Small businesses face bankruptcy as crisis worsens
JAKARTA (JP): Many cash-strapped small and medium-scale businesses may soon halt operation as the economic turmoil is worsening, an official of the Industry and Trade Ministry has said.
The head of the Small Industry Development Division in the ministry, Atih Surjati Herman, said Friday the small companies' cashflows have mostly dried up as they could no longer afford to borrow from banks.
The current high lending rates made bank loans too expensive for small scale companies, Atih said, adding that the decline in orders both from local and foreign buyers made things worse, she said.
She said that some small and medium enterprises were still able to survive the crisis by cutting production costs or resorting to cheaper raw materials.
"I cannot disclose the exact statistics of the businesses, but as an example, in one small-industry village, only about 20 percent of the businesses still produce ever since the crisis," Atih told reporters Friday.
Those accounted for small scale enterprises are businesses with assets value less than Rp 200 million (US$13,986), excluding the price of land and building, as well as self-employed entrepreneurs, she said.
The Director General of the Farm and Forestry products, Sujata, said some small scale industries in the food and beverage sectors had to find cheaper materials for their products amidst soaring food prices.
"There haven't been reports of any closures yet but many of the businesses had to find alternatives to continue running," Sujata said.
He cited small producers of bakpau, the Chinese-originated steam buns mostly sold by street vendors, now replaced wheat flour with cheaper kinds of flours to lower production cost.
The breadmakers would mix flours such as tapioca and cassava flours with the wheat flour, as the latter had become much more expensive, he said.
Export
Even export-related industries have to deal with financial blows during the crisis.
The ministry reported at least 28 companies of the total 586 medium and large scale producers of leather and leather products had laid off 18,293 workers so far this year.
This included 16,948 workers of sports shoe companies, 524 employers of the non-sport shoes companies, 46 people in the leather tanning industry, and 357 people in the leather products industry.
Meanwhile, the remaining 8,574 small-scale makers of leathers and leather products now only produced three times a week from six times a week normally.
The Director General of Various Industries, Doddy Soepardi, attributed the industry's downfall to its high dependency on imported materials and on orders of foreign buyers.
Doddy said import contents made up 70 percent of production, while international orders had shrunk significantly as foreign buyers were turning into the country's competitors: China, Thailand and Vietnam.
In the first three months of this year, exports of leather and leather products dropped 38 percent to $374.02 million from $600.04 million year-on-year, he said.
In the same periods, imports had also dropped by 43.3 percent to $60.61 million from $106.88 million.
Doddy said scarcity of leather supplies in the country forced producers of leather products to import most of the materials too.
Most producers of raw leather such as wet blue leather preferred to export their products, since the government lifted export tax on raw leathers in conjunction with the International Monetary Fund's economic reform signed in February, he said.
This resulted in a 300 percent increase in exports of wet blue leather in March to 180 tons compared to the previous month, he said.
The wet blue leather is now exported at Rp 16,000 per square foot, up from Rp 8,000 per square foot, he said.
The producers of the raw leather would rather export their products, because the purchasing power of their local buyers had declined sharply, he said.
Doddy estimated exports of leather and leather products would reach US$3 billion this year, a slight rise from $2.63 billion last year.
He said Indonesia controls 70 percent of the global market of leather gloves, and 40 percent of the global market of Nike sports shoes. (das)