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The Role of Small Medium Enterprises (SME) to Boost Investing Indonesia

Investing Indonesia – Indonesia as well as developing countries in common is an emerging economic potentials. One of the appeal for investors is because there are so many problems that need immediate solution. It means that the country provide many opportunities as solutions.

Despite its rapidly growing economy, there are obstacles in setting up business in Indonesia which make investors become more considerate. The increasing graphic of economic growth is still prone to a slowdown. As what happened in 2016, a stable economy expansion was expected whereas a slowdown occurred in the fourth quarter of the year.

As a young massive economic strength in the region, Indonesia have task to make internal economy stable. One of the local potentials which has proven itself to be solution along the 1998 crisis is small medium enterprises or known as SME. As the country has made its way further from the crisis, the SME is expected to continuously grow that will eventually boosts investing Indonesia.

Overview of SME in Indonesia

Indonesia was hit by a multidimensional crisis back then in the 1998. Economic downfall could not be avoided. At that time,Rupiah fell sharply towards foreign currencies, spending ability was very low, and companies stopped operating due to economic uncertainty and insecurity causing great numbers of employees became jobless. Demonstration in large scale occurred almost every day.

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However, the chaos had triggered the country to be a newly democratic nation. Gradually, the country’s life aspects were reconstructed and gained improvement. In economic sector, it was Small Medium Enterprise which helped the nation to gain the strength back. The SMEs provides job opportunities even it only began in small scale. It also empowers economic potential nearby. Less employment also allows better access to higher education and potentially reduces crime in the neighborhood. Seeing its continuously growing creativity and potential, government now gives more and more support for SMEs to develop.

Growth Target

High rate in investing Indonesia is one of the main factors of the country’s strong economy. In order to manage a continuous growth of Indonesia’s economy, the government intend to increase foreign direct investment and support Small and Medium Enterprises in the country. In line with that, more business classification are allowed to operate as some subsectors are no longer in the negative investment list. For the SMEs, government has set protections as they are expected to grow.

Government’s efforts to protect SMEs is to give easier access for the enterprises to financial support. Limited access to financial loan has been a major problem in SMEs sectors. The role of SMEs in Indonesia is undoubtedly. It contributed 58% of the GDP in 2016 an absorbed up to 97% workers. However, SMEs as vital parts of Indonesia’s economy are expected to give more participation in global trade by being direct or indirect exporter.

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To overcome this condition, government makes benefit of global forum such as the AEC or ASEAN Economic Community to train local enterprises so they will take more advantage from global trade by facing competition from SMEs around Southeast Asian. Healthy and legal competition also stimulates SMEs to enhance their product quality.

Obstacles Faced by Indonesia’s SMEs

Although Small and Medium Enterprises hold a vital role in constructing the country’s economic strength (so investing Indonesia becomes more attractive to the foreign investors), they still unfortunately face hurdles in business operation. Some of the obstacles are:

  1. Access to Financial Loan

As it is stated before, it is not easy for SMEs to get access to capital especially for smaller businesses which do not have sufficient assurance for loans.

  1. Lack of Infrastructure Knowledge for SMEs

Financial industry is closely related to implicit information essentially. Information infrastructure helps to maintain problems of asymmetric information between provider and demander of funds. The problem is that commonly SMEs do not have link with capital markets. A close and continuous observation over borrowers can be carried by financial institutions but unfortunately the process is expensive for small loans borrowers.

  1. Lack of Technology Use

SMEs in Indonesia needs technology training. Previous observation shows that one-third SMEs in the country operated offline. Meanwhile, the rest only employs basic online technology. This is crucial because previous offline SMEs could boost their revenue by using advanced technology.

  1. Limited Raw Material
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Although we can find great variety of natural resources in the country, industries sometime do not get sufficient raw material they need. This due to natural condition or limited distribution.

  1. Lack of Qualified Human Resources

Indonesia has abundant people in productive ages. Unfortunately, this great quantity is not supported by sufficient quality. Small and Medium Enterprises also needs to pay more attention on enhancing skills of their workers. Set of entrance test and intensive training are necessary to recruit the best people.

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