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Jakarta Post

SMEs safeguard economy

  • Editorial Board

    The Jakarta Post

Jakarta   /   Fri, July 17, 2020   /   08:07 am
SMEs safeguard economy All eyes on SMEs: Sare Studio saw a fourfold increase in sales during large-scale social restrictions (PSBB), and it has maintained consistently high sales since. (Sare Studio/File)

Recent studies and data show encouraging signs about small and medium enterprises (SMEs) pivoting to adjust to new consumer demands and the need for digitalization against the backdrop of the ongoing pandemic, which is hitting the global economy hard.

Digital platforms are seeing an increase in first-time entrepreneurs listing their brand-new businesses online. On e-commerce and social media platforms, merchants have transformed their businesses and now focus on high-demand items from face masks and frozen or ready-to-cook meals to home decor and hygiene products, as consumer behavior shifts.

The speed at which SMEs are adapting to new consumer demand and digitalization is a breath of fresh air in the middle of massive layoffs and business closures all over the world. SMEs, which account for 60 percent of Indonesia’s gross domestic product (GDP) and 97 percent of domestic workforce, are after all the backbone of the domestic economy.

This backbone of the economy needs all-round support from the government, large enterprises and communities across the country. Big enterprises can contribute by involving as many small businesses as possible in their production or distribution processes. For local communities, the “buy from local businesses” mindset needs to be promoted. In fact, this spirit is what lay behind the rise of Asia’s economic giants.

The government needs to accelerate its Rp 123 trillion (US$8.8 billion) rescue funding for micro, small and medium enterprises (MSMEs), while at the same time addressing the demand side so consumers will have the purchasing power to support local small businesses, as well as widening access to the internet and financing.

A Mandiri Institute survey shows MSMEs that have an online presence are more resilient as they are more likely to continue producing and selling goods. Some 42 percent of offline MSMEs have stopped operating, compared with 24 percent for online MSMEs in the survey.

In fact, digitalized MSMEs can help Indonesia reduce 1.5 percent of the economic burden on its GDP caused by the COVID-19 pandemic, according to the study. This rate is significant given that Indonesia’s economy is expected to grow by a mere 2.3 percent this year, the lowest in 21 years, or contract by 0.4 percent under the worst-case scenario, according to government estimates.

Unstable internet connections and difficulty in accessing financing continue to be the major roadblocks for MSMEs in digitalizing their operations, according to a recent Sea Insights survey. Having said that, internet infrastructure to bridge the digital divide and expand internet connections nationwide, the spirit of which is reflected in the government’s Palapa Ring project, should be accelerated as well. Meanwhile, branchless banking programs and supporting licensed fintech need to be amplified.

Countries around the world are also rolling out SME rescue programs in recognition of their key role in the global economy, accounting for half of employment worldwide and 40 percent of national income. SMEs are a crucial element in preventing more job losses and an economic slump. By addressing their issues — demand, internet connections and access to finance — to boost SMEs’ resilience, Indonesia could save the economy from a projected 5.5 million job loss this year.