INTRODUCTION

To Singapore's immediate south, the Province of the Riau Islands has a population of 2.2 million, and a land area of 8,200 square kilometres scattered across some 2,000 islands in 240,000 square kilometres of water. The better-known island groups include: Batam, the province's economic motor; Bintan, its cultural heartland and the site of the provincial capital, Tanjungpinang; and Karimun, a fishing and shipping hub near the Straits of Malacca. These island groups are more outwardly oriented and multiethnic, but the province also includes another three other island groups, namely Natuna, Anambas and Lingga, which are more isolated, rural, and homogeneous.

Within Indonesia, the Province of the Riau Islands (PRI) is relatively small in demographic terms, and very remote from the centre of power. Logistics connections between PRI and major population centres in Java and Sumatra are underdeveloped and overpriced, effectively barring significant commercial and cultural exchange between the “centre” of the country and this far-off province. For much of the recent past, government services and communication were routed through Pekanbaru, the provincial capital of Riau Province, to which the Riau Islands used to belong.

Yet, the province is strategically located next to major shipping lanes and telecommunications infrastructure, making it one of the most connected areas in Indonesia. Furthermore, it is close to Singapore and, through the city-state, able to access global capital and expertise. The Riau Islands has also long sought to capture spillover from Singapore, with policymakers looking north to identify trends and commercial opportunities. Thus, the province is simultaneously affected by its marginality and centrality.

Despite its small size, the Riau Islands is an important site for manufacturing in Indonesia. In late 1989, spurred by considerable flows of foreign direct investment into Singapore and Johor, the Indonesian government liberalized the investment regulations for Batam, allowed more private sector participation, invested more resources in physical infrastructure and began to work with Singapore to develop its human resource base and market the island.

Enabled by these changes, and catalysed by a favourable international environment, manufacturing-related investment flowed into Batam, dramatically boosting incomes. Singapore and Singapore-based firms were important sources of investment, as well Japan, Hong Kong, Korea, and Taiwan.