SMEs: Encouraging people to be their own boss

Do we really value entrepreneurship? The Jakarta Post recently talked to Hetifah Sjaifudian, a public policy expert at the Bandung-based Akatiga social research center, and a co-writer of the 1995 book (in Indonesian) Strategies and Agendas in the Development of Small Businesses.

Question: What are the main challenges facing Indonesian small and medium-scale enterprises (SMEs)?

Answer: The uncertainty of so many things. People need things to be manageable, while now everything is so uncertain. When the rupiah drops in value against the U.S. dollar, prices of raw materials, production costs and transportation expenses all increase. When the rupiah fluctuates, it is difficult for SME owners to make firm business decisions. This is the most difficult challenge.

Another challenge comes from changing regulations. The reform era has brought with it new regulations which are not always better. Take, for example, the presidential decree on the provision of goods and services which gives new conditions and licensing procedures. On the surface they seem to be part of a campaign for reform, but in reality, corruption and collusion remain in full force.

Tendering procedures may seem correct on the surface, but they have actually become more complicated. They actually create more burdens for businesspeople. The (business climate) has yet to become conducive and give (small-scale businesspeople) more opportunities.

The same thing could be said about the government. I personally trust people like chief economics minister Rizal Ramli who have commitment (to better the lot of) small-scale businesspeople. In reality, however, there is no political will to help SMEs.

Yes, there is an interministerial task force, with consultants from the Asian Development Bank, geared to help SMEs. Whatever these consultants say, we do. But we have yet to see our own people, say from the Ministry of Trade and Industry, do something. I'm really not sure whether President Abdurrahman Wahid has really improved the situation for SMEs.

Q: Any other challenges?

A: Certainly there are other problems. Loans for SMEs, for instance, have become even more difficult to access because of the prohibitively high interest rates.

There are of course businesses which have grown in recent years, but they depend very much on the kind of prospective business they engage in. Cacao bean farmers get more money from their exports because of the higher dollar rate, not because they have become more productive.

Q: The government has recently promised support for SMEs, including mobilizing a number of banks to allocate loans for them...

A: If we are really involved with small businesspeople, we'd know that promises are not always kept. This is what has happened for years. Loans for SMEs are promised, but when small-scale entrepreneurs want to access them, they are denied.

It is very often the case that promises made to help SMEs are mere political statements, which do not turn into reality. There are so many people who wish to start their own businesses and cannot get loans even when they already have a market, when they have received orders for their products.

One example would be Nenden, a designer of Muslim garments in Bandung. The 1997 economic crisis forced her to close all of the 42 outlets she had established. Then when she wanted to start her business again she could not even get a bank loan of Rp 20 million. The People's Credit Bank (BPR) demanded collateral -- her car, which was worth Rp 70 million -- for a loan of only Rp 15 million. This is simply not enough for a person to run a real business.

Q: Another promise is that the government will allocate for SMEs Rp 350 billion saved from the reduced fuel subsidy...

A: In all appearance, the government is caring for SMEs, isn't it? The Rp 350 billion seems such a big amount, but it's not if we compare it with the funds the government set aside for recapitalization of bad banks. The fund for SMEs is less than a drop in the ocean.

There are so many people who need help. The government must realize it is not possible to give loans to all of them, but it could help in other ways. For instance, the government should be able to create a climate which opens opportunities. By controlling illegal levies, for instance, or by issuing nondiscriminatory regulations.

Another form of government subsidy for SMEs would be access to information. So, budding entrepreneurs could learn what business is booming and what has potential and what doesn't. Technological support should also be given -- there are people, for instance, who grow bananas but do not know how to process and market them. They should be helped.

Q: Discourse on SMEs usually revolves around the question of how far the government can intervene in their development without neglecting the fact that they also need protection. What do you think?

A: The government should be wise enough and understand the impacts of its regulations. Of course there is no easy answer. We will always face this dilemma, and there's no other way but for the government to seriously study the effects of its policies.

I am really sad about how the policy on SMEs has been surrendered to foreign consultants such as those from the Asian Development Bank. What emerges are conditions set by the government for its loans.

You know the government sets up this policy design for SMEs. There is no subsidy for bank interest, so the interest rate must be that of the market rate. In order to realize these conditions, loans are given in the form of technical assistance currently being tendered.

Then, the (foreign) consultants will be the ones doing all the advising for Indonesian SMEs. I don't mind this as long as Indonesian parties can be fully involved -- we need to know where we are heading, what intervention is needed, what aspects should be liberated. Now if we just sit there and surrender to these international institutions -- which have their own interests and agenda -- we'll end up with a policy that may only cater to the needs of multinationals.

We really need to be sensitive about this matter. The sad thing is, our own economists do not even pay serious attention to SMEs. We are being managed by economists from Japan, Germany and other countries. This situation is not necessarily bad, but people with certain responsibilities such as the (economics) minister should really pay attention.

Q: Indonesian SMEs find international competition difficult even now. What do you think their fate will be in the coming era of free trade?

A: You know, our small-scale businesspeople are real survivors. I admire them because they have their own strategies to cope. They are creative, they keep on finding their own ways. I don't imagine that they will just surrender and die in the free trade era.

It is possible that free trade will mean the domination of big businesses, but even small enterprises can survive by becoming, say, subcontractors or suppliers. But this would very much depend on how supportive the government is of SMEs.

Q: What are the characteristics of SMEs that survive?

A: Those who are responsive to change, who can turn threats into opportunities. Precisely because everything is so uncertain they need to be smart and find their own niche and ways.

Another important thing is for them to a build good, strategic network among them. They need an information network, for instance, in order to survive. One of the characteristics of entrepreneurship is mastery of information.

But I don't think such characteristics are commonplace, may be only one out of 10 entrepreneurs have the necessary ability to survive, the creativity, the innovation. Political traditions have not made us innovative in many spheres of life. We tend to fear risk-taking.

But this is a problem that needs a long-term solution. Our children need to be taught since an early age to be creative, not to grow up thinking that their way of life is to end up as some one's employee. We need more communities that place value in entrepreneurship. (Santi W.E. Soekanto)