MSME, the Savior

KOMPAS/ISMAIL ZAKARIA

A woman arranges a display of locally produced coffee on Thursday (23/7/2020) at a business meeting on micro, small and medium enterprises (MSMEs) in Mataram, West Nusa Tenggara (NTB). Local MSMEs have developed superior products from the NTB administration’s economic assistance for earthquake-affected communities. Today, MSMEs in Lombok have said they have been encouraged by the transition to the “new normal” phase of the Covid-19 mitigation measures.

The Covid-19 pandemic has caused economic recession in almost all countries.

Only a few countries have escaped the recession, namely China, Vietnam and Taiwan. China and Vietnam, which usually grow 6-7 percent, are estimated to only grow one-fourth of their capacity, ranging 1.5-2.0 percent in 2020. Their success is attributed to controlling Covid-19 quickly, supported by a high level of discipline from the government and their people.

Covid-19 has infected people, regardless of status or economic level, and indiscriminately. Developed countries are made helpless, let alone developing countries, and the poor. All levels of society and the economy were completely disrupted. It is not only large and medium enterprises that are affected, but small businesses are also made breathless and helpless.

Also read: A New Footing to Jump Higher during the Pandemic

Indonesia also feels the same way as most countries. What is quite worrying is that the micro, small and medium enterprises (MSMEs) have been hit quite deeply. In fact, the role of MSMEs is very crucial in the national economy. There are 64.2 million units of Indonesian MSMEs that absorb 97 percent of the national workforce, with a contribution to GDP of around 61 percent and an export contribution of 14 percent.

Also read: Ranking in Islamic Economy Rises, Indonesia Needs Consistency

The experience of economic crisis in Indonesia shows that MSMEs have proven to be quite resilient in facing various recessions and have always become the savior. The 1998 political and economic crisis was concrete and undisputed evidence. Large companies had collapsed because of the nearly 208 percent depreciation of the rupiah (against US dollar) and massive layoffs everywhere. At that time, the economy was at its lowest point, economic growth contracted very deeply, which reached minus 13.1 percent in 1998 from positive 4.7 percent in 1997.

You can imagine how important and crucial the informal sector is, which is a reflection of the micro-businesses when the growth of the formal workforce has dropped significantly by 6.6 percent.

However, there was a unique phenomenon. When the formal sector was hit, the informal sector and micro-enterprises mushroomed, enabling Indonesia to rise again. Absorption of informal workers increased significantly and grew 8.7 percent in 1998, accommodating most of the laid-off workers. You can imagine how important and crucial the informal sector is, which is a reflection of the micro-businesses when the growth of the formal workforce has dropped significantly by 6.6 percent. Chatib Basri\'s observation was correct (Kompas, 11/11/2020), "The economic recession in this country is probably about the sidewalk food stalls that mushroomed at night in various parts of Jakarta in 1997-1998".

Also read: Debt and Growth

Now, the big question that makes us hopeful is: Will MSMEs become winners again and become the savior of Indonesia\'s economic revival? This is a big test for MSMEs to prove their superiority again.

The current recession is certainly far different and much more complex compared to the 1998 economic recession. During the 1997/1998 recession, the MSME sector was still able to perform normal activities and there were no large-scale social restrictions. MSMEs were not restricted from operating and were not prohibited from doing business/selling.

KOMPAS/TOTOK WIJAYANTO

A worker carries trays of freshly made tofu to the packaging section of a small tofu producer on Thursday (23/7/2020) in Pancoran, South Jakarta. As of July 21, the government has disbursed Rp 11.84 trillion in working capital for cooperatives and micro, small and medium enterprises (MSMEs) through national economic recovery program. The figure is 9.59 percent of the Rp 123.46 trillion fund for cooperatives and MSMEs.

Then, no one was advised to work from home. In the 1998 economic and political crisis, those who felt the most impact were business actors in the elite category or conglomerates, while this year\'s economic recession was felt by all levels of business actors, including the MSMEs.

Also read: Maintain the Economy, Handle Covid-19 More Optimally

Based on state lender BRI\'s research on 3,000 MSME players spread across 33 provinces and economic sectors in the third quarter of 2020, it is true that MSMEs are suffering a lot. The Covid-19 outbreak has had a negative impact on 84.7 percent of MSME actors. Average income has fallen significantly by 53 percent. From this average decrease in income, which was quite sad, around 72 percent stated that their incomes had fallen above 40 percent.

Start running

In the midst of tremendous pressure on MSMEs, there is a hope that MSMEs will rise up and become heroes again. The BRI MSME business activity survey in the third quarter of 2020 shows that MSME business activities have begun to stretch and there is a higher level of optimism in the fourth quarter of 2020. BRI Micro & SME Index (BMSI) shows a significant increase in the index from 65.5 to 84.2 in the third quarter of 2020. Furthermore, BMSI is expected to increase again to 109.3 in the days forward in the fourth quarter of 2020.

I think this is an extraordinary achievement because the pressure from the pandemic is so intense and sharp.

Loan restructuring, money subsidies and new loans to MSMEs are beginning to be fruitful and have had positive effects. The restructuring of customers affected by Covid-19 and interest subsidies made MSMEs survive around 56 percent, some even increased their business by 12 percent. I think this is an extraordinary achievement because the pressure from the pandemic is so intense and sharp.

Also read: The Road to Recovery

Loan restructuring and interest subsidies are necessary conditions for MSMEs to survive, but they are not sufficient enough for MSMEs to rise immediately. To increase their business again, it is almost certain that an additional new capital will be needed to respond to the demand boost as a result of the government\'s fiscal stimulus. MSMEs which get additional new capital through PMK 70 (the Financial Minister Regulation No. 70/2020) and banks have enjoyed the facility. The majority of MSMEs that received new loans stated that 54 percent of their businesses were still able to survive and 31 percent, unexpectedly, stated that there had been an increase in business, although perhaps it was limited.

KOMPAS/PRIYOMBODO

A worker makes tofu at a home industry in Mampang Prapatan, South Jakarta, Monday (11/11/2019). This micro, small, and medium enterprise (MSME) has not incorporated digital technology. Marketing is carried out conventionally at traditional markets in the Mampang Prapatan and Kebayoran areas.

The government’s stimulus and banking relaxation through restructuring based on POJK 11 (the Financial Services Authority Regulation No. 11/2020) appear to be not in vain. The momentum for the recovery of MSMEs is in sight, don\'t let it dim again because of the persistent strong pressure of Covid-19 and high uncertainty. The condition of MSMEs is like a car on a steep incline. Before the availability of the National Economic Recovery (PEN) fund stimulus, hitting the gas pedal would probably only make the car run 20 kilometers per hour. After the PEN funding stimulus was provided, the car could run 30 kilometers per hour. Next year, it would be better to maintain the gas pedal (PEN funds stimulus, especially for MSMEs) so that the MSMEs do not slip backward. For sure, we do not know the future. Most certain thing this year is the challenges are very tough.

Hopefully, the challenges next year will be lighter, especially if the Covid-19 vaccine can be found soon. It is not wrong if we still hope that MSMEs will again become the savior and heroes of the national economy.

DOKUMENTASI ANTON HENDRANATA

Anton Hendranata Ekonom BRI

Anton Hendranata, Economist with Bank Rakyat Indonesia