Batam
A fishing island 5.8 km from Singapore, converted into a factory zone in 1971. Free trade status attracted $3.26B in investment by 2024 and Apple's AirTag production. Now threatened by Malaysia's Johor-Singapore SEZ offering the same proximity advantage with better connectivity.
Batam sits 5.8 kilometres from Singapore—close enough to see the skyline, far enough to undercut its costs. Until the 1970s, this was a sparsely populated island of fishermen in Indonesia's Riau archipelago. Then B.J. Habibie, the engineer who would later become president, designated Batam as an industrial development zone in 1971, betting that proximity to Southeast Asia's wealthiest city-state would attract manufacturers who couldn't afford Singaporean land and labor. The bet worked. A fishing island became a factory island.
The transformation accelerated when Batam became a free trade zone in 2009, eliminating tariffs and VAT for goods shipped to Singapore. Half of Batam's exports and 70% of foreign investment originate from Singapore. Electronics assembly, shipbuilding, oil and gas equipment manufacturing, and photovoltaic production form the industrial base. Apple pledged $1 billion to manufacture AirTags here. Container throughput reached 670,000 TEUs in 2024, and investment realization hit $3.26 billion. The economy grew between 6.5% and 7% from 2022 to 2024—among the fastest in Indonesia. The BBK (Batam-Bintan-Karimun) free trade zone master plan targets annual investment of 97.2 trillion rupiah across 180 development projects.
But Batam's competitive advantage—being Singapore's cheap neighbor—is also its vulnerability. In January 2025, Malaysia launched the Johor-Singapore Special Economic Zone, offering the same proposition: proximity to Singapore, cheaper land, tax incentives. Johor has a land bridge; Batam has only ferries. Johor has established supply chains; Batam has jurisdictional complexity and land procurement problems. The shipbuilding sector, which once offset the exodus of electronics manufacturers, hit overcapacity. Batam's free trade zone status paradoxically restricts its ability to sell products domestically in Indonesia.
A new COSCO shipping route from Batam to Hainan, launched in August 2025, signals a strategic pivot: rather than depending entirely on Singapore, Batam is positioning itself as a node in China-ASEAN trade networks. The island that was built as Singapore's workshop may need to find a second client to survive.