possibility for a firm to expand the space for its production operation, and asked what places would be chosen,

including the main reasons why the firm would choose such locations. These

questions could also be used to reidentify the consistency of the previous questions such as questions number 4,5,6,7 and 19.

Finally, questions number 24, 25 and 26 asked to what extent the firm would say that the current location of the firm has contributed to its commercial

success and what key reasons for the key success are, and asked

how

satisfied the firm had been with the existing location.

As described above, 600 firms consisting of 350 industrial firms outside

the industrial estates and 250 firms inside the industrial estates were determined randomly. The 600 industrial firms were sent a postal questionnaire. To

encourage responses from the respondents, some of the firms (around 60 firms) were followed-up by phone, one week before the return date. However,

239

the major constraint of following-up by phone was that many firms may not have had a good system of letter administrative procedures. Therefore it took several times to confirm whether the questionnaire had been received or not.

This clearly was cumbersome and took a longer time. Some of the firms that had been contacted were bankrupt and some of them did not give a positive

response. Some 450 questionnaires were originally sent out in September 1997, however, the experience of follow-up by using telephone call was not quite effective, therefore, 150 additional questionnaires were sent in the first

week of November 1997, hence bringing to 600 the total number of questionnaires that were sent were out. Some questionnaires also had been

returned back because of firms' bankruptcy, an unknown address, or a changed address. The survey data from the postal questionnaire was coded

and entered into a spreadsheet in Microsoft Excel 5 on an IBM Compatible computer.

Of the 164 answered questionnaires returned, 40 selected firms representing each stratification were prepared. However, only 13 firms agreed

to be interviewed. The 13 firms which agreed to be interviewed consisted of 9

firms in industrial estates, and 4 firms outside of the industrial estates. The interview was based on the questionnaire received before which had been studied carefully to find any certain aspects and inconsistent answers to be clarified. It was also developed with relevant questions planned such as (see

Appendix E): the issue of how far industrial location would contribute to the commercial success of the firm; the difficulties in determining industrial location;

what methods were needed to determine industrial location; the opinion of the current performance of industrial/non-industrial estates; the role of government

to direct industrial location decisions; and the extent of the firm's knowledge about land use planning in its region where the factory operates. The average duration of the interview was around 45-60 minutes.

240

5.6

Statistical Testing To test the hypotheses, there are wide variety of statistical tests. The

appropriate statistical tests were required for each hypothesis. According to Sproull (1995), to select an appropriate statistical test, consideration concerning

the purpose of the statistical tests is essential. The significance of group differences and associations between or among variables are 'the two most

commonly used statistical purposes. Examining the significance of group differences is used when the researcher wishes to know if one group has more

or less of some variable'. Meanwhile, 'examining the degree of association among variables is used when the researcher wishes to assess the magnitude

of the relationship between two or more variables' (Sproull 1995, p. 267). This research will examine the differences of two groups of decision-makers inside

and outside of industrial estates on variables that influence them in locating their factory. Therefore, the appropriate statistical test is that it should have the

purpose to examine the significance of group. The summary of statistical tests

for the significance of the group including differences for one dependent variable; and one independent variable can be seen in Table 5.6.

In this study, most of the types of primary data collected through a postal

questionnaire survey are in the form of nominal and ordinal data(using a Likert

scale), therefore, non-parametric statistics were used. Miller (1991, p. 177)

stated that 'the Likert technique produces an ordinal scale that generally requires non-parametric statistics'. Coakes and Steed (1997) added that the non-parametric test can be used, if there is serious violation of the distribution assumption of parametric test. However, this method is relatively less powerful

than the parametric method. Coakes and Steed (1997) added that the nonparametric test can properly analyse data measured on a scale of non-interval

or non-ratio (nominal and ordinal). Sproull (1995,

p.

262)

defined a

nonparametric test as 'a statistical test for which the statistical model usually does not require the assumptions about the population parameters and does

241

Table 5.6 Statistical Tests For Significance of Group, Differences for One Dependent *; and One Independent variable. Level of Measurement for Dependent Variables Nominal

Number of Groups on Independent Variable Two

3 or more Two

Ordinal

3 or more or

Interval Ratio

Two

3 or more

*

Independent or Related observation

Statistical Test

Independent Related Independent Related Independent Related

Chi-Square Test of Independence McNemar Chi-square Test of Independence Cochran 0 Mann Whitney U Sign Test (If signs); Wilcoxon (if number) Kruskal-Wallis One-Way ANOVA Friedman Two-Way ANOVA t-Test for Independent Groups

Independent Related Independent Related Independent Related

t-Test for Related Data One-Way Analysis of Variance -

Form of Analysis of Variance Appropriate for the Data

For One Group Test Use

Nominal Ordinal Interval or Ratio

Chi-square Goodness-of-Fit Kolmogorov-Smirnov; One Sample Test t-Test for One Sample

Source: Adapted from Sproul! (1995, p. 256).

not require an interval level of measurement. The assumptions are few and usually concern independent observations and/or continuity of the variables'.

Therefore, referring to table 5.6, most hypotheses proposed in this research will be tested by using Mann Whitney U and Wilcoxon Signed-Rank Test. Meanwhile for one group test, Chi-square Goodness-of-Fit will be used.

The Mann-Whitney U test, also called the Wilcoxon test examines the hypothesis for two independent samples that come from populations that have

the same distribution, but the specific distribution is not required. The ordinal scale of the variable measured is sufficient (Norusis, 1990). Likewise, according

to Siegel and CasteIlan (1988, pp. 128-129), The Wilcoxon-Mann-Whitney

method is 'the most powerful for the nonparametric test'. The variables measured are, at least, in the form of an ordinal scale. This method can be used to test 'whether two independent groups have been drawn from the same

242

population'. Siegel and CasteIlan (1988) also stated that this method is another

alternative to the parametric t-test if the assumption of a t-test may not be fulfilled.

The Wilcoxon Signed-Ranks Test is 'a non-parametric alternative to the

t-test for two related samples when underlying assumptions for the latter test can not be met' (Roscoe 1975, p. 241). Roscoe (1975) also added that at least

an ordinal scale form of data

is

required without requiring normality of

distribution. Siegel and CasteIlan (1988, p. 87) also argued that this method is a

very useful test for the behavioural scientist. With behavioural data, it is very

common for the researcher to: (1) 'determine which member of a pair is "greater than", ie, tell the sign of the difference between any pair; and (2) rank the differences in order of absolute size. Hence, the researcher may conclude

with the statement of "greater than" between any pair's two values as well as between two different scores arising from any two pairs'.

Chi-square Goodness-of-Fit is used to analyse a single categorial variable in examining if there are existing differences in frequencies across

response categories (Coakes, and Steed, 1997). According to Siegel and CasteIlan (1988, p. 45), this method is 'of the goodness-of-fit type in that it may

be used to test whether a significant. difference exists between an observed

number of objects or responses falling in each category and an expected

number based upon the null hypothesis'. The degree of correspondence between the observed and expected observations in each category could be analysed by this method. The three statistical models and procedures to test the hypotheses can be seen in the Appendix B.

Based on the purpose of the statistical methods described above and

the hypotheses that have been developed, therefore, the Wilcoxon SignedRanks method were used to test the first, the second, and the third hypotheses.

Whereas, the Mann Whitney U method was used to test from the fourth

243

Table 5.7 Summary of Statistical Test Used and Main Data Required Statistical Test for Significance

Main Data from Questionnaire

1

Wilcoxon Signed-Ranks Test

Question 19

2

Wilcoxon Signed-Ranks Test

Question 19

3

Wilcoxon Signed-Ranks Test

Question 19

4

Mann-Whitney-U Test

Question 19 and 13

5

Mann-Whitney-U Test

Question 19 and 13

6

Mann-Whitney-U Test

Question 19 and 13

7

Mann-Whitney-U Test

Question 19 and 3

8

Mann-Whitney-U Test

Question 19 and 3

9

Mann-Whitney-U Test

Question 19 and 3

10

Mann-Whitney-U Test

Question 19 and 3

11

Mann-Whitney-U Test

Question 19 and 3

12

Mann-Whitney-U Test

Question 19 and 13

13

Chi-square Goodness-of-Fit

Question 19, 4, 10, and 11

Main Hypothesis

required

and Descriptive Statistics

hypothesis to the twelfth hypothesis and the Chi-square Goodness-of-Fit was

used to test any single variable that was analysed in relation to the industrial location decision particularly for hypothesis 13. Descriptive statistics were also

used to analyse this hypothesis. All hypotheses developed were analysed by using SPSS 6.0 (Statistical Package for Social Sciences).

5.7

Limitations of the Study There are several sources resulting in the limitations to the study. The

first relates to survey methodologies: the weaknesses of choosing an extensive research

methodology

(eg.

postal

questionnaire);

intensive

research

methodology (in-depth interview); and also historical research methodology. The weaknesses of these methods may be represented by their disadvantages

(see section 5.3). However, the idea to combine both extensive and intensive research methodologies may reduce the weaknesses of the study.

Second is the weakness due to the limitation of sampling methods and the sample size determined (see section 5.4). In terms of determining sample 244

size, one of the arguments of this section states that the more accurately the data must reflect the total population, the larger will be the sample. Of the total of 600 postal questionnaires sent to the industrial firms in Jabotabek, only 164 (27.3%) questionnaires were completed (see Table 6.2, p. 253, for the nature of

respondents) and 13 of them were interviewed. Table 6.2 shows that the respondents of industrial estates and non-industrial estates were 69 and 95

respectively (total 164). The respondents (based on the status of firm) of foreign investors and domestic investors were 59 and 105 respectively (total 164). The respondents (based on the region where the factories were located)

in the region of DKI Jakarta and Botabek were 45 and 119 respectively (total

164). These amounts were larger than the minimum sample size of 30 respondents that can be accepted to be analysed (Roscoe, 1975 and Bouma, 1993).

The third source is the weakness of the measurement variables. Section

5.5 described the major variables to be measured being the opinion of the decision-making of industrialists to industrial location factors by using Likert

scores. These scores can be statistically manipulated and analysed. The question is whether quantifying of qualitative variables is really objective and

accurate. The exact score expressing the opinion of an industrialist is quite difficult to achieve. Therefore, it should be noted that it was just an approximate score.

The fourth source is the limitation of the classification of the three general variables namely economic and market forces, government planning

policy and behavioural factors. As described in the previous section, the variable of economic and market forces is approached by the average of the score of location factors such as the price of land; transportation including its costs; labour aspects including costs of labour etc (see section 5.5.1) which are

assumed to influence the demand for the industrial location market. It is should

be noted that there are probably several location factors influencing. industrial

245

location markets that could not be captured by the variable of economic and

market forces as the research assumed. The score of government planning

policy was approached by the average of the scores of regional land use planning, environmental considerations, and financial incentives. There may

have also been several location factors related to government planning that

could not be captured by the variable as the research assumed. This will

contribute to the inaccuracy of the interpretation. Likewise, the score of behavioural factors was approached by location factors such as the nearness to the owners' home; the factory in the owners' land; accessibility and personal

contacts with government officials etc (see section 5.5.1). The possibility of location factors that could not be captured by the variable will also contribute to

inaccurate results. Another source of the weaknesses is that each location factor group is probably not independent. This may lead to statistical bias. In testing the effectiveness of government planning policy in the industrial location

decision of firms through the Presidential Decree 53/1989 issued on 27-10-

1989, this research compared the preferences between the industrial firms approved before 1990 who were assumed to have not been influenced by the decree, and the industrial firms approved in and after 1990 who were assumed

to have been influenced by the decree. However, most respondents indicated

the approval date for their industrial development only by the year, and this meant that approvals after the issuance of the Presidential Decree 53/1989

in

November and December 1989 could not be captured by the survey. This is also a weakness of this study.

The fifth source is the limitation of statistical methods selected. Most major primary data are in the form of ordinal scales which have a lower degree

than interval and ratio scales, and therefore non-parametric statistics such as

Mann Whitney U; Wilcoxon Signed-Rank; and Chi-square Goodness-of-Fit

were used. However, these methods are relatively less powerful than parametric methods (see section 5.6). This also may reduce the accuracy of the analysis.

246

The sixth source is the limited discussion of the results of the intensive approach. This research used the two approaches of intensive and extensive research. The results of extensive approach was powerful enough in answering

the research questions, while the results of intensive research was not made explicit in order to assure anonymity and confidentiality of the respondents (see

explanation in subsection 5.3.1). The limited discussion of the results of the

intensive research is a possible weakness of the study. Nevertheless, the limited discussion of the results of the intensive research was still used to support the discussion of the extensive research in the context of the analysis of the thesis as a whole.

Finally, the various positions of respondents assumed to be decisionmakers may be an additional weakness of the research (see Table 6.1). Table 6.1 shows that the percentage of President/Vice President Directors, Directors, General

Managers/Managers,

Other Professional

Employees,

Corporate

Secretary, and Not Stated are 15.2%, 20.1%, 49.4%, 3.7%, 3% and 8.6% respectively. The actual decision-maker of firms might be the President/Vice President Directors (or the owners) and Directors of the firms. The percentage of President/Vice President and Directors were just 15.2% and 20.1%

respectively (total was 35.3%). This is also the source of the weakness of the

study. Nevertheless, as stated earlier, the others were assumed to have consulted with the decision maker in completing the questionnaire.

Based on the explanations of the research limitations above, it should be

noted that the results of this research could be affected by the possibility of some inaccurate analyses. However, the methods utilised in this research were selected as being the most appropriate in minimising the possible weaknesses, despite significant constraints on resources, time and funding.

247

5.8

Concluding Remarks The design of the research methodology discussed in this chapter is

based upon two key research questions. The first question is why some decision-makers of firms locate their factories in industrial estates, while some

of them locate their factories outside industrial estates that are suspected of

being unplanned. The second question is to what extent the government's planning policy is effective in influencing industrialists in locating their factories.

Based on the guidance of the two research questions, 13 main hypotheses to be tested have been developed (see Table 5.1).

Data required in this research include primary and secondary data. The

primary data were obtained through extensive research (postal questionnaire)

and intensive research (in-depth interview), while secondary data

were

obtained through the historical approach. The sampling method to collect the

primary data - where the respondents of the research are industrial firms in

both inside and outside of industrial estates- was based upon a stratified random method. Some 600 firms (350 respondents of industrial firms in nonindustrial estates and 250 respondents of industrial firms in industrial estates) were determined randomly and sent a postal questionnaire, 164 industrial firms

or 27% of the total firms have responded to complete the questionnaire. A total

of 40 selected firms that have completed the questionnaire and represented each stratum were prepared and contacted by telephone call. However, only 13

firms (9 firms inside of industrial estates and 4 firms outside of industrial estates) agreed to be interviewed.

The major primary data required were to capture the opinions of decision- makers regarding the three general variables (economic and market forces, government planning policy, and behavioural factors) and other specific variables that are hypothesised to influence industrial location decision-making. To measure these variables, the Liked scale was used.

248

It was noted that three models of non-parametric statistics namely, Mann-Whitney U, Wilcoxon Signed-Ranks, and Chi-square Goodness-of-Fit

were to used to test the hypotheses. All data processing used statistical package for social sciences computer software (SPSS 6.0).

As described in the previous sections, the methods used in this research

have some advantages and disadvantages. The disadvantages of the methods

indicate many of the potential weaknesses and the limitations of the study. Nevertheless, every effort was made to select the most appropriate survey and

analytical methods in order to minimise the weaknesses of the study wherever possible.

249

CHAPTER 6 FACTORS INFLUENCING INDUSTRIAL LOCATION DECISION 6.1

Introduction

As described

in

chapter 5, 164 respondents, decision makers of

industrial firms, completed a questionnaire survey aimed at capturing the industrialists' opinions regarding the research questions developed in this research. This chapter will analyse the results of processing the data from that survey.

Nine sections are presented in this chapter. Section 6.2 describes the nature of respondents completing the questionnaire. Section 6.3 analyses the primary variables influencing industrial location decisions for all respondents of

industrial firms in both industrial estates and non-industrial estates. Sections

6.4 and 6.5 analyse the differences in preferences of industrial location decision-making, based on the status of firms, and the region where the industries are located. Section 6.6 describes the location factors considered in

industrial location decisions, based on the type of industry. Section 6.7 examines the different preferences of industrial location decision-making for industrialists in industrial estates and those outside industrial estates. Section

6.8 analyses the preferences of industries developed before and after the issuance of Presidential Decree 53/1989. Finally, section 6.9 summarises the conclusions reached in analysis of the data.

6.2

Nature of Respondents

As explained earlier, in section 5.5.2, the postal questionnaires were

targeted at the person in each firm who was assumed to be involved in industrial location decision-making, or who was familiar with the history of the development of the industrial firm. The major target was a president/ director of

the firm, or those who have the authority to represent the president/director,

250

such as the chief executive or general manager/manager, or those who were

assumed to have consulted with the president/director in completing the questionnaire.

As can be seen from Table 6.1, the respondents assumed to be decision-makers included: presidents/vice presidents, directors, and general managers/managers.

Other professional

employees, and the corporate

secretary, were non decision-makers, however, they were assumed to have consulted with the decision-maker in completing the questionnaire.

Table 6.1 shows a detailed breakdown of the position held by postal survey respondents. Around 84.7% of the total respondents were decisionmakers consisting of president/vice president (15.2%), director (20.1%), and general manager/manager (49.4%). About 6.7% of the respondents were non decision-makers, and nearly 9% of respondents did not state the position. This

composition of respondents may be quite significant

in

representing the

opinions of decision-makers, represented by 84.7% of respondents.

Table 6.1 Position of Res ondents Frequency Percent Position 15.2 President/Vice President 25 33 20.1 Director 49.4 General Manager/Manager 81 Other professional employee 6 3.7 Corporate secretary 5 3.0 14 Not stated 8.6 164 Total 100.0 Source: Survey conducted in Jabotabek from July to December 1997.

As stated in previous chapters, this study was intended to examine the reasons why some decision-makers of industrial firms located their factories in

industrial estates, while some of them do not. Chapters 1, 3, 4 and 5 argued

that the behaviour of domestic and foreign investors was rather different in determining industrial location. Most domestic investors tended to choose an industrial location outside of industrial estates. The chapters also hypothesised

251

as to whether there are any differences in the behaviour of industrialists in location decision-making, between two regions, that is, the core city (DKI

Jakarta) and the fringe areas of Botabek. Therefore, a stratification of respondents in terms of whether they were in industrial estates or outside industrial

estates;

foreign

investment

or

domestic

investments;

and

respondents who were in DKI Jakarta or Botabek, was required. Table 6.2 (p. 253) shows the stratification of respondents based on their firm's location site

(industrial estates and outside industrial estates); status (foreign investment and domestic investment) and region (DKI Jakarta and Botabek).

As seen from in Table 6.2 (p. 253), around 42.1% of respondents (69 firms) were located in industrial estates, while respondents outside industrial estates

comprised

57.9%.

Meanwhile,

foreign

firms

completing

the

questionnaires made up 59 firms, or 36% of the total respondents, while domestic firms represented 64% of total respondents. Table 6.2 also shows that around 27.4% of the respondents were based in DKI Jakarta, while around 72.6% of respondents were in the Botabek region. In each category were more

than the 30 respondents needed to fulfil the basic rule of an accepted sample size for social research (Roscoe 1975 ; and Bouma 1993).

The nature of all respondents of industrial firms, both inside and outside

of industrial estates, based on the type of products, can be seen in Table 6.3 (p. 253). The classification of type of industrial product, as used by the Central

Bureau of Statistics,

is

based on the International Standard Industrial

Classification (ISIC) for all economic activities. This research uses ISIC twodigit classification, as follows: ISIC 31: Food, beverages and tobacco manufacturing.

ISIC 32: Textiles, leather products, and footwear manufacturing. ISIC 33: Wood products and other wood products manufacturing. ISIC 34: Paper and paper products, printing and publishing. ISIC 35: Chemicals, petroleum, coal, rubber and plastic products.

252

Table. 6.2 The Nature of Respondents Based on Site, Status and Region Per cent Frequency Site of Industry Located 42.1 69* Industrial Estates 57.9 95* Outside industrial estates 100.0 164* Total Per cent Frequency Status of Industry 36 59* Foreign Investors 64 105* Domestic Investors 100 164* Total Per cent Frequency Region of Industry Located 27.4 45* DKI Jakarta 72.6 119* Botabek 100.00 164* Total Source: Survey conducted in Jabotabek from July to December 1997. all sample sizes comprise more than 30 respondents which is acceptable and representative for a social research project of this sort.

ISIC 36: Non-metallic mineral products except petroleum and coal. ISIC 37: Basic metal industries. ISIC 38: Fabricated metal products, machinery and equipment.

Table 6.3 (p. 254) shows that ISIC 38 (fabricated metal products, machinery and equipment) gives the largest group of respondents with around

26.7% of the sample, followed by ISIC 35 (chemicals, petroleum, coal, rubber

and plastic products) with around 20.5% of the total, and ISIC 32 (Textiles, leather products, and footwear manufacturing) with around 18.6%. Basically,

the type of industry was not included in the stratification method used. In this research, the site of location (industrial estates and outside estates) was the main stratification, followed by the status of industrial firms, and the location of

firms. Nevertheless, the rough pattern based on type of industry was also examined as a complementary analysis.

As described earlier, the size of firms surveyed was in accordance with the large and medium industries defined by Central Bureau of Statistics (BPS). As stated earlier, according to BPS, a large industry is a firm that employs 100

workers or more, while a medium industry is a firm that employs between 20 and 99 workers.

253

Table 6.3 the Nature of Respondents Based on Product. Type of Industry Based on ISIC Classification

Frequency

ISIC 31 Food, beverages and tobacco manufacturing ISIC 32 Textiles, leather products, and footwear manu-

16

Per cent 9.9

30

18.6

12

7.5

11

6.8

factu ring

ISIC 33: Wood products and other wood product manufactu ring

ISIC 34 Paper and paper products, printing and publishing

ISIC 35 Chemicals, petroleum, coal, rubber and plastic

33

20.5

products. ISIC 36 Non-metallic mineral products except petroleum and coal ISIC 37 Basic metal industries

9

5.6

7

ISIC 38 Fabricated metal products, machinery and

43

4.3 26.7

equipment

161* Total 100 Source: Survey conducted in Jabotabek from July to December 1997.

*3 respondents did not offer this information. Table 6.4 shows the scale of the industrial firms comprising respondents in this

research. As can be seen from Table 6.4, around 11.2% of respondents were

medium industries, while 88.8% of respondents were large industries, that is,

they employ over 100 workers. The average number of workers in the respondents' firms was 624 workers.

Table 6.4 Scale of firm and Em lo ment Scale of Firm Medium (from 20 to 99 workers) Large ( >=100 workers)

Frequency* 16 127 143

Per cent 11.2 88.8 100

Total Average number of workers employed = 624 Source: Survey conducted in Jabotabek from July to December 1997. * 21 respondents did not offer this information.

6.3. Analysis of Variables and Location Factors Influencing

Industrial Location Decision-Making for All Respondents from Industrial Firms Section 5.2 (p. 214) developed three hypotheses formed to investigate whether the industrial location decision is related to the three general variables

(economic and market forces/EMF, government planning policy/GPP, and behavioural factors/BF). The first hypothesis stated that the role of economic 254

and market forces is more dominant than that of government planning policy in influencing the industrial location decision-making of industrial firms both inside and outside of industrial estates. This hypothesis is stated in a standard form as follows:

HO: There is no difference between the influence of economic

and market forces, and government planning policy in the industrial location decision-making of all industrial firms both inside and outside of industrial estates.

HA: The influence of economic and market forces in industrial location decision-making of all industrial firms both inside and

outside of industrial estates is more dominant than that of government planning policy.

To test this hypothesis, as explained earlier, the Wilcoxon Signed-Ranks

test was used (see explanation in section 5.6, chapter 5, p. 241, and Appendix B). This method is a nonparametric alternative to 'tell which member of a pair is

greater than, i.e., the method tells the sign of the difference between any pair.

Therefore, a statement can be made as to which is greater than between any pair's two values as well as between two different scores arising from any two pairs' (Siegel & CasteIlan 1988, p. 87). For a one-tailed test at the 0.05 level of significance, if the observed Z score is equal to or less than - 1.64, then the HO should be rejected.

Respondents were asked to rank the degree of importance of certain location factors in influencing their industrial location decisions. The resulting

computation, by using SPSS, can be seen in Table 6.5a (p. 256). It can be seen from the table (for hypothesis 1) that the Z score obtained is -5.45, which is less than -1.64, which means that the HO should be rejected. In other words,

the variable of economic and market forces is significantly more dominant than

government planning policy in relation to its influence on industrial location decision-making for all respondents from industrial firms both inside and outside of industrial estates.

255

Table. 6.5a The Results of Computation (Hypothesis 1) to Test the Preferences of Decision Makers of Industrial Firms in Terms of the Variables of Economic

and Market Forces (EMF), Government Planning Policy (GPP), and Behavioural Factors (BR. Condition for Hypothesis 1 - Ranks (EMF LT GPP) + Ranks (EMF GT GPP) Ties (EMF EQ GPP)

Mean Rank

Cases

Results

55.71

60 102

Z. -5.45

96.67

2

Total 164 Source: Analysis of survey conducted in Jabotabek from July to December 1997 Z score is used to denote a variable transformed to standard form, i.e., with mean zero and standard deviation one.

LT = less than GT = greater than EQ .= equal Level of Significance = 0.05

The same treatment was applied to test the second and third hypotheses. Hypothesis 2 stated that the role of economic and market forces is

more dominant than that of behavioural factors in influencing industrial location

decision-making. In a standard form, the statement of the hypothesis is as follows:

HO: There is no difference between the influence of economic

and market forces and behavioural factors on the industrial location decision making of all industrial firms both inside and outside of industrial estates.

HA: The influence of economic and market forces on the industrial location decision-making of industrial firms both inside and outside of industrial estates is more dominant than that of the behavioural factors. It can be seen from Table 6. 5b (p. 257), that the Z score is -6.43 which is less than -1.64. This means that the HO should be rejected. In other words,

the role of economic and market forces

in

influencing industrial location

decision-making for all respondents of industrial firms both inside and outside of industrial estates is significantly more dominant than that of behavioural factors.

256

Table. 6.5b The Results of Computation (Hypothesis 2) to Test the Preferences of Decision Makers of Industrial Firms in Terms of the Variables of Economic

and Market Forces (EMF), Government Planning Policy (GPP), and Behavioural Factors (BF). 'Condition for hypothesis 2°, , Mean Rank - Cases Results - Ranks (EMF LT BF) 61.29 45 Z. -6.4275 117 + Ranks (EMF GT BF) 89.27 Ties (EMF EQ BF) 2 Total 164 Source: Analysis of survey conducted in Jabotabek from July to December 1997 Z score is used to denote a variable transformed to standard form, i.e., with mean zero and standard deviation one.

LT = less than GT = greater than EQ = equal Level of Significance = 0.05

Hypothesis 3 stated that the role of behavioural factors is more dominant

than that of government planning policy

in influencing industrial

location

decision-making. In a standard form, the statement of the hypothesis 3 is as follows:

HO: There is no difference between the influence of behavioural factors and government planning policy on the industrial location decision-making of all industrial firms both inside and outside of industrial estates. HA: The influence of behavioural factors in the industrial location decision-making of all industrial firms both inside and outside of

industrial estates is more dominant than that of government planning policy.

Table 6.5c (p. 258) shows that, for hypothesis 3, the Z score obtained is -0.35

which is greater than -1.64. This means that HO is not rejected.

Therefore, there is no difference between the influence of behavioural factors and government planning policy on the industrial location decision-making of all industrial firms both inside and outside of industrial estates

257

Table. 6.5c The Results of Computation (Hypothesis 3) to Test the Preferences of Decision Makers of Industrial Firms in Terms of the Variables of Economic and Market Forces (EMF), Government Planning Policy (GPP), and Beha1

1

Condition for hypothesis 3 - Ranks (GPP LT BF) + Ranks (GPP GT BF) Ties (GPP EQ BF)

Mean Rank 78.99 77.98 -

Cases 80 76

Results

Z. -0.3477

8 164

Total Source: Analysis of survey conducted in Jabotabek from July to December 1997 Z score is used to denote a variable transformed to standard form, i.e., with mean zero and standard deviation one.

LT = less than, GT = greater than, EQ = equal Level of Significance = 0.05

Analysis of the first two hypotheses above indicates that the role of economic and market forces is quite strong in influencing decision-makers of

industrial firms in locating their factories. This finding supports the argument that industrial-urban economic activities in most mega-cities in developing countries, particularly in Asia, including Jabotabek, have occurred mainly as a

result of economic and market forces rather than government planning policy

(Devas & Rakodi 1993; Richardson 1993; Robinson, I.M 1995; and Dharmapatni & Firman, 1995).

Analysis of the second and third hypotheses shows that behavioural factors do not play a dominant role in influencing industrial location decisions. This finding is different from Onyemelukwe's (1974), and Noer's (1985) study, and also disagrees with Alonso's (1975) and Hamilton's (1974) statements that,

in developing countries, behavioural factors play a dominant role in influencing

industrial location decisions, or that industrialists in developing countries are

relatively less rational in determining industrial location due, according to Onyemelukwe (1974), to some constraints including very limited information, lack of capital resources and poor organisational ability. These different findings

may be questioned as to whether there is a shift in the behaviour of industrialists in developing countries from irrational economic decision-making

258

towards more rational economic decision-making in determining industrial location. At least, this seems to be in the case Jabotabek study.

Such a shift in the behaviour of industrialists, particularly for domestic investors, can perhaps be explained by the impact of the phenomenon of global cities. Firman's (1994,

p. 214) study nicely argues that `Jabotabek has

economically integrated into a network of global cities'. This has been

accelerated by industrial and financial policy reforms since the early 1980's, when foreign investors were allowed to enter banking and domestic production through joint ventures. Foreign investors are also allowed to operate on 100 per

cent foreign investments. Therefore, the establishment of new banks, including foreign banks with a network covering many countries throughout the world, has

increased. This is also the case for the Jakarta stock exchange, and there has been a rapid growth of property sectors.

According to Firman (1994), the internal structure and physical form of

cities, and the local labour market, have been influenced by these links between the urban economy and the global system of marketing for capital and

commodities, as well as the control function of global cities. Therefore, Firman

(1994, p. 214) also argues that 'the economy of Jabotabek is sensitive to the

decision-making of transnational corporations', and Firman believes that the

development of Jabotabek will be highly influenced by local, national, and global events. Firman (1994) also states that the new phenomenon of the 'global city' of Jabotabek has not been accommodated into the urban

development policy.

Soegijoko, BTS (1996) seems to support Firman's argument. By analysing several indicators, particularly foreign investment trends, international

flights, and others such as population movements, trade and information flows,

monetary flow and transfers, telecommunication, and newspaper distribution, Soegijoko, BTS (1996, p.414) argues that:

259

Jakarta's urbanisation hinges on its role as part of the Pacific Asia

urban system and is thus closely linked with the globalisation process in the region. International links between Jabotabek and other Asian cities, in terms of flights and passenger and cargo

movements, are increasing. Jakarta is also the hub of foreign direct investment and the nexus of international trade flowing into Indonesia. Due to the interaction between foreign investors and domestic investors

caused by a global system phenomenon, the behaviour

of domestic

industrialists may be gradually affected by the behaviour of foreign industrialists including the behaviour of their industrial location decision-making. Even though

Firman (1994) did not explain this matter explicitly, an indication of proof for this

hypothesis was captured by a case study interviewing domestic industrialists

regarding their industrial location decision-making. A domestic industrialist

interviewed explained that one of the considerations of industrial location decision-making was to follow a big foreign company that has been established

in a certain area, because this domestic industrialist believed that the big foreign company has given strong consideration to locate its plant to ensure the firm's commercial success. This evidence probably indicates that the behaviour

of domestic industrialists had been influenced by foreign industrialists, who are assumed to be more economically rational in industrial location decision-making

than are the domestic industrialists. In other words, the domestic industrialists are tending to become more economically rational in industrial decision making

than before. Therefore, in the case of Jabotabek, and probably in other mega cities in developing countries, the myths that behavioural factors are still in play

as a dominant consideration for domestic industrial location decision-making is questionable.

The superiority of economic and market forces in influencing decisionmakers of industrial firms when determining industrial location, as mentioned above is supported by responses to an open question which asked for the three

most important reasons as to why a firm located its plant in a certain area. 260

From the survey results, the responses to question number 4 identified around

444 items of location factors. Most of these can be classified into variables of economic and market forces. Table 6.6 (p. 262) shows the composition of the

three most important location factors in selecting industrial location, for all

respondents of industrial firms in both industrial estates and non industrial estates. It can be seen from Table 6.6 that around 15 of the most important location factors were

identified namely:

1.

transportation facilities and

accessibility; 2. lower price of land; 3 availability of infrastructure and utilities; 4.

regional land use planning; 5. market aspects; 6. labour factors; 7. location within Jabotabek; 8. site factors; 9. environmental considerations; 10. raw materials; 11. relationship with other industries; 12. nearness and accessibility to government institutions; -13. financial incentives; 14. community factors; and

15. location on periphery and rural areas. The table shows that the two highest rankings are transportation facilities and accessibility, and lower price of land,

which account for almost 21% and 13% of firms respectively. These are followed by availability of infrastructure and utilities at about 10.1% and regional

land use planning also at about 10.1%. Environmental considerations was at

just 3.6%. Meanwhile, nearness to government institutions and personal contact with the government officials, which are assumed to be categorised as behavioural factors was at 1.6%.

All of the 15 most important location factors have been classified into

three general variables namely: economic and market forces; government planning policy; and behavioural factors (reasons for these classifications was

described in section 5.5.1). It seems that economic and market forces are the most dominant influence for an industrialist in determining the location of their factories. This is shown by the percentage of frequency, at about 69.4%, while

the role of government planning policy contributes around 14.6%, and the lowest response is the behaviour factor at about 1.6% (see Table 6.7, p. 262). Again, these findings support the dominance of economic and market forces in shaping the urban development of Jabotabek, including industrial development.

261

Table 6.6 TheThree Most Important Location Factors for All Respondents of of Industrial estates. ..._____. ....._ ... _ _ . _. ......_ _ _ Frequency

Location Factors 1. Transportation facilities & accessibility 2. Lower price of land 3. Availability of infrastructure/utilities 4. Regional land use planning 5. Market aspects 6. Labour factors 7. Location within Jabotabek 8. Site factors 9. Environmental considerations 10. Raw material factors 11. Relationship with other industries 12. Nearness to the government institutions and personal contact with government officials 13. Financial incentives 14. Community factors 15. On periphery & rural area 16. Others Total -

93 57 45

- 45

Percent 20.9 12.8 10.1 10.1

6.5 5.2 4.3 3.8 3.6 2.5 2.3 1.6

- 29 23 19 17 16 11

10

7

2

64 444

Source: Survey conducted in Jabotabek from July to December

0.9 0.5 0.5 14.4 100.0 .

Table 6.7. The Distribution of Opinion of Respondents in Relation to the mportance of Economic and Market Forces; Government Planning Policy; and Behavioural Factors for Industrial Location Decision-making. Percent Frequency Three General Variables 69.4 308 1. Economic and market forces 14.6 65 2. Government planning policy 1.6 7 3. Behavioural factors 14.4 64 Other 100.0 444 Total Source: Survey conducted in Jabotabek from July to December

1f.

Note: The category 'other' denotes various specific responses (e.g. 'emergency because should move out from Cilandak'; 'the factory is not a permanent factory'; 'certainly, there are areas that are not used' etc) given in answering the question which were not included under the three general variables, and seemed somewhat irrelevant to the question.

The specific value of the degree of importance of location factors in

influencing industrial decision-making, based on the survey results from question number 19, can be seen in Table 6.8 (p. 264). The table shows around 23 location factors that were identified to give a mean score of the

degree of importance within the framework of a Liked type scale, "very strong=4"; "strong=3";"moderate=2"; "weak=1"; and "not important=0". The mean scores were classified into three categories related to the degree of priority as a consideration in determining industrial location. The first category

262

contains location factors with mean scores greater or equal to 3 (mean score

>=3). This category is assumed to indicate the highest priority for location factors that could be considered in selecting industrial location. The location factors in this category are the most influential in determining industrial location.

The second category is where location factors have mean scores of less than 3

and greater or equal to 2.5 (2.5 please proceed to the next question foreign company (PMA), > please skip question no 14 and 15 private domestic company, > please skip question no 14 and 15 state company (BUMN) > please skip question no 14 and 15 Koperasi (cooperation) c. other (please specify) 14. What is the country of origin of your foreign participants?

15. About what percentage of ownership of your firm belonged to non-Indonesian interests at the initial stage of the project 16. How much was the initial total investment of the manufacturing plant ?

17. Before the establishment of this plant project, where was the residence of your Indonesian d. in Bekasi a. in DKI Jakarta c. other (please specify). in Bogor in Tangerang

owner?

18. In the table below, please provide where possible, a general figure of employment for the hen the firm started o eration and for 1997. , Year :1997 Year when the firms started Employee Category in operation, year : 19 .

1. Managerial & executive 2. Skilled technical 3. Clerical / administrative 4. Manual TOTAL

people people people people people

people people people people people

400

19. The following enabling factors are considered to have influenced the decision of a firm in locating its plant in an area. In the case of your firm, would you please give comments on your opinion of the degree of importance for each factor (very strong=4, strong=3, moderate=2, weak=1, or not important=0) (circle one of five options ).

DEGREE OF IMPORTANCE

I

LOCATION / SUBLOCATION FACTORS Market aspects

very strong (4) 4

strong

moderate

weak

not important

(1)

(2) (3) 3

2

1

(0) 0

-access to markets -nearness to major buyers Raw material

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

-availability of raw material -nearness to raw material -accessibility to supply /material Transportation Facilities & Accessibility -air transport facilities -sea transport facilities /sea port -rail transport facilities -highway transport/toll road -public transportation Transportation costs

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

Labour factors

4

3

2

1

0

-availability of managerial personnel -availability of skilled and technical labour -unskilled labour -unionisation -productivity -local salary / wage levels

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

-local labour attitude Relationship with other Industries

4

3

2

1

0

4

3

2

1

0

-interindustry linkages -nearness to companies in the same Industry -competitive considerations Availability of Infrastructure / Utilities Site Factors

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

-purchase prices -development costs -availability of suitable plant site -availability of space for expansion Financial Incentives

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

-tax holiday -special grants Environmental Considerations

401

no 19 Continued/

DEGREE OF IMPORTANCE LOCATION / SUBLOCATION FACTORS

strong

very strong (4)

moderate

weak

(3)

(2)

(1)

not importan t (0) 0

Expectation of flexible regulations

4

3

2

1

Community Factors

4

3

2

1

0

-low cost of living -good housing facilities -good education facilities Regional land use plan

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

Nearness to the Indonesian owner's or entrepreneur's home Nearness & accessibility to the government institutions Nearness & accessibility to business institutions (bank, etc) On periphery & rural area

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

Lower land prices

4

3

2

1

0

Plant on own Land

4

3

2

1

0

Location within Jabotabek Personal contacts with government officials Availability of officials dealing with industry who could provide assistance if the firm faces problems in any stage of project implementation Political considerations

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

4

3

2

1

0

20. At the current time, are there any location/sublocation factors that are causing problems or difficulties for your business operations ? Please list these if applicable 21. If your firm wants to expand its production operations, would you use this site ? yes no

don't know

> please go to question number 24 > please proceed to the next question > please go to question number 24

22. What are the reasons why you would not want to expand production operations at this site ?

23. In what alternative locations would you prefer to expand your firm's production operations ? Please note in the table below for each location the key reasons for that choice of location. Key reason for locating there Name of location

24. To what extent would you say that the current location of this firm has contributed to the commercial success of this firm ? Please circle appropriate number Very significant positive effect

5

4

very significant detrimental effect

No effect

3

2

1

0

-1

-2

-3

-4

-5

402

What were the key location/sublocation factors that influenced your response to question 24? Finally, in general since your firm located here, how satisfied have you been with this location ? (please circle the appropriate number)

5

very dissatisfied

Neutral

very satisfied

4

3

2

1

0

-1

-2

-3

-4

-5

Please return your completed questionnaire in the enclosed stamped addressed envelope. Your cooperation is very much appreciated

403

APPENDIX E

APPENDIX El: QUESTIONS FOR INTERVIEW (INDONESIAN VERSION)

APPENDIX E2: QUESTIONS FOR INTERVIEW (ENGLISH VERSION)

,

404

Appendix El: Interview Questions (Indonesian version)

Berdasarkan

pengalaman

bapak,

apakah

lokasi

pabrik

akan

ikut

menentukan keberhasilan perusahaan baik dalam jangka panjang pendek maupun jangka panjang ? apa alasannya ?

Apakan ada kesulitan dalam menentukan lokasi industri ?

Metoda apa yang dipakai oleh Bapak dalam memilih lokasi industri?

Bagaimana pendapat Bapak tentang lokasi industri yang ada di dalam kawasn industri maupun non kawasan (misalnya: dari segi kelengkapan sarana dan prasarana, atau kemudahan dsb) ?

Sejauh ini, apakah pemerintah selalu mengarahkan pemilihan lokasi industri ke dalam kawasan industri, zona industri atau tidak?

Dalam menentukan lokasi industri, seberapa jauh Rencana Tata Ruang Wilayah menjadi pertimbangan didalam pengambilan keputusan?

405

Appendix E2: Interview Questions

Based on your experiences, did industrial location contribute to the short and long term commercial success of your firm ?

Did you have any difficulties in determining industrial location?

What methods did you use in selecting industrial location ?

What do you think about industrial estates and non-industrial estates in terms of infrastructure, location permits etc.?

To what extent has the role of the government directed industrialists in determining industrial location in either in industrial estates or outside industrial estates?

To what extent was Regional Land Use Planning considered in your industrial location decision making ?

406