Promoting Export-Oriented MSMEs

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.

Amid the pandemic still holding sway today, Indonesia’s non-oil and gas exports are showing a positive growth trend in line with recovery in global economy and trade.

Total export value in 2020 reached US$163.3 billion, a decline of 2.61 percent compared to the total value in 2019. The cumulative value of exports in January-August 2021 stood at $142.01 billion, a 37.77 percent year-on-year (yoy) rise compared to the same period in 2020. Non-oil and gas exports totaled $134.13 billion, a 37.03 percent yoy increase. The surge in exports, according to Statistics Indonesia (BPS), was particularly boosted by rising commodity prices in the global market and growing demand from several trading partners.

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Indonesia’s non-oil and gas exports to the 14 member countries of the Regional Comprehensive Economic Partnership (RCEP) have also grown 5.33 percent over the last five years, with around 54.12 percent of total exports in 2020 going to RCEP states.

Despite the signs of positive growth, we should never become complacent. Compared with rival countries such as India, Vietnam, Malaysia and Thailand, we have been left behind in terms of export market share as well as the type of commodity. Unlike Indonesia, exports from the above countries are no longer dominated by primary commodities, but rather by industrial products that create value added.

The contribution our micro, small and medium enterprises (MSMEs) have made to total exports remains relatively small at 14 percent. Compare this to Singapore at 41 percent, Thailand (29 percent) and China (60 percent). The government and financial authorities have taken various measures over the last few years in order to accelerate MSME promotion to reach the level of large-scale, export-based enterprises towards a targeted contribution of 21.6 percent to total exports in 2024.

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.

In the field, MSMEs are confronted by many constraints to growth and penetration in the global market, ranging from certification, product standards, marketing and funding to market access. The recent container shortage has also hit MSMEs exporters hard, as 80 percent of their exports are shipped as sea freight.

All indicate that much homework is yet to be completed. The different breakthroughs that have been made including digitalizing, fostering, guiding and financing MSMEs, as well as building an ecosystem that is friendly and conducive to the growth of MSMEs.

MSMEs are also being encouraged to increase borrowing to rapidly achieve 20 percent of total bank loans.

Among the policies recently launched include increasing the microcredit (KUR) ceiling from the previous maximum of Rp 500 million to Rp 20 billion and from a maximum Rp 50 million to Rp 100 million for microcredit without collateral. MSMEs are also being encouraged to increase borrowing to rapidly achieve 20 percent of total bank loans.

The other steps, as mentioned by Cooperatives and Small and Medium Enterprises (SMEs) Minister Teten Masduki, are upgrading the database, mapping product and market potentials in the MSME Single Database along with the market preference of destination countries, overseas distribution and warehouse networks, secure reduced tariffs in destination countries and expand foreign trade cooperation.

The facilitation of the SME export financing scheme is also continuing through cooperation with Indonesia Eximbank’s Export-Oriented Microcredit (KURBE), the Cooperatives and MSMEs Revolving Fund Management Institute (LPDB-KUMKM), the banking system and the

Association Of State-Owned Banks (Himbara), as well as alternative schemes like crowdfunding, venture capital and corporate social responsibility (CSR).

(This article was translated by Aris Prawira)