Far Eastern Economic Review
November 2007
The Rebirth Of Aceh
by Oakley Brooks
Just
three years after the tsunami turned much of downtown Banda Aceh,
Indonesia into a wasteland, the city has swung to the other extreme.
Today it has the feeling of a boom town, thanks to$8 billion in aid from
the Indonesian government and foreign donors. The question remains,
however, whether this money can jumpstart the province's return to its
historical role as one of the key entrepots of the region. After the
construction dust settles, Aceh should emerge with the best trading
infrastructure in Indonesia. Across the province, foreign-funded work
crews are busy upgrading ports, airports and roads. A four-lane, United
States-funded highway will run down the devastated west coast. Spread
across Aceh's four million inhabitants, the aid is three times larger in
per capita, inflation-adjusted terms than that spent in post-World War
II France, the largest beneficiary of the American Marshall Plan.
None
of this would be possible, of course, without the 2005peace agreement
between Jakarta and the Free Aceh Movement. As well as bringing
stability, the deal will provide the province with upwards of $3 billion
a year in special disbursements from oil and gas fields now controlled
by the central government. Also on the plus side of the ledger is Aceh's
rich volcanic soil, which should give it an advantage in agricultural
exports. And it sits in a strategic trading location at the tip of
Sumatra, a maritime crossroads between India, the Middle East and
Southeast Asia.
The obstacles to development are
considerable, however. The 169,000 lives lost to the tsunami may have
captured the international community's attention, and loosened its purse
strings, but the 30-year separatist conflict left deeper scars by
preventing investment in both infrastructure and human capital.
Remedying these long-term deficits will take sustained effort.
Healing the Wounds
Aid
money can build infrastructure, but it also creates its ownheadaches.
The huge influx of donor cash has led to localizedinflation and a
culture of handouts. Educated, English-speaking Acehnese are in high
demand at NGOs, and so enjoy generous salaries. Less-skilled workers can
also take lucrative posts driving sport-utility vehicles for the NGOs.
But these jobs will not last forever. Investors will be watching to see
whether the animal spirits of the local economy begin to stir.
The
conflict, as it's called in Aceh, killed an estimated 15,000 people,
and systematic terror by government and rebel troops after 1999 left
large swathes of the province traumatized. The situation sent business
people scurrying for Jakarta and Malaysia; in rural areas, workers and
small tenant holders fled their land. Some of the best Arabica coffee
country in the world, in Aceh's central highlands, went to seed, along
with oil palm, rubber and cocoa plantations throughout the province. Oil
and natural gas installations serving fields in the eastern part of the
province were often under siege. People who stayed tended a subsistence
economy; any substantial business moved 500 kilometers east, to the
North Sumatra provincial capital of Medan.
One
indicator of problems is that Acehnese are not taking up construction
jobs, forcing firms to hire migrants from North Sumatra and Java. The
unemployment rate in the province has helds teady at 12% during the boom
as the workforce expanded by 5%. Analysts worry about long-term worker
participation, especially among ex-combatants. In a World Bank survey
among veterans of the Free Aceh Movement, most said they preferred
"trader" over roles like "laborer."
Others have visions
as grand as Aceh's economic planners. "We're waiting for an industrial
company to invest here," says Hasan, a former rebel. He and some friends
occasionally sell crushed gravel to construction sites in Banda Aceh to
make ends meet. But they also spend a lot of time sitting in the local
coffee shop.
The 5,000 or so former rebels, along with
much of Aceh's youth, remain poorly educated. The former group was
living in the jungle, sometimes burning schools to retaliate against the
Indonesian government. And as the economy worsened in thep rovince,
fewer people could manage fees for schools that were left.
"The
priority is definitely how to improve the quality of our human
resources," says Rahman Lubis, head of the planning arm of the Aceh
government, who ticks off projects to map skills deficits and send
students abroad for university. Close to one-third of Aceh's bulging
budget is to be dedicated to education.
Whatever their
shortcomings of talent and education, Acehnese have a unique pride and
resilience, grounded in a strong Islamic faith that came to the fore
during a harrowing last few years. There's an ongoing debate in the
province and throughout Indonesia about whether conservative Islamic
social norms in Aceh (adultery, for instance, is sometimes punished by
public lashing) will hurt the business climate. It's impossible to
answer definitively, short of some multinational admitting it skipped
the province for its Shariah laws.
But so far the
Acehnese brand of faith seems to have helped the province more than hurt
it. "These are copers," says Sasha Muench, an economic development
specialist who spent two and a half years working in Aceh. Today, with
the Indonesian army and rebels behaving themselves(under the scrutiny of
the aid community) fear has subsided.
But economic
dysfunction remains and it presents in myriad ways. A post-tsunami
packaging and branding program aimed at rebuilding local products
specified that packaging had to come from Medan, the only place a
quality wrapper can be sourced.
"There's still so much
trouble involved in doing business here,"says Tarmiyus, the principal in
Pt. Pontia Agro Pratam, a construction supply firm which he has been
operating from Medan since the tsunami.
"The biggest
problem is the lack of capital," he continues. "The banks are so tight."
Banks in Indonesia have been notoriously stingy since the Asian
financial crisis, and in historically volatile Aceh they are even more
conservative. The loan-to-deposit ratio, expressed as a percentage, is
hovering around 25% in the province (up some since the tsunami),
compared to 65% at the national level last year.
In the
plantation agriculture sector, which many development and government
officials are pegging to lead Aceh back into the export market, growers
are at a stand-still because of the credit situation. They suffered
wide-scale defaults as workers left plantations in fear. "We're all
basically blacklisted by the banks right now," says Sabri Basyah, a
palm-oil plantation owner who is the secretary of the estate growers
association in Aceh. Other residual realities from the conflict era
include extortion by ex-Free Aceh Movement members and armed highway
robberies. The local paper, Serambi, tends to amplify their chilling
effectby splashing cartoon re-enactments across the front page.
Meanwhile, proceeds from Aceh's oil and gas fields - shared by the
province and Jakarta - continue to dip as the reserves there are
exhausted.
Optimism Returns
Nevertheless,
the development community has seeded a broad return of basic family
businesses - roadside convenience shops, cafes, farming operations - and
helped spawn new service companies, such as automobile rental companies
and Internet providers. And in the traditional Islamic spirit, the
money has spread through family and friends throughout the city.
Now,
herds of brand new buzzing motorbikes clog the streets, where
bulldozers once ploughed the piles of post-tsunami debris like huge
drifts of snow. The new look and feel of Aceh has some well-placed
leaders dreaming of a bright, cosmopolitan future - a 21st century
economy to complement Singapore and Malaysia, just across the Straights
of Malacca.
"The origins of Aceh are as a trading hub;
Acehnese pepper went to Boston," says Said Faisal, the economic chief of
the Indonesian government's reconstruction agency in Aceh. An Acehnese
by birth and trained in the insurance industry in America, Mr. Faisal
recalls the Acehnese glory days before Dutch colonial meddling, when the
sultanate was a key locus of IndianOcean trade, and European emissaries
curried favor in Banda Aceh. "The roots are there. And I don't see any
obstacles to bringing it back. In five years, the Acehnese will build
back the ability to make relationships with the international
community."
Aceh Governor Irwandi Yusuf, who's had a
dizzying two years of his own, rising from imprisoned Free Aceh Movement
leader to democratically elected executive, is juggling a bevy of
economic initiatives, from stamping out corruption to halting illegal
logging to courting international investors. Meetings with him are
punctuated by aides seeking his signature on letters ofapproval for
myriad causes and ventures.
Talented Acehnese who fled
the province are also returning to win reconstruction contracts and
provide consulting work. Achmad Fadhiel worked as a consultant with the
International Finance Corporation after the tsunami. He's stayed on to
be the CFO of government-owned fertilizer firm Iskander Muda.
"I
had mixed feelings," says 42-year-old Mr. Fadhiel, who worked as a
corporate banker in Jakarta for 18 years. "It was the same airport
terminal building in Banda Aceh as when I left [in 1973,at the age of
eight]. But it's about social responsibility. After many years in the
banking industry I can give people some advice about financing. I'm
having a lot of informal chats."
Everybody seems to be
watching the movements of the talented and wealthy among the Acehnese
diaspora-pegged at around one million people spread from Malaysia and
greater Indonesia all the way to an enclave in Harrisburg, Pennsylvania.
The re-entry of expatriates will send a strong signal to international
investors about the health of Aceh. And, equally important, it will spur
local businesspeople to take the leap into industries like agricultural
and seafood processing and packing, a logical first step in adding
value to the Aceh economy. "The question is will the spirit of
entrepreneurship come back?" says Paul McMahon, a consultant with the
Indonesian reconstruction agency who is organizing an Aceh venture fund
for small and medium businesses.
The closest thing to a
21st century reality in Aceh is the port of Sabang on the island of
Weh, which thrusts out of the ocean15 kilometers northwest of Banda
Aceh. It's the best situated harbor in the province, deep, sheltered and
facing the open ocean at the mouth of the Malaccas. Established as a
free tradeport by the Dutch at the turn of the last century, today a
steady stream of container ships cruise to and from Singapore, Malaysia
and China, tantalizingly close but still out of reach.
Sabang
promoters are looking to change that. Last October, Irish outfit Dublin
Ports agreed to spearhead a major upgrade of the port to accommodate
container ships. With modern docks, Sabang could theoretically grab a
piece of the trans-shipment trade in Asia from the backed-up gateways in
Singapore and Penang, Malaysia and Shanghai. Sabang officials,
including new Mayor Munawar Lisa, a former Free Aceh Movement official
educated in the U.S., would also like to restore the island's free-trade
zone status (which led to steady car imports as recently as 2003).
And
island leaders want to redevelop Sabang's whitewashed, Dutch-era stucco
shops into a brand-name shopping mecca, centered around a new high-rise
hotel. That would complement the island's international backpacker
tourism at beach bungalows tucked away in some of Weh's sleepier coves.
Already, downtown Sabang has a whiff of international flair, the
colonial architectural lines melting into a gold-accented mosqueon the
hill above town. There's wireless Internet in the central business
district. Divers first discovered the island's reefs in the 1980s and
with only light damage from the tsunami, Weh has hosted NGO workers and
adventure travelers since early 2005.
Aceh's
international connections got a further boost this fall with a new
direct flight to Kuala Lumpur. But more than a year after the Irish
announced they would build the port, they've still not been able to hash
out an agreement with local authorities that will allow Dublin Ports to
begin work on the international docks.
It's an
indicator of the pace of business in Aceh, as the democratically elected
government put in place early this year finds its legs. Still, a Dublin
Ports official maintains the limbo period is comparable to other
international deals he's worked on, and the company is committed to
investing in Aceh. "We're prepared to wait," he says. Asking that his
name not be used, he says he hopes docks to serve local Acehnese trade
will open at the end of 2008.
So far the only notable
trade item of late in Sabang has been a late-model, red Ferrari, which
mysteriously showed up in August and led to some wild speculation among
locals about the owner. Right now, the port still isn't duty free and
with the taxes not paid on the car, it sits in hock with customs
officials.
It, even more than the hustle of downtown
Aceh, is an apt marker of the hopes of a place emerging from a dark
period, and the realities it is slowly overcoming.
Mr. Brooks is a free-lance journalist based in Aceh.
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