Indonesia’s tourism industry is booming. In 2017, the country welcomed over 14 million overseas visitors, an increase of more than 2 million from the previous year. This rapid increase in visitors and the billions of dollars in foreign currency flowing with them seems likely to continue. This situation is not mere luck, but rather the result of a coordinated and strategic government effort to drive growth in the industry. In 2015 the Ministry of Tourism set a goal of 20 million foreign visitors by 2019. At the time, with numbers hovering around 9 million, this appeared to be an optimistic target, but the most recent data suggests they are on pace to achieve it or come very close.
The question then is what’s driving this rapid growth?
The answer seems fairly clear: with the election of Jokowi, the government set clear benchmarks for what it wanted to accomplish in the tourism sector, then designed and implemented a multipronged effort to achieve those goals. These efforts have been helped by a weakening rupiah, which increases Indonesia’s allure as an affordable tourist destination. But that is only one part of a bigger picture which includes multifaceted efforts to restructure the Ministry of Tourism, market Indonesia more aggressively as a tourist destination, enact regulatory reforms to attract investment, and target strategic goals outside of Bali for development and promotion. Since the program kicked off in 2015, the industry has grown by leaps and bounds, generating a flurry of economic activity and creating hundreds of thousands of jobs.
Part of this had to do with timing as Jokowi’s election in 2014 roughly coincided with a drop in global commodity prices. This exposed a weakness in Indonesia’s export-heavy economy, which tends to put off structural reforms during times of high oil and gas prices. With a drop in prices, policymakers subsequently sought to diversify the economy by prioritising the development of non-export service sectors, such as tourism. How the government went about laying the groundwork for explosive growth in the industry reveals critical insights about the process of governance and economic policymaking in Indonesia under Jokowi.
In 2015, the ministry rolled out a new 5-Year Strategic Plan, setting clear goals for itself to achieve by 2019. These included the 20 million visitor number, as well as attracting Rp. 240 trillion ($17.2 billion) in foreign exchange, employing 13 million people in the industry and boosting the sector’s contribution to national GDP to 8 per cent. The ministry first overhauled, to accomplish these goals. Before 2015, tourism development and promotion were grouped under the umbrella of the Ministry of Tourism and Creative Economy, meaning that in addition to tourism promotion, the ministry was also engaged in financing and producing films, art and music that represented Indonesian culture and society. 2015 restructure spun off the creative economy activities, allowing the ministry to focus more narrowly on only the development and marketing of tourist destinations. Along with this narrower mandate, it also received a significant budget increase. For instance, the budget for overseas marketing in 2016 was Rp. 1.777 trillion ($127 million), which is more than the entire ministerial budget for 2014.
Equipped with bulked up fiscal resources and a more focused objective, the ministry began to concentrate its efforts on developing and marketing four priority destinations. Labuan Bajo, the gateway to the Komodo Islands; Borobudur, a UNESCO World Heritage site in Central Java that houses a 9th-century Buddhist temple; Mandalika, an enormous resort development currently under construction in Central Lombok; and Lake Toba, the world’s largest volcanic caldera lake in North Sumatra.
The purpose of developing these areas is to increase Indonesia’s profile as a marquee tourist destination outside of Bali. Bali alone accounted for over 5 million of last year’s 14 million visitors, including a massive increase in Chinese tourists. But if Indonesia’s tourism industry is to remain sustainable over the long run, the country needs to diversify the destinations it has to offer, weaning itself off an overreliance on Bali and distributing the benefits of tourism more evenly throughout the country.
To that end, a multipronged effort to develop the four priority destinations was rolled out. The first step included regulatory reforms intended to remove red tape for investors and visitors. In 2014, the president relaxed visa entry requirements, allowing visa-free travel for citizens of 45 countries. In 2016, this expanded to 169 countries. In conjunction with this, a series of regulatory reforms were pushed through early in the Jokowi administration, including opening hotels and restaurants to 100 per cent foreign ownership, a streamlined permitting process for businesses and new construction, and a presidential decree speeding up the often time-consuming process of land acquisition.
Crucially, these regulatory efforts have been rolled out in tandem with big on-the-ground infrastructure projects, so that all facets of the program will have the effect of complementing each other. Since the beginning of his administration, Jokowi has been pushing for infrastructure investment and construction of roads, airports and seaports. This fact will improve Indonesia’s efficiency as a link in global supply chains, while also making it easier for millions of foreign tourists to access its marquee destinations.
In the last few years, Lake Toba in North Sumatra has seen a flurry of construction activity. The stunning caldera lake lies several hours from the provincial capital of Medan, and in the past could only be reached by small propeller aeroplanes or by taking a minibus or car several hours over poorly maintained roads. After Jokowi took office, he pushed hard to accelerate infrastructure projects to improve access to the area. In 2017, he opened the renovated Silangit Airport, which now has a longer runway and much larger passenger terminal. It has also been equipped with customs and immigration facilities to handle direct international flights.
In addition to the airport expansion, the Ministry of Public Works is improving and widening over 400 km of the inner and outer ring roads that connect various destinations around the lake. This is part of Rp. 800 billion ($57.6 million) in infrastructure upgrades, including a railway line connecting Medan to the Lake Toba area that went into service in February 2018, and a toll-road connecting Medan directly to the outer ring road which is under construction and should be completed in 2019. Lake Toba, which just a few years ago was difficult to reach, is now accessible via a high capacity international airport, rail and toll-road access will shortly following. Anticipating coming growth in tourist numbers, hotel development in the Lake Toba region has accelerated, with 39 new hotels built between 2012 and 2016.
Airport construction has been something of a theme in Indonesia under Jokowi and earlier this year in the Yogyakarta Special Administrative Area, the state-owned airport operator Angkasa Pura I completed the acquisition of 587 hectares of land at the cost of Rp 4.1 trillion ($295 million) which will be used for the development of a new international airport. Once completed, it is expected to have a capacity of around 15 million annual passengers, an increase of 13.5 million over Yogyakarta’s current very over-capacity international airport. The project was stalled by local landowners unwilling to sell, but new legal authorities granted to the National Land Agency in 2015 via presidential decree have helped to expedite the final stages of the process. The completion of this airport will be a significant step toward reaching the government’s target of 2 million foreign visitors in Central Java by 2019.
The tourism industry is not only benefiting from big-ticket infrastructure projects, but also from an improved regulatory environment which is spurring large developments in Labuan Bajo and Mandalika. The Labuan Bajo Marina Project in East Nusa Tenggara will feature a 180-room hotel, ferry dock, restaurants and retail businesses. With a cost of around Rp. 398 billion ($28.6 million), the project was on target for completion in August 2018. While the Komodo National Park will continue to be a significant draw, this commercial development will help diversify the sector and go a long way toward reaching the Ministry’s goal of 500,000 foreign visitors to the area by 2019. The Komodo Airport, which was upgraded and expanded in 2015, is ready to accommodate these increased numbers.
The Mandalika Special Economic Zone is a significant development project located about a 30-minute drive from the existing Lombok International Airport. Thanks to relaxed investment regulations, this massive project has seen a flurry of activity since Jokowi officially opened it as a special investment zone in 2017. It is being developed as a high-end luxury resort area, similar to Nusa Dua in Bali, and already several international hotel chains have begun construction. Initial numbers, which are almost certain to rise, have attracted Rp. 2.2 trillion ($159.5 million) in investment. The development is expected to eventually create more than 58,000 jobs in the tourism sector and draw 2 million visitors by 2019.
Based on the totality of these efforts it seems clear that the Ministry of Tourism’s strategic plan is working. Moreover, it is working because different actors across a range of ministries, SOEs and jurisdictions have successfully coordinated their efforts in a way that complements one another. There are of course some downsides to accelerated growth and development. Big resorts, such as Mandalika, are often financed and owned mostly by foreigners, which risks excluding locals from sharing in the benefits of development. Poorly regulated land conversion risks environmental degradation like excessive sewage run-off, pollution and traffic congestion. The potential for adverse environmental impacts is especially acute in a place like Borobudur, where the ancient temple should ideally receive 2,000-3,000 people per day to minimise the effects of visitor traffic. In 2016, 3.8 million people (foreign and domestic) visited the UNESCO World Heritage Site, with visitor numbers exceeding 20,000 per day during peak times.
This reveals the double-edged nature of tourism-led growth. While the ministry’s strategic plan is well on its way to hitting broad-based metrics like overall visitor numbers, higher GDP, billions in foreign investment and the creation of hundreds of thousands of jobs, it is unclear the extent to which the attainment of these national-level goals will have negative consequences for local businesses and the environment. Furthermore, much of the government’s efforts have targeted foreign visitors and the currencies they bring. Less attention has been paid to developing the domestic tourism market, even though in 2016 there were over 264 million local visitors, vastly outnumbering the 11.5 million who came from overseas. As they chase overseas tourists, there is a risk of overlooking the enormous potential of the domestic travel market, a market that will almost certainly continue to grow in lock-step with the Indonesian middle class and the increasing amount of disposable income they are acquiring.
Nevertheless, the government’s effort to develop the tourism industry, and diversify its non-export economic sectors, has mainly been very successful. This success can be directly linked to a coordinated, multi-faceted effort to address weaknesses in the industry through regulatory reform, aggressive marketing campaigns, bureaucratic restructuring, increased fiscal resources, and the targeting of strategic locations for development and improved accessibility with big-ticket infrastructure projects.
The final word on this effort is not yet in, as the program is scheduled to run through 2019. However, even now a substantial amount of the necessary groundwork has already been laid for the realisation of the ministry’s ambitious vision. With upcoming national elections in 2019 likely to serve as a referendum on Jokowi’s growth-oriented economic policies, the success of his government in boosting the tourism industry through sound policy-making and effective governance bodes well for him and his political allies.
Article source: https://thediplomat.com/2018/06/indonesias-booming-tourism-industry/