The Investment Coordinating Board (BKPM) has helped local small and medium enterprises (SMEs) sign deals over Rp 1.5 trillion (US$106 million) with national and multinational corporations to boost small firms’ role in global value chains. On Monday, 196 SMEs had signed partnership deals with 27 national and 29 foreign companies that plan to invest in the country, BKPM head Bahlil Lahadalia said, adding that more such partnerships and deals were expected regularly in the future. Companies signing cooperation deals on Monday include publicly listed garment company PT Pan Brothers, which partners with 13 SMEs, and food and pharmaceutical manufacturer PT Cheil Jedang Indonesia (CJ Indonesia), controlled from South Korea, which is set to work with three SMEs. “Good economic development is development that also promotes economic equality. In the future, we want every investment that comes into Indonesia to benefit local businesses as well,” he said during the signing ceremony on Monday.
The partnerships were also aimed at increasing investment outside of Jakarta and Java island, the BKPM stated. The country’s small businesses, which account for more than 60 percent of the gross domestic product (GDP) and employ the vast majority of the labor force, have been hit hard by the COVID-19 outbreak as the economy entered its first recession in two decades last year. The country’s realized foreign direct investment (FDI) picked up by 1 percent in the July to September period last year to Rp 106.1 trillion (US$7.21 billion) from the same quarter a year earlier. Meanwhile, realized domestic direct investment (DDI) rose to Rp 102.9 trillion in the third quarter, up 2.2 percent on the year.
The government has also recently passed the Job Creation Law to cut red tape and attract more investment into the country. The jobs law stipulates that central and local governments are mandated to facilitate, support and stimulate partnerships between medium and large enterprises with cooperatives and micro and small enterprises. Partnerships may include the transfer of skills on production, processing, marketing, human resource development and technology, the article stipulates. The government is also to provide incentives and ease the business partnership process, according to the regulation. President Joko “Jokowi” Widodo proposed such a partnership model early last year, citing that national and foreign companies should grow their businesses alongside small enterprises. Such partnerships should also be widespread in the country and conducted continuously so that investment could increase over time, he said.
“SMEs can learn from these established businesses to become better in their management and to be more bankable,” Jokowi said. “SME cooperation with big companies is crucial so that our SMEs can enter the global value chain and for them to improve the quality and competitiveness of their products,” he added. In December last year, the government announced the shipment of exports worth $1.64 billion by 133 large and small businesses. While 79 large businesses accounted for the overwhelming majority of the exports, 54 SMEs contributed $12.3 million. The country booked a record trade surplus of $21.74 billion in 2020, the second-highest figure in the country’s history, because imports plunged during a tumultuous year for international trade as the COVID-19 pandemic disrupted supply chains and hit global demand. Despite the partnership program attracting significant investment, Indonesian SME Association (Akumindo) chairman Ikhsan Ingratubun said the program was only applicable to medium and established businesses that had enough resources.
“We appreciate the program, and it is great. However, it cannot be implemented, because there is no legal basis for a mandatory partnership,” he told The Jakarta Post in a phone interview on Monday. Ikhsan went on to say that the government, through the jobs law, could only recommend SMEs to partner with big enterprises. The omnibus law stipulates that the government and regional administrations give relaxations, empowerment and protection for cooperatives and micro, small and medium enterprises (MSMEs) in accordance with norms, standards, procedures and criteria determined by the government. The law's explanation of the article states that the government is to determine business sectors that are set aside for cooperatives and MSMEs and that are open for big companies with the condition that they forge partnerships with small businesses.
Meanwhile, Esther Sri Astuti, program director at think tank Institute for Development of Economics and Finance (Indef), said giving incentives to companies that partner with SMEs would be sufficient to encourage business partnership between large and small businesses. She noted existing partnerships, such as the SMEs that supply spare parts to Japanese electronics firm Panasonic, while the company helps the SMEs get certified for compliance with international standards. “SME and [big] enterprise cooperation is one of the necessary means to boost SMEs’ demand and involve them in global supply chains,” she told the Post. However, she added that SMEs also needed other types of support from the government to help face challenges, such as the lack of capital and credit, poor infrastructure and a lack of skilled human resources.
