The Jakarta Post
Following the launch of the ASEAN Economic Community (AEC) at the end of December 2015, Indonesians must get ready to face Southeast Asia's free market. To recap, the objective of the AEC is to improve economic stability in Southeast Asia, to address economic matters among ASEAN member countries and to improve ASEAN competitiveness and enable members to compete with China and India in attracting foreign investment.
The AEC is expected to create an integrated market for capital, goods and service as well as labor. The impact of this will be a free flow of goods and services, investment, credit and skilled workers among ASEAN countries. Another positive impact is that Indonesian investors may expand their businesses without facing restrictions in neighboring countries. Conversely, Indonesia can draw investment from ASEAN investors.
The government of Indonesia has issued Presidential Instruction (Inpres) No. 11/2011 on the implementation of the AEC blueprint in preparing ASEAN free trade. The blueprint mentions twelve priority industries to be integrated by the government, namely agribusiness, automotives, electronics, fisheries, rubber products, wood products and textiles.
The remaining five come from the services sector, comprising air transportation, health, tourism, logistics and information technology. In the AEC era, these industries will be integrated to allow for a free flow of goods, services, investment and labor.
According to the Industry Ministry, Indonesia currently has nine industries where the country can excel in the ASEAN market, namely agro-based businesses (CPO, cacao and rubber), fish and fish products, textiles and textile products, footwear, leather and leather products, furniture, foods and beverages, fertilizers and petrochemicals, machinery, base metals, iron and steel.
Other industries, like manufacturing and tourism, are yet to be developed to reach their full potential. Indonesia will have to retain its position as market leader in several industries to lure prospective investors.
So far, five main measures have been taken by the government to prepare for the AEC. First, the Aku Cinta Indonesia (I love Indonesia) program as a national branding campaign for the consumption of domestic products such as garments, accessories, entertainment, tourism etc.
Second, the strengthening of the micro, small and medium enterprises (MSMEs) segment. Entrepreneurial activity in the segment is buoyed by promoting ambition, production efficiency and effective management, supporting market absorption of local MSMEs products as well as creating conducive business conditions.
Third, capacity and quality improvements of infrastructure like land, sea and air transportation, communication and information systems and energy supply. Fourth, the improvement of human resources through education. Lastly, organizational and administrative reform as stipulated in the 2012-2025 national strategy to prevent and eradicate corruption.
To help MSMEs with capital, the Financial Services Authority (OJK) can apply preferential treatment not only by giving subsidies but also through a more flexible approach to non-performing loans (NPL). The government should also facilitate entrepreneurial activity entering the domestic market by providing vocational and training centers and by connecting entrepreneurial activities in one region with those in other areas for information exchange.
However, the most significant of all these efforts is the improvement of Indonesia's human resources, particularly for entrepreneurs. Skills and creativity are selling points in business. As for professionals, they must enhance their skills, competence and professionalism. With high quality human resources in terms of skills and creativity, Indonesia can attract investors and Indonesians can spread their wings in other ASEAN countries.
Since 2007, Bank Mandiri has prepared college students and youth through the Mandiri Young Entrepreneur Program (WMM). Bank Mandiri has also given public lectures on leadership and entrepreneurship to change mindsets so as to encourage people to engage in entrepreneurial activity. With all this in their hands, students and entrepreneurs should be ready to participate in the AEC.
Data from the Global Entrepreneurship Monitor (GEM) 2014 National Reports show that countries scoring highest in the nascent entrepreneurship rate are Thailand and the Philippines (8 percent), followed by Singapore (6 percent), Indonesia (4 percent), Vietnam (2 percent) and Malaysia (1 percent). Countries recording the highest score in new businesses ownership rate are Thailand (17 percent), Vietnam (13 percent), Philippines (11 percent), Indonesia (10 percent), Singapore and Malaysia (5 percent).
Meanwhile, countries with top scores in the businesses ownership rate (businesses that have been owned and managed for more than forty-two months) are Thailand (33 percent), Vietnam (22 percent), Indonesia (12 percent), Malaysia (8 percent), Philippines (6 percent) and Singapore (3 percent).
The data show that compared with other ASEAN countries, Indonesia can still improve the number of entrepreneurs to engage in the AEC, which in turn could support the development of Indonesia's economy.
Bank Mandiri, through Mandiri Institute, is now conducting research on national entrepreneurship in cooperation with the GEM and the UKM Center. We hope the research will produce practical recommendations for the government to craft policies for national entrepreneurship to help those who are starting a new business or scaling up an existing business.
For small and medium enterprises, the advent of the integrated ASEAN economic era is a selection process. Those who can see and maximize the opportunities will experience breakthroughs and progress in their business, while those who cannot adapt, will find it more difficult to run their business.
The AEC certainly provides a wider market for entrepreneurs, which they can penetrate by providing products in demand overseas. In regard to this, the government should be able to identify Indonesia's unique products and ensure standardization. If the domestic market can be fully supplied by local players then they should not be worried about foreign products entering Indonesia.
The writer is an analyst at Mandiri Institute
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