Saving small businesses
Joining digital marketplaces could help Indonesian entrepreneurs hit hard by the pandemic, but they need help getting started.
Indonesian small businesses, which have shown resilience during previous economic downturns, have borne the brunt of the impact of the Covid-19 pandemic and are now looking for ways to revive their fortunes.
The majority of micro, small and medium enterprises (MSMEs) have experienced a steep decline in profit margins despite a significant shift to online platforms to reach their customers in the era of restricted mobility.
Curbs on transport also caused 45% of 1,180 MSMEs surveyed in 15 provinces to have problems getting raw materials and distributing their products. The result has been both demand and supply shocks, according to research conducted by the United Nations Development Programme (UNDP) and the Institute for Economic and Social Research at University of Indonesia School of Economics and Business.
The prolonged pandemic, however, has propelled them to embrace digitisation by joining online marketplaces or e-commerce platforms, despite the patchy internet network in many parts of the country.
"Prior to the pandemic, only 28% of MSMEs had an online presence. Since the pandemic, the number has grown to 44%. Yet, the digital transition is not as high as we expected it to be," said Rima Prama Artha, the UNDP country economist for Indonesia, during a recent webinar to present the results of the study.
In Malang, East Java, the handicraft maker Pelangi Nusantara or Pelanusa, reported its revenue fell by 50% compared to the year before. In 2019, the company earned 500 million rupiah (US$35,700) from sales linked to events, weddings and tourism.
But then the pandemic halted its revenue stream, as events were cancelled and travel restrictions were imposed. After a six-month hiatus, the company resumed its business, switched to producing reusable masks and personal protective equipment and shifted its marketing outreach to social media platforms and online marketplaces.
According to the study, about 25% of the MSMEs surveyed had shifted their product offerings in keeping with prevailing demand and pandemic-induced lifestyle changes.
"We also need the government to help these MSMEs access their customers because, during the pandemic, there has been a steep decrease in consumer demand," Ms Artha said.
Pelanusa founder Noor Suryanti pointed out that in addition to assistance such as tax and fiscal incentives, businesses such as hers need the government's help to establish business connections, access the market, and promote their products in order to achieve a tenable flow of revenue.
There are approximately 64 million MSMEs in Indonesia, 98% of which are microbusinesses run by self-employed entrepreneurs. They form the country's economic backbone, contributing more than 60% to gross domestic product (GDP) -- the largest portion compared to other Southeast Asian countries -- and absorbing about 90% of the country's workforce.
Recognising their important contribution to both GDP and employment, the government has come up with a number of assistance programmes to support these businesses. Assistance has included one-off grants and, most recently, help finding a homegrown market for their products abroad, specifically Indonesian Hajj and umrah pilgrims in Saudi Arabia.
The latter involves help for MSMEs build their capacity in order to meet the requirements of the Saudi food and drug regulator. This would enable their products to enter the Saudi market and available for up to 1.5 million Indonesians who, in non-pandemic times, travel every year to the kingdom to perform the pilgrimage.
"The main obstacles facing MSMEs include lack of information on the potential market, while their products are still not standardised in accordance with the Saudi Food and Drug Authority requirements," Kasan Muhri, director-general for export development at the Ministry of Trade, told Asia Focus.
The assistance programme is being developed by the Ministry of Trade, the Cooperatives and Small and Medium Enterprises Ministry, the Religious Affairs Ministry and the Indonesian Chamber of Commerce (Kadin).
Cooperatives Minister Teten Masduki said the initial focus would be on five food and beverage products that Indonesian SMEs could offer to the Saudi market: bottled chili sauce, soya sauce, coffee, tea and sugar.
Catering companies in Saudi Arabia commissioned to prepare food and drinks for Indonesian pilgrims are expected to be the initial buyers, as the Religious Affairs Ministry has stipulated since 2014 that the companies should use food and beverage products of Indonesian origin.
Finding such suppliers has been difficult, however, and the caterers have had to use similar products from Thailand or India said Zainut Tauhid Sa'adi, vice-minister of Religious Affairs.
Fachry Thaib, head of the Kadin Middle East Committee, told Asia Focus that the chamber was helping the MSMEs in their attempts to enter the Saudi market, since demand among pilgrims is not limited to food. There is also a need for clothing, footwear, accessories, or spices and condiments.
"We realise we don't have much to hope for in this pandemic time, but we are anticipating the future [when the pilgrimage resumes]," Mr Thaib said.
"We are optimistic since we have cooperation with importers in Saudi Arabia," Kadin chairman Rosan Roeslani told Asia Focus.