Central Bank Policy Mix
By Yenita Lisna
The Covid-19 pandemic has drastically changed the way the world works, including massive adaptations to maintain the quality of life. Deliberate restrictions on movement were not only a barrier yet also a source of moderation. On the other hand, mobility restrictions unlocked vast money-generating opportunities for individuals and businesses.
It is interesting to study and identify the challenges faced by business players during the pandemic and further explore solutions to improve their competencies and performance. This is what Rezzy Eko Caraka et. al. (2021) from the University of Indonesia tackled in their research by looking at the vulnerabilities of micro, small and medium enterprises (SMEs) and categorising SMEs challenges during the pandemic.
With funding from the Bank Indonesia Research Grant (RGBI), the research by Rezzy Eko Caraka et al. applied trade vulnerability analysis and found that nearly all SMEs located outside the Java region fell into the vulnerable category. Conversely, SMEs in Java, especially the Jabodetabek region, as the backbone of the national economy, thrived in the resilient category.
The research is consistent with the findings of the annual SMEs survey conducted by the Government in 2019. According to the government survey, most SMEs are located on the island of Java, totalling 4.3 million units and accounting for 62.26% of the total. With more than 500,000 units in each, the two provinces of East Java and West Java were dominant. In comparison, less than 30,000 units are located in the provinces of Maluku and Papua.
Numerous studies have explored SMEs resilience during the Covid-19 pandemic. A salient piece of research that combines datasets from the National Labour Force Survey (SAKERNAS) and National Socioeconomic Survey (SUSENAS) applied nature-inspired spatial clustering: the naspaclust package to identify the five most binding challenges currently facing SMEs.
Observing the research into 503 SMEs clusters conducted during the Covid-19 pandemic is particularly interesting because the results identify different factors as sources of SMEs vulnerability, thus representing a turning point to revive and level up SMEs, thereby expanding their role in local economic empowerment. The dominant factors as sources of SMEs vulnerability in Indonesia were identified as follows:
Of the affecting factors, digitalisation was the overarching issue to be addressed by SMEs. Bank Indonesia (BI) data showed that during the pandemic, e-commerce transactions have increased twofold from 80 million in 2019 to 140 million in August 2022. Such developments demonstrate that adaptation to e-commerce transactions based on digital technology is critical for SMEs in line with the massive market opportunities available.
Throughout Indonesia, vast disparity exists in terms of the transition from traditional to digital among SMEs, particularly between the Java region and beyond. This is mainly due to differences in the availability of infrastructure, internet access and digital literacy. Furthermore, contrasting geographical conditions throughout the archipelago represent another constraint for the equitable distribution of infrastructure and facilities, which is the responsibility of the Government.
Despite the limitations, the number of internet users in Indonesia has increased by 73.7% or 196.7 million users during the pandemic. This is equivalent to 71.79% of the total Indonesian population in 2021 according to data from the Ministry of Home Affairs. Notwithstanding, only 13% of SMEs are connected to digital marketplaces (such as Tokopedia, Shopee, Blibli) and digital markets.
Challenges and opportunities are two sides of the same coin, as is the case of limited SMEs digitalization infrastructure in Indonesia. Through the Telecommunication and Information Accessibility Agency (BAKTI), the Ministry of Communication and Information Technology is improving the distribution of access to telecommunications and information throughout the Indonesian archipelago. On the other hand, there is a massive opportunity for SMEs to increase business scale through digitalisation and exploiting the growing trend of online trading and transactions. It is time for the Government and relevant stakeholders to work in synergy with SMEs. For the government, this entails digital infrastructure development and SMEs capacity building towards digital proficiency, and for SMEs, business management must be modernised through the use of technology, financial management and appropriate skills acquired via formal education, experience and training.
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