Doing Business in Surabaya

Written by Togar Arifin Silaban.

Preface

This is a text version of a paper prepared in April 2006 for investment promotion of Surabaya. Then, the paper is converted into a brochure (book) by city administration of Surabaya. Book version of this paper is designed in such way, pictures added into the paper, so, it becomes a handy book. 

WHERE SURABAYA IS

Surabaya, the second largest city in Indonesia after Jakarta, situated in East Java. It is about one hour flight from Jakarta or about two hours flight from Singapore.

The land area is 326 km² and it varies from 3 to 50 meters above sea level. Surabaya is governed by a Mayor Mr. Bambang Dwi Hartono, with the support of a Deputy Mayor, Mr. Arif Affandi, and a Secretary who oversees 15 different departments.
Surabaya is a tropical city with fairly constant temperatures throughout the year, ranging from 25° C at night to 34°C by day. The average humidity varies from 65% to 85% and there is a rainy season from October to April.

Surabaya is one of the oldest cities in Indonesia, dating back to the 13th century. The 18th century brought the Dutch and the beginning of the colonial era to Surabaya. The city then became a significant port for Dutch East India.  The Dutch built “Fort Kalimas” at the beginning of the 19th century and the area around the Kalimas River began to grow as a small city and business center. A European community was formed and other ethnic groups included Chinese and Arabs. Later in the 19th century the trading and commercial activities were extended rapidly following the construction of a new port at Tanjung Perak. This led to a pattern of north to south growth that lasted until the 1950s.

The city has a population in the vicinity of 2,662,000 with a breakdown of 49.5% men and 50.5% women. An additional 1 million people are either temporary inhabitants or commuters who travel to Surabaya each day for work. The population density is 7,966 people per km². The past four years has seen a decline in the Total Fertility Rate from 1.5 children per woman in 2000 to 1.4 in 2003. The average family size is 4.32 people.

In terms of Gross Domestic Product, the largest sector is tertiary, including trade and service. The city’s expenditure for 2004 is about US $149 million. On average, the annual city budget is about US$ 50 per capita.

Regarding land usage, approximately 35% of the total land area is urbanized area and it consists of residential, commercial, industrial, public facilities, roads, railway and military.  The remaining 65% area is rural and encompasses agricultural land, salt fields, river and uncultivated land. Uncultivated and unused land will be developed in the near future for urban purposes such as residential, industrial and public facilities.

Surabaya has a strategic role as a center of development in East Indonesia and it has grown as a center for trade and industry services in South East Asia and the Asia Pacific region. Supported by infrastructure that includes a seaport with container terminal, an International airport, a Stock Exchange and a World Trade Center, Surabaya has grown rapidly as a metropolitan city.

The development strategy of Surabaya is one that recognizes that it is important to provide advantages for inhabitants and to make the city safe and comfortable. Development in Surabaya is based on community interests. The strategic development policy focuses on sustainability, a community basis, and environmental preservation. City development must be integrated and it must establish a balance among humans, the residential environment, infrastructure and surroundings.

WHY INVEST IN SURABAYA

There are number of good reasons why should invest in Surabaya. First, Surabaya has a huge market. Surabaya Metropolitan Area has exceeded 5.5 million populations. Day-time population of Surabaya is about 4.5 million, while night-time is about 3 million. As Surabaya is the capital of East Java (population more than 33 million), East Java is the market for Surabaya. Purchasing power of people in Surabaya Metropolitan Area is almost same as Jakarta.
In addition to Surabaya Metropolitan Area and East Java, East Indonesia is also the market of Surabaya. For long time most of goods to East Indonesia distributed from Surabaya, and in other way around most of goods from East Indonesia exported through Surabaya. So, it reasonable why most domestic airlines to Eastern Indonesia fly through Surabaya.
Second, Surabaya supported by urban infrastructures, international airport and hub seaport including container port. Surabaya connected by direct flights to Singapore, Kuala Lumpur, Hong Kong, and Brunei Darussalam. Surabaya international airport Juanda,  as second largest airport in Indonesia, facilitates large size aircrafts such as Boeing-747. In addition, Surabaya is connected by domestic flights to all major cities in Indonesia. There are about 45 flights daily from Surabaya to Jakarta, and the same amount from Jakarta to Surabaya.  A new airport terminal will be operated in the end of 2006 for additional capacity for 6 million passengers per year. At present, Surabaya airport has exceeded 8,000,000 passengers per year both for domestic and international passengers. In terms of sea connection, Surabaya is connected to all major sea ports in Asia. Surabaya is going to develop a new container seaport at Lamong Bay to an annual capacity of 700,000 TEUS It is scheduled to be constructed in 2007, and operated in 2009. Existing cargo in Surabaya has exceeded 1,780,000 TEUS for 2005.
Electric power in Surabaya is part of an interconnection power system of Java-Bali. Therefore, in terms of power, Surabaya is supplied from a reliable interconnection system, in which Java island and Bali island is an integrated power system. Power demand in Surabaya can be supplied either from West Java, Central Java, East Java or Bali. Another important infrastructure facility is telephone system. Surabaya is served by Telkom, a national telephone company which serves all part of the country by fixed-line system and mobile telephone system. In addition, several mobile operators are available to support communication system in the city.

Surabaya is major Naval Base of Indonesia; Surabaya is well known as a navy city. Naval industry is growing to support demand for a naval base. Supporting facilities in navigation and sea transport are available. Surabaya is home for Indonesian shipping industry, PT PAL, which is one of the great shipping manufactures in Asean.

Third reason to invest in Surabaya is availability of raw materials and resources. Raw materials and natural resources from areas surrounding Surabaya are available and in an accessible way. For certain industries which need raw material from Kalimantan or Papua, the materials can be supplied upon request. Even for industrial products which later on will be exported overseas, raw materials may be supplied from all part of the country. Off course, it may need to import some raw materials from abroad, transportation and shipment system are ready to support.  

Forth, availability of human resources as Surabaya is a center for education, fresh graduates and skilled labor and technicians are ready to support most areas of business. As Surabaya metropolitan area has more than 5 million populations, it is not only for market of business, but it is also source of workers and managers. There are a lot of human resources available from blue-collar workers until white-collar workers and managers. For general purposes of man power, training centers are available. There are number of training centers which can provide training, courses and other kind of man power development.

Fifth, supporting facilities are available such as stock exchange, international banks, international insurance companies, internet broadband service world class housing complexes, apartments and condominiums, hospitals, world class shopping facilities, five-star hotels,  international school, international lifestyle including spas and entertainment. All of them are ready to support business and living in Surabaya. Surabaya has three 18-holes golf courses in town in addition to driving range. In less than an hour driving from city center, there are several golf courses in mountain area which provide different atmosphere than in-town golf courses. Such facilities are ready to support business and living in Surabaya.
Surabaya is also well known as tourism hub for East Java, Bali and Central Java. There are many tourist destinations in East Java such as Bromo Crater, Buffalo Racing in Madura, Majapahit Tombs, Mountain area Prigen, Sarangan, and others.
Surabaya is well known as site of the Islamic Wali, who are Islamic leaders in Java live in 13th century. In the 13th century, Surabaya was the center of Islamic development in Java. Nowadays, heritages of Islamic leaders become religious tourist attractions. Many people visit the Islamic heritages for spiritual enlighten.
Tourist journey can be continued to East Java to Borobudur and Prambanan Temples. To the eastern part of East Java tourist journey can be continued to Bali.

Sixth, sustainability. Surabaya is working hard to improve urban environment to provide better air quality, better environment for living. In order to do that Surabaya has prepared a comprehensive planning to support sustainable urban development by allocating space for urban facilities. East coast of Surabaya is preserved for conservation to allow mangrove to grow in the coast. East coast of Surabaya is a place migrant-birds to stop. Therefore, East Coast of Surabaya is an appropriate space for urban conservation park and recreation. Other urban sustainability instruments include preference for developing manufactures/industry in Surabaya. Surabaya allows less polluting industries/manufactures can be developed, however for high polluting industries are not permitted to be constructed in Surabaya. This consideration based on need of urban sustainability and urban spatial consideration. Urban development will focus for Surabaya to be a service city, so, investment service and its supporting activities will be preferred in Surabaya.

Seventh, cultural diversity. Surabaya is home for various ethnics from all part of the country and for foreign people. People live in Surabaya come from almost all part of Indonesia namely, Sumatera, Kalimantan, Sulawesi, Papua, Indonesian Eastern Islands. There are many ethnic communities who part of the citizens of Surabaya. In addition, Chinese, India, Arabic communities are also part of cultural diversity in Surabaya. Chinese community is a large community which has great role in trading. Foreign people who live for temporary and long-term period make diversity living in Surabaya. Japanese and Korean experts and their families are now part of urban living in Surabaya. Foreign people can feel like they staying in their home country.

Supporting facilities from the city administration will be provided for investment. Mayor and departments under mayoral administration will assist investment requirement particularly in terms of local (Surabaya) area. The city of Surabaya considers that new investment in Surabaya will improve economic development in the region. At the end, the economic development will create opportunities for several activities and support urban improvement and living condition of the citizen. Therefore, the city will support any investment in the city and its region.

WHAT TO DO IN SURABAYA

Surabaya has a great number of areas for investment such as property, service, trading, wholesale and retail, computer business, less polluting manufactures, seaport/harbor, recreation/entertainment including, packaging, garment, furniture, home appliances, education and training centers, high-end hospitals etc. Since Surabaya (within city limits) is mostly urbanized area, the above subject of business are the most preferably business recommended. As Lamong Bay New Port is being developed related activities due to seaport development will be very attractive for investment.
At present some major development plans have been identified. General description of the development plans are as follows:
• Lamong Bay New Seaport
New container port at Lamong Bay will be a reclamation port; for first stage will be for 50 hectares which consists of berth, and supporting facilities. Lamong Bay New Seaport which is a new reclamation area is planned for an international container port in addition to existing Tanjung Perak Port. The reclamation will be carried out about one kilometer from the mainland. There will be a causeway bridge to connect the port to mainland.
• Lamong Industrial and Commercial Area
Next to Lamong Bay New Seaport there will be an industrial and commercial area in the mainland area of Surabaya. This area will be provided for industrial and commercial area.
• North Coast Waterfront Development
As part of the industrial and commercial areas, on the northern coastal Surabaya, it is planned for a water front development which includes residential (high, medium and low cost residential complex), commercial and recreation parks. This area will support the Lamong Bay New Seaport and Lamong Industrial and Commercial Area The availability of these three complexes willl be integrated in the north coast of Surabaya
• Suramadu Bridge Convention and Recreation Center
A new bridge Suramadu Bridge connecting Surabaya and Madura island is being constructed. The bridge with total length of 5 kilometers over Madura Straits will provide new access to Madura island. Adjacent to the bridge in Kenjeran area, it is planned to develop a new complex, about 200 hectares, for a convention and recreation. The area consists of hotel, office space, convention center, exhibition center, recreation, and entertainment facilities.
• New Hi-Tech Center
Computer industry is growing fast in the region, as part of economic development, new hi-tech center is an important part of urban development. Computer and its appurtenances are now important part of development in all aspects. Ideally, a silicon valley is needed in Surabaya as a metropolitan city. This area is very challenging in Surabaya as Surabaya has huge market on high-technology.
• CBD Revitalization
Old central business district (CBD) has been growing or more than five decades, it is a well known for trading both for retail and wholesale. The market is not only Surabaya, but it is also eastern Indonesia. Redevelopment of old CBD is an attractive business. Although, redevelopment will create its own market, however, old CBD has its old market for long time; historically, old market will come to purchase stuff/goods from old stores. To cope rapid development beyond the 2000 era, old CBD needs to be revitalized.
• New Trade Center
There are a lot of opportunities for new trade centers in town. Based on a study carried out by Edaw Consultant, Surabaya has big opportunity to develop new trade centers in the city to supply increasing demand on retail and wholesale business. As road network has served all part of the city, new trade centers can be developed in all part of the city.
• Coastal Reservation Park
As a metropolitan city, demand on parks is also increasing. East coast of Surabaya has been devoted for conservation area. It is very challenging to develop a park for recreation and at the same time for conservation. Singapore has been successfully developed conservation area integrated to recreation facilities. When carefully designed and well managed, an integrated conservation, recreation and education in east coast of Surabaya will be an attractive and promising business.   
• Higher Education
There is a global trend these days, that business is now entering higher (post graduate) education activities. High demand on qualified higher education provides challenging opportunity for investment. People are ready to purchase good quality universities. Partnerships between Indonesian universities and European/American Universities are now attractive for students. Investment in this area is promising as high demand for good quality university.
• Integrated New Sport Stadium Center
Surabaya has been known for sport activities, an area about 200 hectares has been designated for new sport stadium center in west Surabaya. The sport center will be designed to combined sports with commercial facilities such as hotels, shopping centers, exhibition arcades, condominiums and supporting facilities. The stadium complex will be connected directly to existing high-way toll road. As new sport center, this area will be a new icon of Surabaya. West part of Surabaya has been developed as new residential area and commercial area. The new sport center and commercial area will be another choice for market in Surabaya.
• Bus-way System
To provide better service to an increasing demand on urban transportation, a bus-way system will be promoted and implemented. Part of the bus-way system will be provided for private sector to involve in the development and operation of the bus-way system.

In addition, beyond city limits there are great opportunities to develop industries such as agriculture, chemicals, petro-chemicals, forestry, textile, pulp and paper, metal, electronics, machinery, etc. Surabaya Metropolitan Area is the second industrial center after Jakarta Region.
Within Surabaya Metropolitan Area, there are several industrial estates in Surabaya and nearby namely Surabaya Industrial Estate Rungkut (SIER), Pasuruan Industrial Estate Rungkut (PIER), Maspion Industrial Estate, Ngoro Industrial Estate. The industrial estates have been equipped with basic infrastructure such as road, electricity, water, telephone line, drainage and waste water treatment facilities.

HOW TO INVEST

Foreign investments in Surabaya should follow mechanism set by central government. Foreign investor can apply for tax-holiday for certain category of investment. A set of permits issued by central government, particularly for import of goods, foreign man powers and basic approval. National taxation system applied for foreign investment except for tax-holiday facility.
The city of Surabaya will support as much as possible to provide assistance and incentive for investment in Surabaya. In local level, certain permits will be provided particularly when there is any building construction as part of the investment. The city has responsibility to ensure that buildings and construction in the investment follow general requirement for safety and environmental consideration.

When the investment includes buildings and properties, local regulation requires certain procedures:
• Location permit. This permit is required to acquire land. The location permit  allows investors to purchase land from landowners. 
• Site plan. This permit is required to determine and to design a plan for utilizing land. The site plan is needed to ensure that acquiring and utilization of land meet the land-use and urban spatial planning requirement.
• Environmental impact assessment (according to magnitude of the plan and investment).
• Traffic impact assessment (according to magnitude of the plan and investment).
• Building permit. The permit is required for construction and operation of buildings.
Whenever environmental impact assessment is a pre-requisite for investment, it will need a time for preparation of environmental impact assessment, as, according to regulation, people is provided a certain time to give inputs in the environmental impact assessment. For large area development, a traffic impact assessment may be needed. When development generates and attracts certain level of traffic, a traffic impact assessment is required to ensure that development can get appropriate access to main transport system and it does not create traffic jam in the city.
Some levies are applied for issuing location permit, site plan and building permit. Local taxes applied are land and property tax, hotel tax (for staying at hotels), restaurant tax (for having service at restaurants).

REGULATIONS

In general, investment in Surabaya follows national regulations, in addition to national regulation, local regulation should be considered particularly for site planning, building permit, and environmental impact assessment. The local regulation is needed to ensure acceptability of technical matters to the investment particularly on construction aspect. Local regulations directly related to foreign investment are :
• Local Act about spatial planning
• Local Act about environmental impact assessment
• Local Act about building permit
Basically, local regulation is mainly to protect the investment from unnecessary damage and complaint. The local regulation also protects the citizen and environment due to possibility of any damages. 
English version of related regulations about investment in Indonesia is available at  www.bkpm.go.id/en/law.

Contact Business

1.  Mayor of Surabaya,
     Jalan Taman Surya # 1, Surabaya, Indonesia
     Phone: +62-31-534 5687, Fax: +62-31-532 0108
     www.surabaya.go.id
2.  Industrial , Trade and Investment Department
     Jalan Arif Rahman Hakim  # 99
     Phone: +62-31- 594 5343 , Fax: +62-31-596 4786
     www.surabaya.go.id
3.  East Java Chamber of Commerce
     Jalan Bukit Darmo I , Surabaya, Indonesia
     Phone: +62-31-734 9231, Fax: +62-31-734 9235
4.  East Java Investment Agency
     Jalan Jagir Wonokromo # 352, Surabaya, Indonesia
     Phone: +62-31- 841 8676 , +62-31-841 0877
5. Surabaya Stock Exchange
    Jalan Pemuda # 27-31
    Surabaya 60271, Indonesia
    Tel. + 62-31-534 0888
    Fax. 6231-534 2888
    www.bes.co.id
6. Related links:
    • www.bkpm.go.id
    • www.eastjava.com
    • www.eastjavabiz.org
ADDITIONAL FIGURES

Urban Economy

Figures below show some key indicators in economic indicators in Surabaya.
Figure: GDRP Growth Rates of Surabaya

Distribution  of economic sector is shown at left diagram.
Based on above diagram, major business contributors in Surabaya are trade, manufacturing and transport & communication. It is understood when Surabaya promoting service and trade as major activities in the future.

Diagram at right shows major commodities exported from Surabaya. Under category “others” is the major items exported.
Majority of the commodities generated from East Java Province. Surabaya is outlet for export for the province.
Surabaya Vision Plan 2025
Surabaya has prepared a comprehensive development plan called Surabaya Vision Plan 2025. The plan was prepared to anticipate future development of Surabaya as a metropolitan city. The plan was prepared by EDAW, an American consultant well known for urban development. During the planning process, all stakeholders of Surabaya involved in the preparation including international agencies which may include in developing Surabaya.
Surabaya Vision Plan 2025 is aimed to provide information to domestic investors and overseas investors, so they can obtain information about urban development planning in Surabaya, and where the investors can select locations and areas for business. The Plan gives illustration of prospective investment in Surabaya. 
Some major initiatives for development have been proposed as part of future development.
• North Coast Waterfront Development
As part of the industrial and commercial areas, on the northern coastal Surabaya, it is planned for a water front development which includes residential (high, medium and low cost residential complex), commercial and recreation parks. This area will support the Lamong Bay New Port and Lamong Industrial and Commercial Area The availability of these three complexes willl be integrated in the north coast of Surabaya
• Suramadu Bridge Convention and Recreation Center
A new bridge Suramadu Bridge connecting Surabaya and Madura island is being constructed. The bridge with total length of 5 kilometers over Madura Straits will provide new access to Madura island. Adjacent to the bridge in Kenjeran area, it is planned to develop a new complex, about 200 hectares, for a convention and recreation. The area consists of hotel, office space, convention center, exhibition center, recreation, and entertainment facilities.
• New Hi-Tech Center
Computer industry is growing fast in the region, as part of economic development, new hi-tech center is an important part of urban development. Computer and its appurtenances are now important part of development in all aspects. Ideally, a silicon valley is needed in Surabaya as a metropolitan city. This area is very challenging in Surabaya as Surabaya has huge market on high-technology.
• CBD Revitalization
Old central business district (CBD) has been growing or more than five decades, it is a well known for trading both for retail and wholesale. The market is not only Surabaya, but it is also eastern Indonesia. Redevelopment of old CBD is an attractive business. Although, redevelopment will create its own market, however, old CBD has its old market for long time; historically, old market will come to purchase stuff/goods from old stores. To cope rapid development beyond the 2000 era, old CBD needs to be revitalized. Revitalization of old CBD is part of the urban strategy to improve urban performance and at the same time providing opportunities for investment. Old CBD is an potential economic power of the city.
• New Trade Center
There are a lot of opportunities for new trade centers in town. Based on a study carried out by Edaw Consultant, Surabaya has big opportunities to develop new trade centers in the city to supply increasing demand on retail and wholesale business. As road network has served all part of the city, new trade centers can be developed in all part of the city. New trade centers have been designated at the Ahmad Yani corridor, Kalimas River Waterfront, Darmo Satelite Town and West Surabaya.
• Coastal Reservation Park
As a metropolitan city, demand on parks is also increasing. East coast of Surabaya has been devoted for conservation area. It is very challenging to develop a park for recreation and at the same time for conservation. Singapore has been successfully developed conservation area integrated to recreation facilities. When carefully designed and well managed, an integrated conservation, recreation and education in east coast of Surabaya will be an attractive and promising business.   
 

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