Indonesian micro, small and medium-sized enterprises struggle to survive as revenues are hit

About 64 million MSMEs in Indonesia contribute almost 61 per cent to the country's GDP.
About 64 million MSMEs in Indonesia contribute almost 61 per cent to the country's GDP.PHOTO: AFP

JAKARTA - Millions of Indonesia's micro, small and medium enterprises (MSMEs) are struggling to survive amid the Covid-19 pandemic which has seen 119,000 infections and 5,500 deaths in the country.

While many of the businesses are turning to creative ways to keep afloat, such as going online, others are jumping into new ventures while waiting for the situation to improve.

Mr Deni Gaos, a shoe maker in Bandung, West Java, saw his sales drop by around 80 per cent after a major client - a prominent local shoe brand - stopped buying in early April. As his revenue plunged, he laid off his five employees.

The 43-year old father of two switched to selling shoes online but sales have barely reached half  the pre-pandemic levels.

"I really hope the situation will soon improve and the economy can recover so that my orders can return," Mr Deni, who began his business in 2011, told The Straits Times over the phone.

While he has managed to soldier on, many others have not been able to do so.

Around 70 per cent of Indonesian MSMEs have stopped operations, either temporarily or permanently, according to a survey on 571 SMEs by the International Labour Organisation (ILO) in April.

There are about 64 million MSMEs in Indonesia that employ 116.9 million people, or 97 per cent of the labour force. These companies contribute almost 61 per cent to Indonesia's GDP, according to data from Bank Rakyat Indonesia, the country's largest lender by assets.

During the 1997-1998 financial crisis, many MSMEs proved resilient. But they have been hit hard by the pandemic because the country's partial lockdowns have hindered consumption.

Bandung-based sarong producer Rendi Akbar Siddiq is among those shifting to other types of businesses to make ends meet while hoping for a quick economic rebound.

He lost his income in March, as demand from his traders in South-east Asia's largest textile market in Tanah Abang in Jakarta weakened. He used to sell about 6,000 sarongs each month, earning 100 million rupiah (S$9,400).


Bandung-based sarong producer Rendi Akbar Siddiq began to sell rice in late June to earn some revenue after halting the operation of his factory in March. PHOTO: COURTESY OF RENDI AKBAR SIDDIQ

With thousands of sarongs piled up in his warehouse, the 28-year-old halted operations and fired his five employees in March.

Mr Rendi, who began his business in 2017, has had his loans at two banks restructured, with only one of the banks still requiring him to pay a small monthly installment. To earn some money, he started selling rice in late June.

"I think it will take more than six months for the textile industry to recover," Mr Rendi said.

 
 
 
 

The government has rolled out a number of incentives for MSMEs totalling 123.46 trillion rupiah, including interest subsidies and tax incentives, to help them tide over hard times. In late July, the government vowed to channel working capital to 12 million MSMEs, with each set to get 2.4 million rupiah.

However, Dr Enny Sri Hartati, an economist at the Institute for Development of Economics and Finance (Indef), said some of the incentives are not well-targeted.

Citing tax incentives as an example, she said that around 98 per cent of local MSMEs do not pay taxes because of the small scale of their businesses and tiny revenues.

Other incentives, she added, do not help counter the negative effects of the pandemic such as the weakening of consumers' purchasing power and tougher access to the market for MSMEs.

"Most assistance offered by the government concerns financing, while the problem is not the liquidity," Dr Enny said, adding that the government now needed to speed up the disbursement of funds allocated for programmes aimed at increasing people's purchasing power, which can help push up demand.

Mr Ronald Walla, the head of small and medium enterprises committee at the Indonesian Employers Association (Apindo), believed the government should speed up the disbursement of the state budget.

"When the economy slows down, the government must boost spending. The reality is the disbursement of the state budget has yet to occur smoothly," he said.

He noted that the SMEs can take part in the government procurement, which totals 750 trillion rupiah this year, although meeting standards remained an issue.

President Joko Widodo on Monday (Aug 3) acknowledged the slow disbursement of the 695.2 trillion stimulus package, with only 20 per cent spent. He noted that only 25 per cent of overall incentives for MSMEs had been distributed.