Updated: Jun 1, 2020
If you have read my previous blog post about Indonesia Negative Investment List, you would probably ask about Indonesian Small Medium Enterprises (SMEs). How well do you know about the existence of SMEs in Indonesia?
Well, Indonesia’s SMEs is currently dealing with new challenges. This is most notably in the form of rapid technological development and regional economic integration which have loomed over them for many years but has come into sharp focus with the start of the ASEAN Economic Community (AEC). However, with the Indonesian government now more determined than ever to push the growth of SMEs, the sector could be in a position to turn these challenges into exciting opportunities.
According to the Minister of Finance, Indonesia's micro, small and medium-sized enterprises (MSMEs) are the backbone of the Indonesian economy. These enterprises account for 99 per cent of the total amount of enterprises that are operating in Indonesia and they create a total of 107.6 million jobs in Southeast Asia's largest economy. Moreover, Indonesia's MSMEs contribute 60.6 per cent to Indonesia's gross domestic product (GDP). All these facts indicate the importance of the existence of these companies. In fact, they cushion the country's economy in times of shocks.
Indonesia SME Textile Factory
What is Indonesia MSMEs?
Indonesian MSMEs have particular characteristics that distinguish them from general business and thus require treatments that are different from those aimed for general businesses. In general, Indonesian MSMEs consist of various categories: micro-enterprise, small enterprise, and medium enterprise. Each has different characteristics.
Based on the Law Number 20 of 2008 concerning Micro, Small and Medium Enterprises (see here), the three enterprises are defined as follows:
Micro-enterprises are defined as an enterprise with the maximum net profit of 50 Million IDR not including the land and its property or maximum annual revenue of 300 Million IDR.
Small enterprises are defined as an enterprise with its net profit in the range of 50 Million IDR to 500 Million IDR, not including the land and its property or its annual revenue in the range of 300 Million IDR to 2.5 Billion IDR.
Medium enterprises are defined as an enterprise with its net profit in the range of 500 Million IDR to 10 Billion IDR, not including the land and its property or its annual revenue in the range of 2.5 Billion IDR to 50 Billion IDR.
Any special treatment from the government to Indonesian MSMEs?
As mentioned by the Minister of Finance, Indonesia is currently in the process of economic decentralization in which strong economic growth has become felt in the regions rather than the centre. Therefore, the MSMEs in rural areas have great potential. However, they need to engage in larger networks and it should be made easier for them to obtain credit by lowering the interest rates of Indonesia's microcredit program (Kredit Usaha Rakyat in Indonesian, or "KUR"), particularly for those that are export-oriented.
Another show of the government’s support for the country’s SMEs is the special provision it has made in the regulatory changes on the Negative Investment List (see Indonesia Negative Investment List blog post). In a bid to significantly attract foreign investment, the government removed 35 subsectors from the list, allowing for companies in these sectors to be fully-owned by foreign investors in the 2016 Negative Investment List. Interestingly, in the revision, the government specified that 19 selected subsectors will be reserved for small-scale firms and cooperatives. It further ruled that 62 areas of business will only be accessible to international investors if they partner with a local SME.
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