Lockdown Economy Indonesia

With Micro, Small, and Medium Enterprises contributing 60 percent to the GDP of Indonesia, local business owners are facing difficulties in the face of the constantly changing environment while grappling with socio-economic challenges posed by the COVID-19 pandemic.

The Lockdown Economy interviews with twenty businesses located in three different regions in Indonesia - the city of Balikpapan, Magelang Regency, and the metropolitan area of North Bekasi - show that they have been facing social and economic difficulties ever since the COVID-19 pandemic occurred. The sizes of the interviewed companies covered self-employed, micro-enterprises with two up to nine employees, and small enterprises with up to thirteen employees. A few of them represent the informal economy.

Economic status and social hierarchies are interdependent variables where the former has a considerable influence over the latter. The decrease in disposable income due to the COVID-19 inflicts nearly every class of society, particularly individuals with lower purchasing power, leading to a decline in aggregate demand for goods and services. This economic event poses a considerable threat for Micro, Small, and Medium Enterprises (MSMEs) in Indonesia. 

The pandemic has subjected businesses to various economic challenges. In this time of economic uncertainty, government interventions are an inexplicable part of market citizenship. In order to remedy the market failure, government subsidies are of utmost importance to help bounce back the economic growth, although collaborative governance among the public, private sector, and civil society are undeniably remedies for the social stratification currently embedded in many societies.

This article focuses on the economic challenges that Indonesian small businesses face. It provides short but concise information on the current economic situation in Indonesia, the regulations, and how the government and other non-state actors can contribute to the comprehensive recovery of the economy by putting utmost emphasis on Micro, Small, and Medium Enterprises.

Technological Incompetence and Lack of Resources

From tourism and psychological consultancy to education sectors, small businesses are facing a decrease in their growth and sustainability. This challenge is in large part due to the lack of technical knowledge and skills in information systems, the only tool for businesses to keep going during the COVID-19 pandemic. Many business owners are lagging behind in technology and thus lose their competitive advantage in the market.

The interview with the owner of Kalimantan Tour Guide revealed that her tourist business was strongly affected by the lockdown and travel restrictions. She had to conduct virtual tours during which she encountered technical difficulties such as internet connection. Some local attractions did not have any signal at all. Due to the limited technical skills, the owner faced difficulties in maintaining the business website, using digital marketing tools, and social media platforms [1].

A clinical psychologist Balikpapan [2] and an English-language educator for Balikpapan kids [3] highlighted how their respective services were greatly compromised by the difficulties in communication with their clients and students. Physical presence was one of the most important aspects of psychological consultancy, while an educational environment where students can interact with one another was a big asset.

Before the pandemic, the English class would normally last for about 80 minutes. But since kids tend to lose focus while studying online, the class length has then been reduced to a maximum of one hour. The shortening of classes led to lower rates and a decrease in disposable income.

In the era of technology, technical knowledge and skills are critical for businesses. They ensure growth, sustainability, and competitive advantages in the market.

Call to Action

Tourism is one of the sources of state revenue. Currently, the Ministry of Transportation stipulates that both Indonesian citizens and foreign nationals can enter Indonesia by complying with strict health protocols [4]. From 2021, the emergency restriction on public activities (PPKM) in Balikpapan is currently on level 4. It stipulates that educational activities must be conducted completely online. The tourist attractions are allowed to operate in a maximum capacity of 25% with the threshold for operational activities at 17.00 local time; are obliged to comply with health protocols, and visitors must use the PeduliLindungi application. Since consultancy services are neither essential nor non-essential services whose operational activities are being regulated under PPKM 4, such services must be conducted online [8].

Contracting out capacity-building activities to private companies is one thing that the Government of Indonesia can do. The government could launch a recurring mentoring program to build multidisciplinary competency in information technology. Additionally, it could launch an open tendering process to attract both public agencies and private companies to offer their mentoring services for the digitalization of small businesses.

Decrease in Disposable Income and the Need for Capital and Financial Fund for Business Development

The decrease in aggregate demand for goods and services has subjected businesses to a decrease in disposable income. Not only does it have serious implications on profitability, but it also poses a serious threat to wages and national economic growth. 

The economic repercussions inflicted by the COVID-19 pandemic hit the majority of the interviewed entrepreneurs: Kalimantan Tour Guide in Balikpapan [1], GREEN SHOES - a shoe cleaning service [5], Dulce - a desert culinary business [6], Una Olshop - a fashion business [7], Waroeng TJ’s - a food service business [9], Desscraft - a manufacturing business in [10], TomTom Kacang Atom - a food service [11], and Reinmask - a retail business [12].

The companies mentioned above require funds for business development. The pandemic has seen increasingly unfair competition in the market, and among other things, one cause of this is information asymmetry. Many MSMEs do not have the capacity to deal with a continuously changing environment. The high uncertainty and unpredictability of external environments require businesses to innovate. Lacking financial support and management, many of them have failed to keep stable.

Call to Action

Currently, the primary public expenditure of the Government of Indonesia is centered around the economic initiatives to recover the economy and is being executed through the National Economic Recovery (PEN) program. 42.1% had been allocated to economic incentives of Micro, Small, and Medium Enterprises [13]. Among others, schemes to recover small businesses include bank loans; a financing program for ultra-micro businesses; economic subsidies for the interest rates of MSMEs (for which 10.5 million MSMEs had already applied); Income Tax incentive which has been utilized by 124 thousand MSME taxpayers in 2021 [13][14].

In addition to national government efforts, the United Nations Global Compact can use its influence to increase investments in small businesses in Indonesia. It is worth emphasizing that MSMEs in Indonesia contribute up to 99% of existing businesses and 60% of the Gross Domestic Product.

Ongoing Training Program by Experienced Mentors

The interviewed business owners mentioned the urgent need for ongoing training whereby experienced mentors and entrepreneurs can help them expand their knowledge and skills. Especially in the field of digital marketing, as stated by the owners of a shoe cleaning service and a fashion company in Magelang. They believe such programs will equip them with the necessary tools to grow their enterprises. 

Call to Action

Massive Online Open Courses (MOOCs) are one of the key sources for people to expand their knowledge in different academic disciplines. They are available online and provided by many universities, institutions, and private-funded platforms. There are platforms that offer to teach courses with Bahasa subtitles. However, the courses that focus on skills in high demand are not free. 

The Ministry of Education and Culture of Indonesia can add an additional program in its Merdeka Belajar Kampus Merdeka [15] initiative where university students, particularly those in final semesters build a free platform for small businesses with courses covering business strategy and financial management, principles of economics and entrepreneurship. In addition, universities in strategic partnership with the ministry can establish a continuous training or leadership program.

Student clubs such as ShARE [16], 180 Degrees Consulting [17], can help small businesses to carry out pro bono consulting. To incentify student-members, their services can translate into a final exam grade. They could also get a certificate granted by the Ministry of Education and Culture to have a greater opportunity to be admitted in an internship or apprenticeship program in the leading consulting firms.

Forum for Business Owners

The interviewed business owners felt like they were going through the difficulties all alone. Many found it hard to innovate. A sense of belonging to a community where like-minded people can gather and share their stories can lead to new solutions.

Call to Action

Since this is a grassroots activity, a bottom-up approach is needed to recover small businesses in terms of long-term strategies. A good example of bringing entrepreneurs together during the COVID-19 pandemic is the Lockdown Economy itself. By gathering the insights of small business owners from around the world and making them accessible - it stimulates global brainstorm and facilitates the finding of a joint approach to overcoming the challenges of the pandemic [18].  

In addition to the economic benefits from the government, it could create a platform where small businesses owners can take part in the decision-making process. Thus, the business solutions, such as financial management; business strategies amid information asymmetry; bargaining power in the public sector are co-created. This can stimulate innovation among business owners.

This bottom-up approach creates a sense of belonging among small business communities and also creates a strong influence in the engagement of public policy by the government, the private sector, and civil society groups. In addition, this approach can resolve the information asymmetry and the possibility of monopolistic practice in the market and reduce the barriers to entry into new markets. 

CONCLUSION

The COVID-19 pandemic has undoubtedly inflicted socio-economic repercussions on small businesses in Indonesia. Many MSMEs have found it difficult to adapt to the changing environment. The challenges range from technological incompetence and lack of resources to a decrease in disposable income.

Business owners are trying to come to grips with intersectional challenges which subject them to harder pressure and fewer opportunities. Economic incentives, training, and mentoring programs, forums of business owners with similar challenges, and quality of human capital are what they need the most.

Collaborative governance among the public, private sector, and international non-governmental organizations will not only help small businesses grow in the midst of the hard economic situation but will also contribute to the overall international trade.

Written by Aulia Shifa Hamida is an Undergraduate Public Administration Student at Universitas Indonesia. 

Edited by Marlene Ramos

Editor-in-Chief - Julia Skupchenko

REFERENCES

1 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in a Tourism Business with Nila Warti. Available at https://youtu.be/4r9bf8UggLM  

2 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in Psychological Consultancy with Rio Dwi Setiawan. Available at  URL https://youtu.be/4D0OHv8qhFA

3 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in an English Teaching Practice for Kids with Leviana Vinanda. Available at URL https://youtu.be/xGEfBiRAIK4 

4 - Ministry of Transportation of the Republic of Indonesia. (2021). Circular Letter No. 74 of 2021 on Guidelines for the Implementation of International Travel by Air Transportation during the Corona Virus Disease 2019 (COVID-19). Available at URL https://covid19.hukumonline.com/wp-content/uploads/2021/09/surat_edaran_menteri_perhubungan_nomor_se_74_tahun_2021.pdf 

5 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in a Shoe Cleaning Service with Rastono. Available at URL https://youtu.be/37TnEYA_EOQ 

6 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in Dessert Culinary with Trie Lestari Handayani. Available at URL https://youtu.be/RCgV2dwXHO0 

7 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in Fashion Business with Una. Available at URL https://youtu.be/GKUR50GPw_4 

8 - Mayor of Balikpapan of the Republic of Indonesia. (2021). Circular Letter of the Mayor of Balikpapan No. 300/3128/PEM of September 21, 2021 regarding PPKM Level 4 in Balikpapan. Available at URL http://web.balikpapan.go.id/uploaded/PPKM_LEVEL_IV_tgl_21_Sept_-_04_Okt_2021.pdf 

9 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in a Local Food Stall with Mas Taufik . Available at URL https://youtu.be/Y-RZ2e8vyq4 

10 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in Handmade Accessories Business with Desi Indah. Available at URL https://youtu.be/U6Net_0aCxA 

11 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in a Snack Culinary with Yusna Naim. Available at URL https://youtu.be/7nIRNVJJLw4 

12 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Indonesia in a Beauty Products Reseller with Rena Raditya. Available at URL https://youtu.be/WeyvZSlnbdc 

13 - Kementerian Koordinator Bidang Perekonomian. (2021, May 5). Pemulihan Ekonomi Triwulan I Tetap Berlanjut dan Diperkirakan Triwulan II akan Terakselerasi Lebih Tinggi. Available at URL https://www.ekon.go.id/publikasi/detail/2971/pemulihan-ekonomi-triwulan-i-tetap-berlanjut-dan-diperkirakan-triwulan-ii-akan-terakselerasi-lebih-tinggi 

14 - Sukmana, Y. (Ed.). (2021, October 1). Orang Super Kaya RI Bakal Kena Pajak Penghasilan 35 Persen. Kompas.com. Available at URL https://money.kompas.com/read/2021/10/01/171047026/orang-super-kaya-ri-bakal-kena-pajak-penghasilan-35-persen?page=all 

15 - Merdeka Belajar Kampus Merdeka. Available at https://kampusmerdeka.kemdikbud.go.id/

16 - ShARE https://www.share-share.org/

17 - 180 Degrees Consulting https://180dc.org/

18 - Lockdown Economy by the Think Tank AlterContacts. Available at: https://lockdowneconomy.org