Sustainability of MSMEs in Indonesia: Learnings From COVID-19 Impact

Sustainability of MSMEs in Indonesia: Learnings From COVID-19 Impact

Devi Asiati (Indonesian Institute of Sciences, Indonesia), Ngadi Ngadi (Indonesian Institute of Sciences, Indonesia), Yulinda Nurul Aini (Indonesian Institute of Sciences, Indonesia) and Yanti Astrelina Purba (Indonesian Institute of Sciences, Indonesia)
DOI: 10.4018/978-1-7998-6632-9.ch024
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Abstract

This chapter is aimed to discuss the condition of the MSMEs in Indonesia at the beginning of COVID-19 as well as the strategies that the government has undertaken to minimize the impact of COVID-19. The data for analysis is data from online survey results that carried out between 24 April-2 May 2020 with a total of 204 MSMEs participating. The results of the survey show that more than half (53%) of the MSMEs suffered from a decrease in income/production; even 43% stopped production at the beginning of the pandemic. Most of the MSMEs in various sectors admitted that they were only able to survive for less than three months, with the worst sectors being trade, corporate services, and construction. The government has implemented wage subsidy policies, loan interest subsidies, and tax abolition to save the MSMEs from the impact of COVID-19. For this matter, efforts to save MSMEs must continue, especially through expanding wage subsidies, increasing the realization of the low subsidy budget, and transforming to digital-based businesses.
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Introduction

The micro, small and medium enterprises (MSMEs) have an important role in economic development and job opportunities in Indonesia. Data statistics show that economic enterprises are dominated by MSMEs (99%) and absorb around 97% of the workforce. This shows that MSMEs contribute to calculating poverty by providing employment opportunities and increasing the distribution of income to differentiated areas. The micro and small enterprises have advantages in fields that utilize natural resources as well as labor-intensive, such as food crop agriculture, plantations, animal husbandry, fisheries, trade, and restaurants. At the same time, the medium-sized enterprises also dominance in creating added value to the hotel, finance, leasing, corporate services, and forestry sectors. While the large businesses have control over the processing, electricity and gas, communications, and mining industries. The advantages of each of these businesses bring these micros, small, medium, and large businesses the ability to complement each other (Putra A.H. 2016).

The development of the MSMEs has a direct effect on both economic growth and job opportunities. Meanwhile, contribution of the MSMEs to GDP according to the current prices in 2017 is IDR 7,820,282.6 (60.90%), then increased to IDR 8,573,895.3 (61.07%) in 2018, with an increase of 9.64%. During 2017-2018, the number of MSMEs increased by 1,271,440 units or 2.02%, which brought an increase in employment by 547,507 people or 0.47%. In 2018, the number of MSMEs was 64,194,057 and was able to absorb a workforce of 116,978,631 people, or 97% of the total working population (Ministry of Cooperatives and SMEs, 2018). The development of the MSMEs is hoped to be able to surmount issues related to poverty reduction, income distribution, and so on.

In Indonesia, the law that regulates the Micro, Small, and Medium Enterprises (MSMEs) is Law No. 20 of 2008 on the MSMEs. In the law, the MSMEs are defined as “A company that is classified as an MSME is a small company that is owned and managed by a person or a small group of people with a certain amount of wealth and income”. In this case, the criteria for micro, small and medium enterprises are differentiated into assets owned and sales results. Micro enterprises are businesses that have a net worth of at most IDR 50 million excluding land and buildings for business premises with the highest annual sales result of IDR 300 million. While small businesses are categorized as businesses with a net worth of IDR 50 - 500 million with annual sales that can proceed as far as IDR 300 million - IDR 2.5 billion. Medium Enterprises are seen as businesses with a wealth of IDR 500 million to IDR 10 billion with annual sales of IDR 2.5 billion - IDR 50 billion. Meanwhile, the Central Bureau of Statistics (BPS) then added criteria for the number of workers with micro businesses having a workforce of less than 5 people, small businesses 5-19 people, and medium businesses with a number of employees at around 20-99 people. Based on business criteria, the business world in Indonesia is dominated by Micro and Small businesses (MSEs) with the percentage of the MSEs in Indonesia reaches 98.68% of the total number of all businesses in Indonesia (BPS, 2017).

The Covid 19 pandemic has an impact on the sustainability of MSMEs in Indonesia. The Labor Organization (ILO) stated that as many as 70% of MSMEs in Indonesia stopped producing due to Covid 19 (ILO, 2020). This study aims to analyze the impact of the covid 19 pandemic on MSMEs and the government response. In particular, this study aims

  • 1.

    Analysis of the impact of a pandemic on MSMEs business activities

  • 2.

    Analysis of the survival capacity of MSMEs

  • 3.

    Seeing the level of vulnerability of MSMEs during a pandemic

  • 4.

    Analysis of the government's strategy and response

  • 5.

    Provide recommendations to stakeholders for the sustainability of MSMEs businesses

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Background

The Covid-19 pandemic has spread throughout the world and caused death, including Indonesia. The WHO noted that the death rate worldwide due to the Covid-19 until August 23, 2020, reached 800,906 people, with cases of death in Indonesia alone reached 6,594 people (WHO, 2020). The impact is not only on the aspect of health but on the economy as well. For that reason, several countries have been predicted to experience economic recession because of the decline in economic growth which in turn leads to extreme poverty levels (World Bank, 2020).

Key Terms in this Chapter

KUR: Is credit/financing for working capital and/or investment in productive and feasible business debtors, but not yet own additional collateral or additional collateral is not enough. People's Business Credit is a program designed by the government, but the source of the funds comes entirely from the bank.

Micro, Small, and Medium Enterprises (MSMEs): Are small companies owned and managed by a person or owned by a small group of people with a certain amount of wealth and income. The law that regulates SMEs is Law of The Republic of Indonesia Number 20 of 2008.

bps: The Central Statistics Agency is a non-ministerial government institution that is under and responsible to the President. BPS is the organizer of statistical basics of statistics whose use is aimed at broader purposes, both for the government and the community.

PSBB: Large-scale social restrictions are restrictions on certain activities of residents in an area suspected of being infected with Corona Virus Disease 2019 (COVID-19) in such a way as to prevent the possible spread of Corona Virus Disease 2019 (COVID-I9).

KITE: Is the granting of exemption and/or refund of import duty and/or excise as well as value added tax and sales tax on luxury goods free of charge.

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