Indonesia’s Manufacturing Slump Sparks Calls to Fast-Track Special Economic Zones to Win Investment

JAKARTA, Investortrust.id — Indonesia's manufacturing contraction in June is adding pressure on the government to accelerate investment approvals, with industry leaders warning that delays in licensing new Special Economic Zones (SEZs) could undermine the country's competitiveness in attracting global capital.

The Indonesian Industrial Estate Association (HKI) said speeding up approvals for new SEZs would help reverse the slowdown by unlocking large-scale investment projects, creating jobs, and establishing new industrial growth hubs across the country.

Indonesia is seeking to maintain its position as one of Southeast Asia's top destinations for foreign direct investment while competing against regional rivals including Vietnam, Malaysia, and Thailand. With manufacturing activity slipping into contraction, policymakers face growing pressure to ensure investment projects move from planning to execution as quickly as possible.

Special Economic Zones are central to President Prabowo Subianto's industrial strategy, offering tax incentives, streamlined customs procedures, simplified regulations, and integrated infrastructure to attract export-oriented manufacturers.

Indonesia's manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 46.9 in June from 50.0 in May. A reading below 50 indicates factory activity is contracting, reflecting weaker production, softer new orders, and slowing industrial demand.

HKI Chairman Akhmad Maruf Maulana said the downturn should not be addressed solely through short-term stimulus measures. Instead, he argued, Indonesia should accelerate investment by simplifying and shortening the approval process for new SEZs.

"The government needs to speed up the creation of new economic growth centers. Accelerating approvals for Special Economic Zones is one of the most effective ways to bring investment online and generate new economic activity," Maruf said in a statement released on Sunday.

Despite the weaker manufacturing data, HKI said investor confidence in Indonesia remains strong, pointing to a growing pipeline of proposed SEZ developments awaiting government approval.

Projects currently under evaluation include Wiraraja Madura SEZ, Digital Bekasi SEZ, Sidoarjo Halal Industrial SEZ, Batuta Chemical Industrial Park (BCIP) in East Kalimantan, Patimban SEZ in West Java's Subang Regency, Subang SEZ, Mangkupadi SEZ in North Kalimantan, and the planned expansion of Nongsa SEZ in Batam.

According to HKI, the volume of new proposals demonstrates that investors continue to view Indonesia as an attractive long-term destination despite persistent global economic uncertainty.

Maruf said execution speed has become a decisive factor in global investment decisions, as Asian economies increasingly compete by offering tax incentives, regulatory reforms, and greater legal certainty.

"The sooner investment projects begin, the sooner new jobs are created, production capacity expands, and economic growth accelerates," he said.

The association believes faster SEZ development would generate broad economic benefits beyond investment inflows, including stronger downstream industrialization, higher export competitiveness, expanded employment opportunities, and more balanced regional economic development.

As competition for international investment intensifies across Asia, HKI warned Indonesia cannot afford bureaucratic delays.

"It is time for the government to accelerate licensing so that business optimism can quickly translate into real investment. Amid manufacturing weakness, faster investment is one of the most concrete ways to restore Indonesia's economic growth momentum," Maruf said.