SMEs will continue to show strength, says minister

The Jakarta Post ,  Jakarta   |  Wed, 09/19/2007 2:54 PM  |  Business

Urip Hudiono, The Jakarta Post, Jakarta

Small and medium enterprises (SMEs) are continuing to grow steadily, both in terms of size and contribution to exports, despite the persistent challenges they face in the form of technological, raw material, and financing problems.

At present, small industries account for some 20 percent of Indonesia's total exports, State Minister for Cooperatives and SMEs Suryadharma Ali said, and will contribute more in the years ahead.

""I think that increasing SME exports by 10 to 15 percent a year would be feasible,"" Suryadharma told reporters after a meeting Tuesday to discuss exports with the coordinating minister for the economy and other ministers.

""Of course, we still have to identify the potential of SMEs in each sector of the economy, and address any problems they currently face.""

SME exports increased to Rp 122.2 trillion (US$13 billion), or 15 percent of total exports, last year from Rp 110.3 trillion (16 percent) in 2005, data from the ministry shows.

More than half of SME exports consisted of food, beverage, textile, garment, wood, leather, rubber, handicraft, agricultural and fisheries products.

The increasing level of SME exports -- though currently still eclipsed by those of big enterprises -- add to their growing economic significance and proven resilience in times of crisis, as compared to the country's conglomerates, which used to be the darlings of the Indonesian economy.

As of the end of last year, SMEs accounted for 90 percent of the 48.9 million business entities in Indonesia, 96 percent of the 88 million jobs in the economy, and 53 percent of the country's gross domestic product of Rp 3,338 trillion.

Despite the promise of SMEs, Suryadharma said they continued to face a host of problems, including securing supplies of raw materials.

""Many SMEs manufacturing wooden products and silver handicrafts have had to cut production. We have to ensure the supply of raw materials to SMEs,"" he said.

Many SMEs also lacked awareness of export procedures, which the ministry has been trying to address by opening SME marketing centers in the Middle East, Eastern Europe and the U.S.

""Another problem is that SMEs lack the technology needed to improve production. They complain that technology is too expensive and complicated to apply,"" Suryadharma said.

""We will, therefore, continue to involve them in exhibitions to introduce them to the latest production technologies, which are actually cheap and more efficient.""

Suryadharma said the government would also support the central bank's suggestion that special banks should be set up to focus on SME financing.

""Of course, such banks would have to apply different approaches to the commercial banks, in terms of simpler collateral requirements and more flexible interest rates,"" he said.

The government has provided Rp 1.4 trillion in budgetary funding this year to subsidize the interest on SME loans and provide collateral to promote SME growth.

However, figures from Bank Indonesia show that lending by the commercial banks to SMEs as of the end of July only amounted to Rp 450.8 trillion, or 51 percent of total lending, down slightly from 52 percent during the same period last year.

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