Arnoldus Kristianus, Jakarta – Sabang's free trade zone remains unable to realize its potential as an economic growth hub, with overlapping regulations, underused investment incentives and a severely limited development budget holding back its expansion.
Iskandar Zulkarnaen, head of the Sabang Free Trade Zone and Free Port Management Agency (BPKS), said the agency operates under Law No. 37/2000 on the establishment of the Sabang Free Trade Zone and Free Port. However, despite 25 years of operation, frequent changes in investment policies have prevented the zone from fully implementing the incentives originally designed to attract investors.
"The law actually grants considerable authority to manage the zone. However, investment regulations have undergone significant changes over the past 25 years. Even after all this time, those incentives still cannot be fully implemented in Sabang," Iskandar said at a media briefing in Sabang on Thursday.
The incentives include import duty exemptions, value-added tax (VAT) exemptions, luxury goods sales tax exemptions, simplified export-import procedures and easier business and investment licensing.
Despite these facilities, Sabang has struggled to attract investment, partly because of limited market access and inadequate supporting infrastructure.
Iskandar identified several structural challenges, including the small size of the local market, the zone's distance from major domestic and regional markets, and limited shipping capacity. The underutilization of the zone and narrow fiscal space for development funding have also constrained its growth.
Budget limitations remain one of the most pressing obstacles. In 2026, BPKS received only around Rp 26 billion to manage and develop the entire zone, with nearly all of it allocated to operational expenses.
"We only received around Rp 26 billion ($1.43 million). Of that amount, Rp 25 billion is spent on operational costs, leaving just Rp 1 billion for the development of strategic areas," Iskandar said.
Institutional arrangements and coordination with central government ministries have also complicated efforts to accelerate investment.
Iskandar pointed to Batam as a comparison. Its regional council is chaired by the coordinating minister for economic affairs and involves nearly 13 ministries and government agencies, allowing investment-related obstacles to be addressed through a more integrated coordination structure.
Sabang's regional council, meanwhile, is chaired by the Aceh governor, with membership largely involving local government officials. Iskandar said this structure has left direct coordination with central government ministries and agencies in need of strengthening.
He argued that BPKS shares similar institutional characteristics with the Batam Concession Agency (BP Batam). Both manage state budget (APBN) allocations and have parliamentary commissions as their partners. However, accelerating investment in Sabang requires broader coordination across government institutions.
"Institutionally, BPKS and BP Batam are essentially identical. We fully manage funding from the state budget, and our parliamentary partner is Commission IV of the House of Representatives. However, accelerating investment activities in this zone requires discussions, policy harmonization and joint forums involving other ministries and government agencies," Iskandar said.