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New policy brings hope for Indonesian maritime industry

New policy brings hope for Indonesian maritime industry
With Indonesian president Joko Widodo's declared intention to to develop the maritime sector, the shipping industry and related businesses see renewed hope that the time has finally come for Indonesia to redefine its logistics systems to provide greater opportunities for shipping companies while at the same time lowering the cost of shipping goods, local reports said.

According to industry players, the first key step is for the government to free the shipyard business from the tariffs that add 25% to production costs.

Lack of incentives and no specific shipping policies in the past have caused inefficiencies in the industry, they said. While the introduction of the cabotage principle has seen the number of ships — operated by 1,200 shipping companies — increase to 13,244 in 2014, compared with only 5,000 ships seven years ago and total capacity increase to 19m gt from 5.6m gt scale is not everything, said INSA head Carmelita Hartoto. Indonesia needs more than just the cabotage principle. Issues related to port development and shipbuilding management as well as infrastructure need attention too, she said. Despite growing demand, national shipyards are not able to meet the market demand because of a range of problems.

As the situation currently stands, high costs at Indonesian yards mean their ships are 30% more expensive than Chinese products.Taxes discriminate against local shipyards by charging about 30% on imported components and value-added tax, while ship imports are tax-free.

“The government has given a positive signal that it will remove the tariffs on imports of parts,” says Indonesia Shipyard and Offshore Association (Iperindo) head Eddy Logam.

Financing problems are another burden, given the high cost of loans. Domestic shipbuilders deserve support in the form of low-interest loans, since the industry is a long-term one and is capital-intensive."To build a dock and shipyard needs investment of about IDR100bn ($8m), but they can produce ships with a value of IDR40bn, ” he said.

“So they need huge capital and only banks can lend such big money, especially at low interest,” adds Eddy, who notes that given the current conditions in the banking industry, shipyards are forced to borrow from foreign banks.

“State-owned companies should be the agents of Indonesia’s economic development and they should be forced to invest in strategic businesses, not just ordered to make money to top up the national budget,” says economist Ichsanudin Noorsy.

A good first step from the government would be to cut the tariffs on imports of components players said, pointing to how quickly Batam has developed becaused of its tax-free status. This will in turn encourage investment in new yards. With the maritime-oriented development, the government aims to boost its GDP per capita from the current $3,592 to $10,000.In order to attain this, the Office of the Coordinating Maritime Affairs Minister has revealed plans to use the annual state budget allocation to focus on maritime development.

The government would provide more incentives, including slashing levies and restitutions, to the shipbuilding industry, which has only developed significantly on Batam island due to its status as a special economic zone (SEZ).