Economy and Trade

Small and Medium Enterprises and Coopertives

SMES

The role of small-and medium-scale enterprises (SMEs) in endeavors to recover the country's prolonged economic crisis happening since 1997, has been significant. So has their contribution to the country's economic growth and the creation of job opportunities. Their contribution to the country's GDP during the 2002-2003 period noted an increasing trend to reach Rp1,013.5 trillion or some 56.7 percent of total GDP, meaning higher than that of the large enterprises did.

The number of SMEs also recorded an increasing trend; and their kinds of business more varying. So did their aggregate investment and imports. All of these have helped SMEs, more viable and strong as the country's economic backbone.

Products' added-value of small enterprises also noted a growing tendency: 39.7 percent in 2000 to 41.1 percent in 2003. At the same time, that of large enterprises on the contrary dropped from 45.5 percent to 43.3 percent. While that of medium-scale enterprises had been relatively stable at 15 percent.

Small-scale enterprises have always more advantages in businesses utilizing natural resources and in tertiary sector such as agricultural crops, plantation or estate, livestock, and fisheries, trade, hotel and restaurants. In each sub-sector, small-scale enterprises managed added value more than 75 percent during the 2000-2003 period.

The large-scale enterprises, meanwhile, gained some advantages in the advanced processing industries, in electricity, urban gas, communications, and mining. The added value they made in those sub-sectors reached some 60 percent.

The medium-scale enterprises at the same time played a leading role in making higher added value in the businesses of hotel, finance, leasing, services, and forestry.

In 2000, the growth rate of the middle-scale enterprises stood at 5.1 percent, of small- scale 4.1 percent, and of large-scale about 5.6 percent. In 2003, the medium-scale enterprises grew by 5.2 percent, small-scale 43 percent, and large-scale only 3.5 percent. Even though the growth rate of medium-scale enterprises was relatively higher, their contribution to the country's economic growth rate had been relatively smaller than that of other groups due to relatively little added value the group created. Medium scale enterprises' contribution to the national economic growth of 4.1 percent in 2003 accounted for only 0.69 percent, compared to 1.69 percent of small-scale and 1.73 percent of large-scale enterprises.

BUSINESS UNITS, LABORS AND PRODUCTIVITY

The number of small-scale undertakings in 2003 was 42.4 million units, increasing by 9.5 percent against that of the year 2000. They employed 79 million workers, meaning a rise of 8.6 percent from the number of workers absorbed in 2000. The number of workers employed by small-scale undertakings during the period of 2000-2003 grew by 12.2 percent or an average of 4.1 per annum.

Productivity of small-scale enterprises also noted a significant increase from Rp8 million per worker in 2000 to Rp10.5 million per worker per annum in 2003. Those of medium-scale and large-scale were respectively Rp24.7 million and Rp1.5 billion in 2000, before augmenting to Rp31.8 million and Rp1.8 billion respectively in 2003.

The large-scale undertakings group is potential to be a pump-primer of economic growth, and the small-scale to be a balancing element of income equity and labor-intensive absorbing.

EXPORTS OF SMEs

Exports from products of SMEs reached Rp75.86 trillion or some 19.9 percent of the total exports in 2003, an increase compared to that of 2000, which accounted for 19.3 percent of total exports . The increase was attributed to the rise of exports of medium-scale from 13.9 percent in 2000 to 14.53 percent of total exports. There is a tendency that medium-scale enterprises focus on products of processing industries.

INVESTMENT

During the 2000-2003 period, investments in all economic fronts had been almost stagnant. Small-scale group attracted the least investment i.e. 18.6 percent on average per annum, compared to medium-scale group that could record at an average of 23 percent per annum. Combined, small-and medium-scale groups only absorbed investment about 41.6 percent per annum.

Compared to the total number of small-scale undertakings, it proved that small-scale undertakings are of low or not capital intensive establishments. During the period of 2000-2003, annual average investment in small-scale group amounted to Rp58.9 trillion and in medium-scale Rp73.2 trillion. It means equivalent to Rp1.5 million per small-scale establishment. It contrasts with what a large-scale establishment could absorb, namely Rp91.4 billion annually.

Average Investment by an Establishment (2000-2003)

Small-scale group in 2003 recorded its investment growth at 2.1 percent; and medium-scale as well as large-scale at 0.01 percent and 2 percent respectively. Economic sub-sectors that absorbed the greater part of investment in large-scale group were services (35 percent), and electricity, gas and drinking water (18.2 percent). In small-and medium-scale the sectors were transport (29 percent and 20.4 percent respectively), and trade (16.5 percent and 15.2 percent respectively).

Small-and medium-scale groups, at the same time, supplied some 43.8 percent of the national demands for goods and services (small-scale accounting for 30.0 percent, and medium-scale 13.8 percent); and large-scale accounted for 42.1 percent of the total national demands, and 14.1 percent of imports.

In producing its goods, the small-scale group's dependency on large-scale enterprises' products was 14.9 percent, and on imported materials 5.8 percent; and that of medium-scale groups was 15.0 percent and 9.3 percent respectively. The small-scale group's output was primarily dedicated to household consumption (61.6 percent), and to exports (19.5 percent); that of medium-scale about 48.8 percent to household consumption and 30.0 percent to exports; and that of large-scale, the greater part to exports. It means that SMEs tend to be much more influenced by domestic economic dynamism rather than of large-scale enterprises.

COOPERATIVES

Milk cooperative undertaking in Bondowoso, East Java

Cooperatives, in addition to SMEs, as the people's economic backbone, have been contributing meaningfully to the national economy. From one year to another the number of cooperative establishments showed a rising tendency: from 110,658 establishments in 2001 to 117,806 establishments in 2002 or an increase of 6.46 percent. They spread in more than 391 districts and municipalities. At the same time, there were 23,635,088 members of cooperatives in 2001, before increasing to 24,040,448 in 2002. The number of employees working for cooperatives in 2001 was 202,947, and in 2002 was 209,058 or growing by 3.01 percent.

On the contrary, paid-up capital of cooperatives suffered a decrease, from Rp 28,038 trillion in 2001 to Rp 23,589 trillion in 2002 or shrank by 15.87 percent. Of Rp 23,589 trillion paid-up capital in 2002, Rp14,257 trillion (63.40 %) were external paid-up capital, and the remaining Rp8,632 trillion (36.60 percent) were internal paid-up capital.

SAVING-CREDIT SCHEME COOPERATIVES

Saving-credit cooperatives are cooperatives that receive savings from members, and in return offer credits to their members. The number of saving-credit cooperatives in 2002 was 1,265 or an increase of 1.2 percent compared to that of 2001. Their members totaled 586,207 in 2002 against 576,624 in 2001, meaning an increase of 1.06 percent.

The amount of their paid-up capital in 2002 noted an increase of 0.92 percent compared to that of 2001. Their internal paid-up capital accounted for some 29.67 percent, and external paid-up capital for 24.11 percent, and the remaining 46.21 percent were of members' savings. With the paid-up capital the saving-credit cooperatives owned plus their members' savings, the amount of credits channeled to their members noted a raise of 1.56 percent to reach Rp642.55 billion in 2002, compared to that of 2001.

BUSINESS DEVELOPMENT SERVICES (BDS) "PROVIDER"

To improve the performances of SMEs and cooperatives, the Business Development Services (BDS) "Provider" has been formed and introduced. It functions not only to help SMEs and cooperatives finding working capital from financial institutions in order to improve their business activities, but also supervises them to recruit employees, better their management and help seek market opportunities as well as educate managers of SMEs and cooperatives to read market demands.

Due to the important and strategic role the BDS has played, a number of foreign institutions such as the Japan International Cooperation Agency (JICA), and some domestic and overseas business agencies have been invited to improve professionalism of the BDS.