Innovation at the Frontier

Background

Small and medium enterprises (SMEs) are very important players in Indonesia’s economy. This is illustrated by the fact that SMEs employed 85.4 million people – more than 96 percent of the national workforce – in 2006. This figure however, was not followed by a similar contribution to national GDP. In the same year, 48.93 million SMEs – 99.985 percent of all enterprises in the country – accounted for only 53.28 percent of the national GDP. These figures show that SMEs substantially outnumber large enterprises, but are outperformed by large firms in terms of unit leverage.

Regionally, ASEAN has called for the formation of an ASEAN free-trade area (AFTA) by 2015 for selected commodities and services. This combined with plans for the regionalization of APEC member countries by 2025 add to the motivation for Indonesia to improve its global economic readiness.

Given this backdrop, some agents of change have attempted to rectify sluggish Indonesian competitiveness, particularly: Business technology centers, business incubators, entrepreneurship centers, SME working groups, bodies within public institutions, private institutions through corporate social responsibility programs, and foreign and national non-government organizations.

Hitherto, these initiatives remain scattered, too removed from the fore to bring impact, dedicated to too specific issues, too small to produce leverage, and uncoordinated. Hence, ‘coordination and synergy’ become the new battle cry as this effort requires concerted mobilization of resources.

National Agenda

The national development policy of Indonesia is outlined in the National Medium-term Development Plan (NMDP) 2004-2009. The NMDP stipulates three important points: 1) Creating a safe and peaceful Indonesia, 2) Creating a just and prosperous Indonesia, and 3) Improving prosperity. The third point is further broken down into five goals, within which poverty alleviation and unemployment reduction are outlined.

In concurrence, the Government of Indonesia has targeted to halve the number of absolute poverty from 16.6 percent in 2004 to 8.2 percent in 2009, and to reduce unemployment from 9.5 percent in 2004 to 5.1 percent in 2009. For this purpose, economic growth must be kept at an average of 6.6 percent.

Within the framework of the national development agenda, SMEs are expected to play a more central role, for which empowerment is mandatory. Translated into action, there are five strategic issues for empowering SMEs: 1) The creation of an enabling business environment, 2) The provision of supportive systems for the development of SMEs, 3) The development of entrepreneurship and competitive advantage, 4) The empowerment of micro-scale enterprises, and 5) Quality improvement of cooperative institutions.

Recent Development

The recently issued (June 12, 2007) Presidential Instruction No. 6/2007 on Policies to Accelerate Real Sector development and to Empower Micro-, Small-, and Medium-sized Enterprises has ordered the Coordinating Minister for Economic Affairs (CMEA) to form task forces to prepare for the establishment of an SME Innovation Center. The CMEA has responded by forming a task force of inter-departmental representatives of the steering committee, the organizing committee, and four working groups on (i) Policy, Program, and Regulation, (ii) Technology, Network, and Data Center, (iii) Institution and Human Resources, and (iv) Infrastructure and Financing. The task force intends to produce the roadmap and blueprint for the SME Innovation Center by December 31, 2007, aiming at an official launch in early 2008. Hopefully by then we can have a one-stop Center for all matters related to the development of SMEs, which is accessible to all, and can serve as a platform for coordination and synergy.

Totok Hari Wibowo

Contributor