CHAPTER I INTRODUCTION. expansion as a whole, but also balanced economic and social development

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1 CHAPTER I INTRODUCTION The region-based national development not only requires economic expansion as a whole, but also balanced economic and social development throughout the country. Furthermore, it is important to develop industrial estates in every area in Indonesia which delivers positive economic impacts like regional development. Sentolo Industrial Estate development was proposed for several years, but unfortunately it had not implemented yet. The length of time of the implementation process made the author wanted to explore the Sentolo Industrial Estate development process. More information on the background, objectives, and benefits of this research will be discussed as follows. 1.1 Research Background The Importance of Industrial Estates for Regional and National Development In order to accelerate and expand economic development in the regions, the development of centers of economic growth in economic corridors is done by utilizing the potential and advantages of the region, including the development of industrial estates. Industrial estate development has become one of the government's main programs for developing regions through the development of strategic areas. The policy for the strategic area of economy is done through 1

2 development of basic infrastructure, human resources, and connectivity to and within these strategic areas. To raise investment, a region has to find investors that will provide capital. The most effective way to attract them is by establishing industrial estates. Indonesia regulates that industrialization needs to be promoted through development of industrial estates (Law No.5, 1984), and identifies industrial estates as devices to environmentally sound industrial development by facilitating and attracting investments (Government Regulation No. 24, 2009). The Government Regulation No.24 specifies the purposes of industrial estate development as follows (Article 2). a. Control utilization of land spaces. b. Enhance development efforts of environmentally sound industries. c. Accelerate regional industrial growth. d. Enhance industrial and investment competitiveness. e. Assure planned location and infrastructure development with proper coordination among related sectors. It also prescribes multi-layered institutional arrangement with respective responsibility throughout the development up to the management and operation process in which the licensed Industrial Estate Corporation (Perusahaan Kawasan Industri), which takes the form of either an independent entity owned by the central or local governments, cooperatives or private institution (Article 15 (2)), should play a key role in developing and managing industrial estates (Article 1). Local governments represented by the governor are assigned to provide incentives, 2

3 support land acquisition for the estates, direct industrial entities into industrial estates and render integrated services (Article 6). On the other hand, central ministries (Article 5) should take charge of general coordination including preparation of regulations and organization of the National Team of Industrial Estates (Tim Nasional Kawasan Industri <Timnas-KI)> (Article 5) inviting representatives from central and local governments involved, related industrial association, chambers of commerce and industry and other parties nominated by the minister to coordinate jointly monitor and evaluate progress of industrial estate development. Following this institutional framework and guidelines provided by the Government Regulation No. 24, Indonesia has been advancing industrial estate development and seventy seven estates throughout the country have been developed up to the present. However, Indonesian industrial estates have not been effectively striving yet as powerful drivers of regional economic development with limited numbers insufficient to affect the total economy. Table 1.1 Number of Industrial Estates by Province No Location Number of Industrial Estates 1 West Java Province 30 2 Batam Island 12 3 Central Java Province 9 4 Banten Province 6 5 Jakarta Special Capital Region 5 6 East Java Province 3 7 North Sumatera Province 3 8 East Kalimantan Province 2 9 South Sulawesi Province 2 10 Bintan Island 1 11 Riau Province 1 3

4 No Location Number of Industrial Estates 12 West Sumatera Province 1 13 Central Sulawesi Province 1 14 North Sulawesi Province 1 Total 77 (Source: List of Indonesian Industrial Estates ASEAN-Japan Centre, Sentolo Industrial Estate Development Based on Government Regulation no. 24 Year 2009 that is already explained above, Yogyakarta Special Region Province was designed to be developed an industrial estate located in Sentolo. This region has the potential of industrial products, which include industrial processing of agricultural products, handicrafts, processing, services, or otherwise, either of micro, small and medium that until now this potential cannot be developed optimally. The development of this potential should be optimized through the establishment of Sentolo Industrial Estate, which is expected to become the center of the new growth in Yogyakarta that can accelerate the growth of the region, especially for the future in Kulon Progo. This area is planned to be developed an International Airport, a fishing port of Tanjung Adikarto, and development of industrial sector iron sand mining, which support Sentolo Industrial Estate. So, it needs network of infrastructure for the development of an industrial estate in Sentolo, one of which is the networks of regional movement (the primary road network) and national (South Line/JJLS). Long-term development focused on economic growth as much as possible by considering aspects of equitable development. To achieve these objectives, one 4

5 of the priority sectors to be developed is the industrial sector. In article 20 of Law No. 5 Year 1984 regarding Industry mandates that the government should encourage the development of the industry through the development of industrial locations such as industrial estates. Furthermore, in accordance with the mandate of the Government Regulation No. 24 of 2009, every new industry that stood after the enactment of these regulations shall be in an industrial estate. In this case careful planning is needed and include aspects of strategic support area. The potential of natural resources of Kulon Progo Regency is adequate to implement industrial estate in Sentolo, Kulon Progo district. In Kulon Progo Regency, industrial estate development had been initiated in 2005 by Public Work Department Yogyakarta Province and later followed by a study about Master Plan of Sentolo Industrial Estate Development that was proposed by Investment and Cooperation Board Yogyakarta Province in Unfortunately, there was no action and implementation until now to implement this industrial estate development. 5

6 1.2 Problem Statement This thesis tries to explore necessary factors required to successfully cope with the whole process of industrial estate development and provide directions to guide successful industrial estate development for Indonesia to enhance regional industrialization in the light of national economic development. Yogyakarta Province Government tried to develop other area outside Yogyakarta City by developing industrial estate in Sentolo. Although there was a study in 2005, this industrial estate had not establish yet. Industrial estate cannot be implemented in appropriate way because of several reasons. 1.3 Research Questions 1. How is the development process in Sentolo Industrial Estate plan? 2. What were determinant factors that affected the implementation process of Sentolo industrial estate which led to the plan not being implemented until now? 1.4 Research Objectives The objectives of this research are: 1. To evaluate the development process of Sentolo industrial estate plan. 2. To identify factors that influence the implementation of Sentolo industrial estate. 3. To describe the future prospect of Sentolo industrial estate. 6

7 1.5 Research Originality There were several industrial estates research but this research differs with other research. This research has different locations, subjects, and research objectives and also different focus. Table 1.2 Research Originality Researcher Year Research Title Faisal 2002 Afrizal Zakir 2003 Source : UGM repository Evaluasi Rencana Teknis Kawasan Industri di Kecamatan Piyungan Kabupaten Bantul Propinsi D.I. Yogyakarta Berdasarkan Persepsi Pakar Evaluasi Rencana Kawasan Industri Berdasarkan Persepsi Pengusaha Industri di Dalam Kota Pekanbaru Research Location Yogyakarta Pekanbaru These two previous researches focused on analyzing industrial estate development based on experts and entrepreneurs perceptions. Meanwhile, in this research concentrates on industrial estate development plan and future prospect of its development especially in Sentolo, Kulon Progo Regency. 1.6 Research Benefits The benefits of this research are: 1. To provide critical understanding on industrial estates development. 2. To give recommendation or lesson-learned for local government concerning industrial estates development. Considerations that are needed to plan industrial estates so that it will be success when government choose analyze 7

8 it in the future. Moreover, it will give inputs to the government related to the next industrial estates development location. Furthermore, government can decide what next steps can be taken to improve the condition. 1.7 Scope of The Research This research was conducted in Sentolo, Kulon Progo Regency, Yogyakarta Special Region Province by observing the existing condition of the industrial estate development process in Sentolo. The selected area for industrial estate was 70.2 Ha in Tuksono Village. This study will focus on the following issues: a. The physical characteristics of Sentolo to be developed as industrial estate b. The overview of previous research about industrial estate development in Sentolo c. The requirements to support and develop ideal industrial estate d. The factors that influence the development of Sentolo Industrial Estate The technical aspects of industrial estate development will only be discussed in very limited portions as far as necessary because the intrinsic aspects of industrial estate development are not the focus of this research. Discussion of industrial estate development will be discussed only in the context of the above scopes. 8

9 1.8 The Structure of Thesis The structure of this research is as follows : Chapter I Introduction This chapter describes the background, research questions, research objectives, research benefits, the scope of the research Chapter II Literature Review This chapter describes the theories from various literatures and references that are used as a basis for conducting research. Chapter III Research Methodology This chapter describes the research methods used, research stages, data collection methods, and analytical methods. Chapter IV General Description of Research Location This chapter describes the general conditions of the research location, including: geographical conditions, physical conditions of the region and land prices in Sentolo. Chapter V Findings and Discussion This chapter describes Sentolo Industrial Estate development plan over time estates, factors influencing industrial estate development in Sentolo, and its future prospect. Chapter VI Conclusions and Recommendations This chapter describes a summary of findings and recommendations for further policy. 9