SMI Export Competitiveness

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To boost the competitiveness of small and medium-scale industries (SMIs), the government is launching a policy to facilitate imports for SMIs to produce export goods.

The facility, which was launched by President Joko Widodo in Tumang, Boyolali, Central Java, Monday (30/1/2017), provides tax relief on import duty, value added tax and luxury goods sales tax for imported capital goods and raw materials required for SMIs to produce goods for export.

The implementation procedure to realize exports was also simplified. The policy to facilitate imports for SMIs to produce export goods, as per the calculations of Finance Minister Sri Mulyani Indrawati, will be able to reduce production costs by 20-25 percent. High production costs have hindered SMIs from competing in the global market. As a result, contribution by SMIs to total national exports lags that of other Southeast Asian nations (Kompas, 31/1/2017).

We appreciate the government\'s measures because, thus far, the various policies to facilitate exports have been focused more on large-scale enterprises. The lack of attention to seriously building SMIs has played a large role in industry\'s weak foundation and the national economy. One example is that the industrial structure is void in the middle due to the absence of supporting industries.

There is no need to worry about the role of SMIs - or in general that of MSMEs - in the economy itself. SMEs contribute about 61.41 percent of GDP and absorb 97 percent of the workforce. MSMEs are also the foundation of government revenues in the tax amnesty, after conglomerates.

However, only a handful of SMIs or SMEs have been able to penetrate the global market. Participation in global production networks (GVC) is also minimal. Various obstacles include, among others, the high cost of production, limited market access, access to financing, human resource quality and a lack of research and technology for product development.

In this regard, a memorandum of understanding between the ministers of finance and industry related to the development of export-oriented SMIs has become strategic. As has the support of BI and the banks for financing, as well as the government to create a favorable business ecosystem.

We need to learn from other countries. In Malaysia and Thailand, for example, each SME is encouraged to be part of the GVC and is positioned as a supplier for multinational corporations. The partnership between SMEs and multinational companies, or large-scale industries, that compete in the world market is important.

Aside from the significant problem of export competitiveness, SMIs also face strong challenges in the domestic market, namely the invasion of foreign products, which is expected to become even fiercer with the increasingly open market. Protectionist policies by the US and other developed countries will make countries like China shift their products to other markets, including Indonesia.

If no security measures are taken, it is not beyond the realm of belief that many SMIs/MSMEs could be on the brink of collapse.

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