INDONESIA INSIGHT
A catalyst for Medan's development
Indonesian city will be a major beneficiary of the reconstruction and rehabilitation of Aceh after the tsunami disaster
By SHOEB KADGA
Business Times
IN THE wake of the tsunami disaster, business opportunities abound in Medan, where life has always been rather laid-back. Traffic snarls are stranger to the city's broad boulevards - unlike Jakarta, where a short 10-minute journey can take an hour in peak hours.
Indonesia's third-largest city, however, is experiencing a renaissance of sorts since aid workers and international relief organisations made it their base for operations into the battered province of Aceh. Hotel lobbies are buzzing with activity and getting a room at any four-star hotel is a challenge - unlike pre-Dec 26, when one could just walk into any of the city's major hotels and find a room.
Occupancy rates at nearly every major hotel have shot up to 100 per cent, compared with just 40 per cent before the tsunamis ripped through Aceh. Car rental agencies are also doing brisk business as are restaurants and nightclubs. The city's trading community, however, has been significantly hurt by the tragedy that befell its northern neighbour. Medan has always acted as a gateway for Aceh and the surrounding region, and the tsunami disaster has been both a blessing and curse for the city's business community.
Before the disaster, 15 per cent of Medan's economy was dependent on Aceh as goods and services flowed both ways. Items like basic foodstuff, textiles, electronic goods, household items and vehicles were shipped from Medan to Banda Aceh and other destinations in the province, while agricultural produce from Aceh found its way to Medan before being distributed to the rest of the country.
Following the calamity, supplies from Aceh have stopped as the province's agricultural sector has been decimated and many Medan merchants have had to write off substantial debts owed by their counterparts in the province. With insurance almost non-existent, there is little hope of these debts ever being repaid.
But a silver lining has emerged for many of the traders affected by the tragedy. As aid flows into Aceh pick up, Medan has become a major sourcing centre for sugar, cooking oil and other basic necessities being transported to the worst-hit areas.
Demand for some items such as sugar is so great that it has created a supply shortage and driven prices up in the city.
Looking at the longer-term picture, the catastrophe could be a catalyst for the future development of the city. Medan will be a major beneficiary of the reconstruction and rehabilitation of Aceh, given the city's strong cultural and economic ties with the province. If the government in Jakarta is able to develop a comprehensive and clear reconstruction plan for Aceh, Medan's businessmen will be quick to grab the opportunities that will surely be created.
Vice-President Jusuf Kalla has already said that it will take five years and US$2 billion to rebuild Aceh's infrastructure. Roads, bridges, hospitals, power plants, schools and many other public amenities will have to be constructed, and all these projects will require cement, steel, glass and other building materials.
Nearly all of these items are expected to reach Aceh via Medan. Over the next decade, the rebuilding of Aceh, if it proceeds smoothly and without massive leakages, could help Medan's economy expand by up to 25 per cent, some businessmen and economists have estimated. And if the Acehnese themselves concentrate on rebuilding their lives and their province instead of waging war with Jakarta, the benefits to the whole region will be multifold.
But moving to that phase of economic activity will require detailed planning, strong commitment and, most importantly, security in the area. No businessman will risk his capital if Aceh continues to be a conflict zone. The tsunami, while having taken tens of thousands of lives and cost millions of dollars in damage, has at the same time created a window of opportunity for the people of Aceh and Medan.
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