Islamic Finance

Indonesia to launch Islamic Special Economic Zone to attract investments

Photo: Jakarta, Indonesia - July 14,2013: Cars captured in blurred motion around the Plaza Indonesia roundabout in Jakarta / AsiaTravel /

Indonesia is launching an Islamic Special Economic Zone in April, Dumoly Pardede, deputy commissioner for the supervision of the non-banking industry at the Financial Services Authority (OJK) told Salaam Gateway.

According to Pardede, the Special Economic Zone (SEZ) will be called the Jakarta International Islamic Financial Centre (JIIFC). It will aim to become the country’s hub for investment deals for Islamic sectors, he said.

The zone will offer tax exemption on luxury goods, VAT, import duty as well as a reduced land and building tax, similar to other SEZs in the country.

“The idea originated from President Joko Widodo,” said Pardede.

“Last year he told us that he wanted to build an information exchange center. I was then appointed team leader, after which I proposed the idea of a Shariah-compliant special economic zone,” he said.

“We held five technical meetings with representatives from the Coordinating Ministry for Economic Affairs, the Indonesian Ulama Council, Ministry of Finance, Ministry of Trade, National Development Planning Agency, Investment Coordinating Board as well as local government,” said Pardede.

He hopes JIIFC will attract investments that can be channeled into sectors of the real economy, such as halal tourism, the poultry sector, creative industries, and local SMEs manufacturing halal products that can be exported.

JIIFC will depend on Indonesia’s large Muslim population as a potential market and pull factor for foreign investors.

“We need to be more competitive in Islamic finance at the international level. At the same time we should also look carefully at segmentation. We can't bring investors directly from Europe who are already dealing with Dubai as a hub, for example. We can’t go head-to-head with them,” said Pardede.

According to him, the JIIFC will help drive up Islamic finance penetration to 9 to 12 percent in the medium term. Islamic finance assets currently make up just over 5 percent of the total market.

The government has so far set up 10 special economic zones, out of the 25 planned to be opened by 2019. These special zones offer a range of incentives and tariffs exemptions. 

According to data from the Coordinating Ministry for Economic Affairs, these zones have brought in a total investment of 33.88 trillion Indonesian rupiah ($2.6 billion) as of the end of June 2016.

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