Surabaya's strategic location connects east and west

A city of more than 3m people that serves as a gateway between oceans, continents and cultures, Surabaya is not only Indonesia’s second-largest conurbation, but also increasingly popular among investors. Home to the port of Tanjung Perak and a thriving commercial, industrial and business centre for eastern Indonesia, the city has seen a wave of new developments, such as an airport expansion, transport links to Jakarta and the rest of Java, and initiatives to grow the digital economy. A business-friendly administration and local stability have helped yield positive returns for investors.

The region is anticipating further expansion, despite some challenges. The shipping sector is particularly affected by global economic trends, including recent slowdowns. Nonetheless, with nearly 40m citizens and education, transport, industry, health and tourism sectors that serve all of East Java, Surabaya is well placed to benefit from continued regional economic growth.

FACTS & FIGURES: Surabaya is the capital of the East Java province, set on lowlands around the Kalimas River estuary. Because of its prime location, which gives it access to the Javanese interior, as well as its proximity to key trade routes between the Java Sea, the Indian Ocean, the Straits of Malacca and the Maluku Islands, it has long been a major port. Under Dutch rule Surabaya was the largest city in the region. After independence, it absorbed many surrounding towns and settlements to create a large metropolitan area, known as Gerbangkertosusila. While it draws in various ethnic populations, the majority of the local population is Javanese.

According to Surabaya’s Central Bureau of Statistics, the gross regional domestic product (GRDP) of the area was Rp451.5trn ($34bn) in 2016, up 11% from Rp406.2trn ($30.6bn) in 2015, and 54% above the Rp293.2trn ($22.1bn) of 2012. This has translated into a surge in per-capita income, from Rp10.4m ($784) to Rp15.8m ($1190). Surabaya is thus transitioning to higher consumption levels and a growing middle class. In 2016 key contributors to GRDP were wholesale and retail trade, and auto sales and repair, which collectively secured 27.6%. Next was processing industries, with 18.9%; accommodation, food and beverages, with 15.7%; construction, with 10%; ICT, with 5.4%; financial services and insurance, with 5.3%; and transportation and warehousing, with 5.2%.

PORT OF CALL: Surabaya is considered the “gateway to the East” and the commercial capital of eastern Indonesia. It is the hub for all shipments sent to or from regions east of Java. A key driver for growth continues to be the port of Surabaya, Tanjung Perak. Pelindo III – a state operator responsible for 43 ports across the country – currently manages the port. Taking advantage of its strategic location, Tanjung Perak handles 13 international shipping lines to serve dozens of destinations, including Singapore, Pusan, Hong Kong and Manila. Two of the four most important domestic shipping lines – Salam Pacific Indonesia Lines and Meratus – are also headquartered in Surabaya, and the port is a gateway to many destinations in Indonesia’s Eastern region, such as Ambon, Lombok, Denpasar and Tarakan.

Under the plans to develop Indonesia as a global maritime power by 2045, the Sea Toll Road policy named Tanjung Perak as one of five hub ports to be developed. This means the port will be expanded and its infrastructure improved, while increased investment will reduce handling times and boost trans-shipment facilities. This is a much-needed step, as wharfs have not been updated since the Second World War and dwell times in the port were an average of eight days in late 2016.

Authorities are also considering extending operating hours at major ports to 24 hours per day, and installing better electronic systems to track cargo. The region is also home to Terminal Petikemas Surabaya, a central container port that is 49% owned by Dubai-based DP World and 51% by Pelindo III. The port – which handled some 1.4m twenty-foot equivalent units in 2015 – is situated on the Madura Strait, with a 2-km causeway linking its container yard to its deepwater wharf.

Surabaya has long welcomed foreign direct investment, and local authorities are keen to see this boosted even further. To achieve this, the East Java province is offering a one-stop foreign investment permit, which will cover everything from securing an electricity connection to hiring skilled labour and obtaining land.

CONNECTIVITY: To alleviate pressure on Juanda International Airport – which was originally built to accommodate 8m passengers per year but currently handles as many as 19m – a new terminal is being built. Angkasa Pura I, the airport’s state-run operator, is expected to acquire 1700 ha of land for the expansion in 2018. “Meanwhile, we have increased traffic frequency at Juanda International Airport from 25 to 27 flights per hour,” Yuwono, general manager of Angkasa Pura I, told OBG. “This is expected to add up to 1m seats in flight capacity per year, and will therefore help fulfil the goal to bring 1m tourists to East Java by 2025.”

There are also plans to develop a high-speed train route between Surabaya and Jakarta. The Japanese International Cooperation Agency is working with the government to study the feasibility of an upgraded line, increasing train speed from 90 km per hour to 160 km per hour. This project will cost Rp30trn-80trn ($2.3bn-6bn), depending on the train selected. Local authorities have also been building roads, with 337 km of new routes constructed between 2015 and 2017. Tri Rismaharini, mayor of Surabaya, told OBG that public transport is being improved, as plans for a mass rapid transit system are pending government authorisation.

EDUCATION: Surabaya is a regional centre for higher education, hosting esteemed institutions such as Airlangga University, which is ranked fourth best in the country and has some 35,000 students and 1570 faculty members. Surabaya is becoming an increasingly educated city, investing in lifelong learning and vocational education schemes. “In East Java education partnerships with the government work differently,” Mohammad Nasih, rector of Airlangga University, told OBG. “Provincial and local governments are more involved in the strategies of educational institutions to ensure they are in harmony with the needs of the local economy.”

Mayor Rismaharini told OBG that 1000 new libraries, sports fields and technology centres have been opened. These will not only produce well-educated young citizens, but also help older residents develop new skills.

HEALTH: Airlangga University, which began as a medical school, has partnered with various hospitals and medical faculties, including the Institute of Tropical Diseases. The region also has excellent medical facilities: private hospitals include Premier Surabaya Hospital – part of Australia’s Ramsay Health Care – and Husada Utama Surabaya Hospital, which is 99% owned by Indonusa Prima. Hospitals in Indonesia have been expanding, due to organic growth in population as well as the introduction of universal health care, under which hospitals must accept all patients. As such, 2016 saw two state hospitals and two private hospitals open in Surabaya. The National Hospital is also a top-tier health facility in the region, catering to wealthy citizens who typically travel abroad for medical treatment. With 15% foreign clientele, this will be a key player in reversing the flow of affluent patients out of the country.

TOURISM: Indeed, medical tourism has high potential for future growth, although most wealthy citizens continue to travel abroad for treatment. City authorities perceive tourism as an area with high potential, evidenced by their sustained investment in training programmes for the tourism and hospitality sector. Surabaya serves as a tourism hub for East Java, with points of interest such as Mount Bromo and Malang.

Building on the sizeable industrial and commercial base, the meetings, incentives, conferences and exhibitions (MICE) segment has recently witnessed positive developments. The national government is prioritising the growth of MICE tourism, and Surabaya has been named key in this development. Having set up the first expo building in East Java, the JX International Convention Exhibition, with 1 ha of floor space, is central to this. This has encouraged further infrastructure upgrades: the Garden Palace Hotel began construction of a MICE centre, and the segment is gaining momentum in the city, in part because of its convenient location for travellers from throughout the country. MICE currently has a domestic focus, but industry leaders are considering projects to expand its horizons. However, streamlining visa requirements for businesses around Asia would be required for Surabaya to become a successful MICE hub.

Continued expansion is expected, with upcoming plans giving a boost to transport, tourism, health and education. The city should continue to be an invaluable portal between east and west for years to come.