Small and medium enterprises (SMEs) in Indonesia are battling with challenges ranging from an unstable internet connection and logistics disruptions to financing difficulties and weakening purchasing power as they cope with the COVID-19 crisis, a recent survey shows.
Conducted by Sea Insights, the study found that 50 percent of business owners saw an uptick in the use of digital media — such as social media, e-commerce and online learning — for their operations during the pandemic. However, 63 percent of 2,200 business owners who participated in the survey said it had been difficult to work from home.
“According to the survey, the three main challenges of working from home are an unstable internet connection and high internet costs. Some SMEs also need physical interaction with consumers,” Sea Indonesia chairman Pandu Sjahrir told an online press briefing on July 2.
“Other problems in the supply side have to do with logistics and disruptions in the availability of stocks and raw materials.”
Technical challenges, he added, mostly happened to SMEs in rural areas.
Adding to disruptions in the supply side are weakening demand and cashflow problems, the survey found. Pandu said most SMEs reported declining demand from consumers following the rise in unemployment, market volatility and the country’s weakening economy.
With households holding back on spending and opting to save money, demand for SME products has declined, he added, which was evident in Indonesia’s consumer price index, which reached its lowest level in 20 years at 1.96 percent in June.
On the cashflow side, declining revenues and increasing costs have posed major challenges to SMEs. Around 26 percent of SME respondents in the Sea Insights survey said they faced difficulties getting access to financing and loans.
“During this pandemic, external capital funding such as government assistance and online financing is more important for them in facing cash flow challenges,” Pandu said.
The government will subsidize and ease loan interest payments for micro, small and medium enterprises (MSMEs), covering loan interests ranging from 2 to 6 percent for up to six months. The government will also roll out working capital loans for MSMEs.
Cooperatives and SMEs Minister Teten Masduki said that going digital could help SMEs access a wider market and subsequently maintain their business during the health crisis. However, he acknowledged that infrastructure-related problems such as unstable internet connection and high internet costs were still major hurdles for many SMEs trying to go digital.
“We suggested to the Communications and Information Ministry [the idea of] providing an internet subsidy for SMEs. However, as we are now refocusing our resources on COVID-19 mitigation, the idea was put on the back burner. Hopefully, we can follow up on it in the future,” Teten said in the same briefing.
He added that digital transformation for SMEs could help to accelerate Indonesia’s economic recovery in the post-pandemic era.
“Unfortunately, only 13 percent of SMEs in Indonesia or only around 8 million have gone digital. The government aims to have 10 million SMEs go digital this year. Digitalization is important for SMEs as it would help them access a wider market and also financing.”
The Sea Insights survey found that 45 percent of SMEs actively sell their products on e-commerce platforms; one out of five of which are first-time sellers. Around 70 percent of SMEs also said they would continue to utilize e-commerce and social media to sell their product in the future.
Joko Purnomo, who owns a souvenir shop in Bali, said that due to the decline in tourists as a result of travel restrictions, his business had experienced a drastic decline in sales. Revenue from his offline shop has declined by 90 percent so far.
“Prior to the pandemic, we were open from 7 a.m. to 11 p.m. Now we are only open from 8 a.m. to 6 p.m. because there aren’t many visitors,” he said.
“However, I feel lucky because my shop is available online and thankfully, our sales are now increasing thanks to digital platforms.”