Bambang PS Brodjonegoro: MSMEs 4.0


Bambang PS Brodjonegoro: MSMEs 4.0

Nino Eka Putra ~ PR of FEB UI

DEPOK – Friday (14/8/2020), Minister of Research and Technology / Head of National Agency for Research and Innovation as well as Professor of the Faculty of Economics and Business, Universitas Indonesia (FEB UI), Prof. Bambang PS Brodjonegoro, Ph.D. released his writing published by Kompas Daily, entitled “MSMEs 4.0”. Here’s the article.

“MSMEs 4.0”

There is a tradeoff between maintaining public health or safety and efforts to recover the economy.

The situation we have faced since Indonesia officially announced that there were victims exposed to Covid-19 and sometime later implemented large-scale social restriction (PSBB). From the very beginning, we have placed health and safety as our top priority. Money affairs followed later.

The principle is: saving lives will save livelihoods. However, after five months have passed, we cannot close our eyes, this pandemic has actually hit the Indonesian economy. This is evidenced by the economic downturn in the first quarter of 2020 to only 2.97 percent (yoy). It is still positive because the impact of the pandemic has not yet been felt significantly. However, in the second quarter (April-June), the yoy economic growth fell by 5.32 percent. It was this second quarter that clearly illustrated the impact of Covid-19 on the Indonesian economy, considering that the second quarter was the PSBB period.

Preventing recession

The limitation of social interaction plays a major role in weakening the economy. Moreover, the economic activity with minimal contact (less contact economy) in Indonesia is still not significant. For the third quarter (July-September) which is currently running, it is difficult to predict. However, if the contraction continues, Indonesia will enter into the brink of recession. This is what the government wants to avoid. Since June, the government has begun to relax the PSBB. The human health aspect remains a priority, the Covid-19 protocol is still being implemented. However, equal attention is being paid to the health of the economy. The issue of livelihoods is no less important. In the last two quarters of 2020, the central and regional governments are required to work hard to realize the IDR 1,600 trillion APBN expenditure plan.

Efforts to avoid this recession are certainly not easy considering that many countries in the world have fallen into it, such as the US, Japan, Germany, France, Italy, South Korea, Hong Kong, and several neighboring countries, such as Singapore and the Philippines. The Covid-19 pandemic has indeed caused economic shocks leading to a global recession. Various policies to inform the spread of Covid-19, such as closing schools and various business activities, PSBB, to lockdown resulted in a decrease of the level of consumption and investment in almost all countries in the world.

Careful and strategic thinking is needed so that the limited APBN expenditure funds can be channeled effectively in order to sustain economic activity. One that has a high urgency to be saved is MSMEs. The reason is that this sector is the most vulnerable to the economic downturn due to the pandemic.

The results of the LIPI survey last May showed that without assistance, 47.13 percent, MSMEs could only survive until the end of August, 25 percent would close in November, and 13.4 percent could only survive the longest since the pandemic broke out. Less than 15 percent of MSMEs were alleged to have survived more than a year. This is different from the crises in 1998 and 2008.

During the two crises, most MSMEs relatively did not experience serious problems. Even those who are export-oriented and use domestic raw materials can make a profit. MSME could be assumed to be the bumper of our economy at that time. This time the situation was different. This pandemic caused shock, both on the supply and demand sides. Shock on the supply side caused by the disruption of the supply chain, while on the demand side, there is expenditure and purchasing power.

Practically all sectors and layers of society are affected. MSMEs that carry out physical sales have a very high vulnerability during the PSBB period. The number is up to 87 percent of the total MSMEs (Ministry of Cooperatives and SMEs, 2020). MSMEs in the fields of transportation and warehousing, tourism, education, accommodation services and food are the most vulnerable because they are estimated to last a maximum of three months.

It is not difficult to imagine what would happen if many MSMEs had to close their businesses. Bankruptcy, layoffs, bad credit, dwindling supply and demand are things we want to avoid. MSME is a support for national production as well as a source of income and welfare for most of the community.

The SME Center FEB UI noted that in 2018 there were 64.19 million MSMEs in Indonesia, contributing 60.3 percent of GDP and absorbing nearly 117 million (97 percent) of the workforces. MSMEs provide nearly 99 percent of employment, contribute 14.17 percent to total exports, and are linked to 58 percent of total investment.

Reviving MSME

This shows how important and strategic the role of MSMEs is in the national economy. So, the economic impact of a pandemic will truly be devastating if there is no government intervention. So many people will lose their jobs and stages if MSMEs collapse. The impact on unemployment and poverty will be very serious. The right and broad policies to generate MSMEs are needed.

Recognizing this, since the end of April, the government has provided stimulus for MSMEs in the form of interest subsidies, credit restructuring, and tax incentives with a total budget of IDR 123.46 trillion. The government will also provide productive social assistance in the form of access to and guarantee of working capital credit. This scheme is in the finalization stage and will be launched soon.

Micro-entrepreneurs enter into schemes, especially those related to packages of basic needs. Opportunities are also given to MSMEs in the agricultural sector, home industry, or traditional shops to continue using strict health protocols. Various prevention programs to prevent the decline of MSMEs.

Restructuring and subsidizing credit interest could ease 125,000 people’s business credit (KUR) customers. Cash food and non-food assistance, if on target, will reduce the vulnerability of MSMEs   who temporarily lose their income.

However, these efforts are not sufficient because they are short term. There should also be efforts to prepare for new adaptations of MSMEs. MSMEs that are ready to navigate the industrial era 4.0. This pandemic must be seen as a momentum to digitize MSMEs and encourage them to be familiar with technology. This is no less important than the issue of financing and access to financial institutions. The challenge is that around 13 percent of the 64 million MSMEs are connected to the digital ecosystem. The rest do all business activities through physical interactions, from buying, selling, marketing, to payment.

MSMEs that use the internet have proven to be more resilient in the crisis. The LIPI survey shows that MSMEs that conduct transactions boldly have been less negatively impacted  from the pandemic than those that are still selling directly. For those who are internet literate, digital technology can and has been used to market products. Either through social media or the marketplace. The internet is also used to find information on business development and raw materials.

This pandemic could be a catalyst for the growth of digital MSMEs. More than half of consumers now use bold services more, particularly in fast-growing markets. During the pandemic, digital shopping transactions increased by up to 50 percent. This increase was also due to the availability of various platforms and more practical payment methods through fintech companies.

During a pandemic, it is extremely necessary to make all efforts to connect MSMEs with potential buyers. Currently, many small, micro and ultra-micro (home) entrepreneurs seem to be “disconnected” from their consumers. Selling through the system requires access and literacy of MSME actors to technology, while not all MSME actors have access to. In fact, 97 percent of Indonesia’s territory has been reached by e-commerce.

The desire to involve more MSMEs in the digital ecosystem is not easy. Apart from having a large population, generally they also do not have the basic infrastructure to enter. Many don’t have computers, don’t have credit or internet packages, and some don’t even have cell phones. So, digital transformation is difficult to run smoothly because not all MSMEs are ready to run their businesses digitally.

This is where the role and interaction of the government is required . The real thing, for example, is giving a smart phone plus credit for internet connection. The Ministry of Research and Technology / National Agency for Research and Technology can help and facilitate MSMEs regarding market access, connect with micro fintechs, and enable them to regulate production technology that produces quality and up-to-date products. In addition, supporting training and mentoring, product down streaming, presenting market platforms, socialization, and MSME campaigns in marketplaces, such as Tokopedia / Bukalapak.

There are at least four advantages of digitizing MSMEs (McKinsey, 2018). First, financial gain through increased sales. Second, creating jobs. Third, the advantage for the buyer is 11-25 percent of the retail price. Lastly, social equality, which is the opportunity for women to do activities and earn income through activities in e-commerce vehicles.

Without innovation and business transformation, it will be difficult for MSMEs to recover and survive this crisis. Moreover, expecting it to skyrocket in order to ward off an economic downturn. Only with intensive training and mentoring, product down streaming, and intense campaigns in the market, we can hope that MSME 4.0 will be realized, namely MSMEs that are familiar with the digital world and technology. Adaptive MSMEs with a dynamic digital technology ecosystem.

Source: Kompas Daily. Edition: Friday, 14 August 2020.