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View all search resultsI-EU CEPA opens door to EU but small businesses will struggle to enter
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Coordinating Economy Minister Airlangga Hartarto and European Commissioner for Trade and Economic Security Maros Sefcovic sign documents on the conclusion of the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA) on Sept. 23 in Nusa Dua, Bali. (REUTERS/Johannes P. Christo)
D
uty-free access to the European Union market is supposed to help Indonesian micro, small and medium enterprises (MSMEs), but trade associations doubt it will be a panacea for boosting exports without tackling costs, compliance and capacity.
MSMEs often struggle to scale up production and maintain consistent quality, with many lacking certified processes, said Dewi Meisari, founder of UKMIndonesia.id.
“Quality can vary when output doubles or triples, from 1,000 units a week to 5,000 or 10,000, with many giving up midway, because they can’t meet demand,” she told The Jakarta Post on Tuesday.
UKMIndonesia.id is a community platform launched by the University of Indonesia in 2017 to empower MSMEs by providing guidance on opportunities, licensing and know-how.
Breaking into the European market “added new layers of complexity,” Dewi added, with buyers often probing details like wages, labor conditions and raw material sources.
“What’s important to note is that building relationships with international buyers can take years,” Dewi noted. “One of our members landed a deal in the third year after repeatedly proving consistent product quality at trade fairs.”
Read also: IEU-CEPA to help iron out ‘any’ remaining bilateral trade issues
The Comprehensive Economic Partnership Agreement sealed by Indonesia and the EU (IEU-CEPA) on Tuesday after 10 years of wrangling is an opportunity for more trade and investment.
Indonesian exports to the EU are expected to rise 2.5-fold within the first five years of implementation, starting in 2027.
Coordinating Economy Minister Airlangga Hartarto said the trade pact would open opportunities for MSMEs to export more products to the European market, from coffee and cocoa to textiles, food and furniture.
He noted that many MSMEs had long struggled to expand abroad due to strict bureaucracy.
“With the IEU-CEPA, we hope to provide a kind of window or guidance on how they can export more easily,” Airlangga said, adding that the government had prepared an early harvest program that included support for MSMEs.
European Commission Trade and Economic Security Commissioner Maros Sefcovic said the agreement would provide “concrete support” for smaller firms on both sides, noting that around 50,000 European MSMEs currently exported to Indonesia.
Compliance challenges
According to industry representatives, MSMEs face steep hurdles for breaking into the European market, as strict EU sustainability, legality and health standards push compliance costs beyond the reach of many small businesses.
The furniture industry had begun adjusting to EU rules on wood legality and traceability under the EU Deforestation-free Regulation (EUDR), but small firms were still in the early stages of adaptation, said Abdul Sobur, chairman of the Indonesian Furniture and Handicraft Association (HIMKI).
“Small businesses operate in fragmented, small-scale production, which makes it difficult to centralize supply chains and ensure consistent traceability of raw materials from upstream to downstream,” Sobur told the Post on Wednesday.
Nonproduction costs, such as for certification, product testing audits and traceability, exceeded the financial capacity of many MSMEs, he added, “eroding their competitiveness against rivals from Vietnam or China”.
Moelyono Soesilo, specialty and industry department head of the Association of Indonesian Coffee Exporters and Industries (AEKI), said shipping costs often discouraged small firms from starting exports, given that shipping low quantities was usually expensive.
“Exporting one sack or a full container, which can hold about 300 sacks, costs roughly the same. MSMEs simply cannot compete with large companies,” he told the Post on Wednesday.
For food and beverages, Moelyono stressed, health and safety standards had to be strictly observed “with no room for tolerance”. But the cumulative cost of certifications and logistics made compliance prohibitively costly for smaller players.
MSMEs account for only about 15 percent of Indonesian exports, compared to 29 percent in Thailand and 41 percent in Singapore.
The government aims to increase annual MSMEs exports by 9.6 percent to US$19.3 billion this year and to $35.3 billion in 2029, according to Trade Ministry figures, arguing that that target aligned with President Prabowo Subianto’s goal of lifting the country’s economic growth to 8 percent by the end of his five-year term in 2029.
Read also: MSMEs to get easier loans but with ‘rigorous’ assessment
Limited support
While there are government programs to support access to new markets, exporters say these are often not easily accessible.
“There are programs, but it’s not always clear how many MSMEs are receiving help to comply with regulations in the export destination markets,” said Eddy Misero, secretary general of the Indonesian MSMEs Association (Akumindo).
He urged the government to use trade attachés in foreign markets as “eyes and ears” to capture demand signals and share them back home, while also offering financing support to MSMEs unable to fund large orders.
“Other countries sometimes have special [financing] facilities for this. Indonesia should be ready to do the same if we want to seriously boost exports,” Eddy told the Post on Tuesday.
On the other hand, he conceded that MSMEs often approached exports as if they were for local consumers, pointing to the need for education and assistance to compete globally.
Dewi of UKMIndonesia.id said support programs existed across various ministries, state-owned enterprises (SOEs) and private companies, but quotas were limited and there was a selection process.
The UKMIndonesia platform offers members training and access to short-term financing through a bridging fund scheme, with strict buyer verification, detailed margin calculation and safe payment terms requiring at least 50 percent down payment.
“Many people think the same MSMEs or government participants always get promoted in these programs. But landing a deal with buyers requires you talking to hundreds of potential buyers,” she said.
“That’s why repeated participation in trade fairs is necessary to increase the chances of success.”
The Trade Ministry expressed confidence that MSMEs could “meet the EU’s strict standards,” with Export Promotion Director General Fajarini Puntodewi telling the Post on Thursday that the ministry had been preparing them for I-EU CEPA through export consultations and pitching sessions with trade attachés abroad.
