Encourage Quality Investment

Business challenges are becoming increasingly difficult amid the threat of inflation and global recession. Empowerment of MSMEs and quality investment are important ways to cope.

KOMPAS/PRIYOMBODO

Laras, owner of Glacerie Gelato, produces gelato at a production house in the Kebon Baru area, Tebet, South Jakarta, Friday (15/7/2022). These micro, small and medium enterprises (MSMEs) rely on sales through online markets and exhibitions.

JAKARTA, KOMPAS — The uncertain global economic condition and high inflation at the producer level pose serious challenges to the business climate in Indonesia. Better-quality investment and empowerment of micro, small and medium enterprises are steps needed to address the challenges and overcome the increasingly sharp excesses of social inequality.

A study by research and development in Kompas shows that the current fragile global economic condition is starting to burden the business world. This can be seen from the upward trend in inflation in Indonesia, which is more significant on the producer side. Per quarter I-2022, annual producer inflation amounted to 9.06 percent, while consumer inflation stood at 2.64 percent. This situation shows that a bigger portion of the burden of increasing prices due to soaring raw-material input costs is still borne by producers in order to suppress inflation at the consumer level and maintain people's purchasing power.

This burden at the producer level is reflected in the trend of Indonesia's Manufacturing Purchasing Managers' Index (PMI), which continues to decline. Finally, as of June 2022, Indonesia's Manufacturing PMI was at the level of 50.2, slowing down compared to previous months and getting closer to the contraction zone, even though technically still within the expansion zone.

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The business climate, which is affected by the inflationary trend, also affects business satisfaction with the government's performance. The Kompas R&D poll showed that entrepreneur satisfaction in the economic field fell from 61.6 percent in January 2022 to 42.1 percent in June 2022.

Investment Minister and head of the Investment Coordinating Board Bahlil Lahadia said on Friday (15/7/2022) the government is optimistic that investment goals have so far been on target. However, he acknowledged, global economic conditions were not ideal, and in the future, he predicted, the real sector will experience a heavy blow.

Bahlil hoped that the private sector could propose concrete solutions to be followed up on by the government. "Because, those who know the detailed problems in the field are businessmen. It is impossible for this global problem to be managed by the government or the private sector alone; there must be collaboration to find a solution," he said at the Kompas Collaboration Forum (KCF) afternoon tea.

Inclusive supply chain

On the same occasion, the majority of entrepreneurs voiced the importance of encouraging quality investment in the labor-intensive sector as well as empowering micro, small and medium enterprises (MSMEs) in the face of the current trend of increasing production-input costs (cost-push inflation).

Director of corporate affairs of PT Toyota Motor Manufacturing Indonesia Bob Azam said that even though the price of raw materials increased quite a lot, manufacturers could not immediately increase the price of finished products because they had to maintain the purchasing power of the people. The demand to maintain the final price in the market and reduce profit margins is more severe for MSMEs and small and medium industries (IKM) than large corporations.

KOMPAS/WISNU WIDIANTORO

President Commissioner of PT Triputra Argo Persada Arif Patrick Rachmat when speaking at the Afternoon Tea #10 discussion Kompas Collaboration Forum (KCF) with the theme "Impact of the Russo-Ukrainian War on Investment in Indonesia" which was held at the Kompas Gramedia Building, Jakarta, Friday (15/7/ 2022). The event, which presented the Minister of Investment/Head of the Investment Coordinating Board, Bahlil Lahadalia, was attended by a number of CEOs from various companies that are members of the KCF.

"Therefore, our concentration in the future should be how to help on the supply side, especially for MSMEs, because it will have a lot of influence in controlling inflation," he said.

This effort can be made, for example, by establishing a raw-material center to make it easier for small and medium industries (SMEs) to access raw materials. This initiative has been rolled out in the automotive sector to help supply chains in second tier and is expected to be replicated in other sectors.

Actually, a number of companies have done this, but it is only on their own initiative.

Similarly, CEO of PT Triputra Agro Persada Tbk Arif Patrick Rachmat said that the current global-recession threat had the potential to widen the socio-economic gap, let alone if it was not accompanied by an inclusive strategy to raise MSMEs and SMEs.

He suggested that large corporations should work together to empower MSMEs. One of the ideas being discussed is to invite large companies to set aside 1 percent of their profits to build an inclusive supply chain that involves MSMEs and SMEs.

“Actually, a number of companies have done this, but it is only on their own initiative. If it is made more concrete and consistent, by monitoring which companies are already running and which are not, then there would be peer pressure, so that this can really be realized,” he said.

Labor-intensive investment

The entrepreneurs also highlighted the realization of investment which is still more capital-intensive in the mining sector than labor intensive. In fact, labor-intensive investments are needed to create jobs and increase foreign exchange amid the current economic challenges.

Vice CEO of PT Pan Brothers Tbk Anne Patricia Sutanto cited, as an example, that the market share of the Indonesian textile and garment industry in the world supply chain was still left far behind. In 2021, she said, the national textile and garment market share was only worth US$13.5 billion. This figure was below Bangladesh with a market share of $43 billion, Vietnam with a market share of $40 billion and China with a market share of $300 billion.

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She stressed that it is important to pay attention to the labor intensive because investment is not only about the incoming capital, but also how many people are absorbed as labor. "Investment is not only a matter of incoming capital, but also population progress and our GDP per capita, which also increases," she said.

With regard to this feedback, Bahlil promised that the government would include labor-intensive investment and empowerment of MSMEs/SMEs in the priority list. Of the current 131 million jobs, MSMEs and labor intensives make up the largest portion, namely 121 million jobs.

This number is greater than that of large corporations with 10 million jobs, so its potential needs to be continuously developed. "Our challenge in the future is how to take advantage of this opportunity," she said.

This article was translated by Hyginus Hardoyo.