Economists says small businesses face uncertainty

Economists says small businesses face uncertainty

JAKARTA (JP): Small businesses will continue to lag behind in
the country's economy as they lack the capacity and opportunities
to grow and prosper, economist Sri Mulyani said yesterday.

Sri said the small and medium enterprises (SMEs) would be
unlikely to grow into strong industries because the government
had not created a strong foundation for their development.

"What we call small industries in Indonesia are merely
traditional industries with very small market segments," she told
a discussion forum conducted by the Dr. Soepomo Press Institute.

The enterprises usually produced goods such as handicrafts and
traditional food products, most of which were not highly consumed
by Indonesians, she said.

According to the Central Bureau of Statistics, there are about
34 million small and medium entrepreneurs, defined as those
employing fewer then 10 people with annual revenue under Rp 1
billion.

Compared to the more than 200 conglomerates atop the economic
pyramid, the small businesses take up a very minor segment in the
domestic market.

Sri said the enterprises had not benefited from various
affirmative action programs established by the government for
their development.

These included the requirement for private and state banks to
allocate 20 percent of their credit to small and medium
businesses.

Many small entrepreneurs reportedly cannot obtain the credits
due to administrative difficulties.

The government also ruled that all of its state enterprises
should set aside 5 percent of their profits for the SMEs, but the
money from this program has not been distributed transparently.

In the private sector, the government mandated a group of
major conglomerates to establish partnerships with small and
medium entrepreneurs.

This program, too, has been accused by many as lacking
effectiveness in developing the small scale enterprises.

Sri contended the existing programs were not aimed at
strengthening the foundation of the small and medium industries.

"Mere credit is not enough to build the small scale
industries, for what they need are complete partnerships
including in management improvement and technology transfer."

She cited the Dana Bhakti Astra Foundation of carmaker PT
Astra International as an example of "empowerment of the small
enterprises".

The foundation sets up complete packages, which include loans,
technology transfer and orders, for Astra's small scale partners
which supply automotive parts to the company.

Such cooperation bridge the wide gap in management and
production qualities between SMEs and the large corporations, she
said.

"Currently, the management and production standards of the
small and medium companies are far from comparable with the large
firms, so that partnerships would be costly for the large firms."

She compared the situation here to Taiwan, where home
industries flourish because the quality of their products is
comparable to their large partners.

Taiwan's small scale firms produce goods such as computers and
machine components which can be consumed by larger segments of
the market and supply major manufacturing firms, she said.

In Indonesia, large corporations preferred to set up their own
subsidiaries rather than partner small scale suppliers because of
the high transaction cost from the many illegal fees, she added.

Large firms are also reluctant to subcontract to smaller firms
because they worry about delivery of goods could on time, she
said. (das)