Streamlining and Improving the Situation For Indonesia’s SMEs Ahead of the AEC Era

January 12, 2014 Leave a comment

Streamlining and Improving the Situation For Indonesia’s SMEs Ahead of the AEC Era

By Djoko Subinarto on 11:59 am January 4, 2014.
A single regional common market of Association of Southeast Asian Nations, or Asean, countries known as the Asean Economic Community will go into effect in 2015 for its founding members — Indonesia, Malaysia, the Philippines, Singapore and Thailand — and in 2020 for the remaining member states of Brunei, Cambodia, Myanmar, Laos and Vietnam.Under the AEC, there will be free flow of goods, free flow of services, free flow of investment, free flow of capital and free flow of skilled labor among Asean member nations.

While it will provide more business opportunities, the AEC is also set to pose some challenges to Indonesia’s business sectors, in particular to small and medium enterprises, known locally as UMKM and more generally as SMEs.

Now the question is: would Indonesia’s SMEs still be able to survive after the AEC arrives?

According to the law regarding assets and sales, the definition of SMEs in Indonesia is as follows.

Clarification

First, micro enterprises.

These are enterprises that have net assets of no more than Rp 50 million ($4,100) and annual sales of no more than Rp 300 million.

Second, small enterprises. They have net assets of at least Rp 50 million and no more than Rp 500 million and with annual sales of between Rp 300 million and Rp 2.5 million.

Third, medium enterprises. They have net assets of between Rp 500 million and Rp 10 billion, and have annual sales of between Rp 2.5 billion and Rp 50 billion.

According to the Central Statistics Agency (BPS), so far there are an estimated 48.9 million micro, small and medium enterprises operating in Indonesia, employing at least 85.4 million people and contributing 53.3 percent of gross domestic product.

We know and have witnessed that our SMEs play a pivotal role in propping up Indonesia’s economy.

Problems

During the monetary crisis that hit the country in late 1990s, for instance, while many investors and big businesses collapsed and some diverted their capital to other countries, our SMEs successfully survived and greased the economy’s wheels at the time.

Nonetheless, some are inclined to believe that Indonesia’s SMEs resilience and existence would be heavily challenged when the AEC is implemented as of 2015.

Referring to a survey result conducted recently by the Kenan Institute Asia, Indonesia’s SMEs have the most problems compared with those of other Asean countries.

Restricted access to obtaining stable capital, high quality material and facilities and modern technologies, low productivity, lack of qualified workers, limited distribution channels, lack of infrastructure and lack of networked information about products are among the most pressing issue faced by Indonesian SMEs today.

The above must be tackled thoroughly.

Letting these problems persist only continues to put our SMEs at stake and forces them to operate at a competitive disadvantage with those in other Asean countries.

In this respect, there are several important steps that our government should continue taking to address the above problems in order to make our SMEs ready to compete under the AEC umbrella.

Solutions

First, to provide education and training programs to SME players, and to provide support for the acquisition of patents on products produced.

Second, providing easy financing facilities in the form of grants or soft loans backed by fiscal policy in the form of tax breaks or subsidies to attract investment in the SME sector.

Third, to establish and develop appropriate infrastructure to support the sector.

Fourth, offering technical support services such as marketing, development and modernization of technology assistance.

Fifth, streamlining and simplifying the business licenses and permits process. It is no secret that it takes a lot of time and costs to obtain business licenses and permits in Indonesia.

We still have time to strengthen the foundations and structure of our SME sector so it can face entering the AEC with a greater degree of optimism.

Otherwise, we risk putting these businesses on the back foot before the AEC has even opened.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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