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)