Physical meetings are hardly necessary in many ways, because technology is able to provide both space and time through a single screen. The pandemic has made the world "smart".
By
A PRASETYANTOKO
·6 minutes read
Kompas
A. Prasetyantoko
Since the Covid-19 pandemic began, our dependence on technology has increased significantly. Physical meetings are hardly necessary in many ways, because technology is able to provide both space and time through a single screen. The pandemic has made the world "smart".
International Monetary Fund (IMF) managing director Kristalina Georgieva made the reference in her remarks for the World Economic Forum, "The Great Reset". In essence, the world community, which has lost so many lives to the Covid-19 pandemic, owes a lot to history. We must pay our historical debt by making the post-pandemic economy more environmentally friendly, inclusive and smart.
The Indonesian government has responded to the widespread health and economic crises by establishing the Covid-19 Handling and National Economic Recovery (PC-PEN) Committee. Under this committee is the National Economy Recovery and Transformation Task Force, the duties of which include implementing and controlling strategic policies on recovering and transforming the national economy.
One of the key questions is how the recovery and transformation strategy will be carried out through economic empowerment. An opportunity exists to encourage the growth of the micro, small and medium enterprise (MSME) sector by adopting technology. Economic transformation without involving the MSMEs will only create inequality.
During the 1998 financial crisis, many formal workers switched to the MSME sector. While many large businesses closed down, micro and small companies showed sharp growth. This sector has proven capable of supporting the domestic economy amidst severe crises.
The Covid-19 health emergency has shut down not only large businesses, but also MSMEs. However, technological advances have created peer-to-peer (P2P) business opportunities, an informal business activity that could provide a buffer in a crisis that has disrupted all economic lines.
According to the Cooperatives and Small and Medium Enterprises (SMEs) Ministry, those businesses in the large enterprise category accounted for just 0.01 percent of all formal businesses in the country in 2018. The figure represented a 1.67 percent increase from 5,460 businesses to 5,550 businesses. Meanwhile, Indonesia recorded 1,271,400 MSMEs in 2018, a 2.02 percent increase from the previous year.
The MSME sector comprised 99.99 percent of all Indonesian businesses in 2018. In terms of labor absorption, MSMEs absorbed 97 percent of the workforce, while large businesses accounted for just 3 percent. In addition, labor absorption in the large enterprise sector in 2018 had declined 5.47 percent year-on-year (yoy) in terms of total employment. Meanwhile, the MSME sector showed employment growth of 0.47 percent to employ 116 million workers.
Among the MSME subsectors, labor absorption among medium enterprises had fallen 13.81 percent, while small enterprises saw a decline of 10.93 percent in labor absorption. However, employment at micro enterprises rose 1.77 percent to employ more than 100 million workers in 2018.
The 2018 decline in labor absorption among large enterprises was caused by the sluggish economy as a result of the trade war in 2017, which had affected the global economy. As a result of the Covid-19 pandemic, labor absorption at large enterprises has seen a massive contraction. The same thing has happened at MSMEs. Business activities have shifted to the informal sector, which do not appear in statistical records.
One of important issues at present is how to empower the informal economy, which is based on relational ties, and link it to formal businesses that use technology. Since the Covid-19 pandemic emerged, business models have tended to be flexible, without requiring strict structures or administrative processes. In fact, long distribution channels can be significantly trimmed through intermediate activities.
Two major issues must be considered to address these changes. First, business activities require scaling up. Without a systematic management, many business activities will stay in the informal sector, which has a marginal impact on the economy. In order for business activities to have a multiplier effect, it is necessary to systematically encourage informal businesses to become formal MSMEs that can grow and expand further. One way to achieve this is to establish an ecosystem that can connect the informal and formal sectors through digital platforms.
Number of MSMEs Entering the Digital Economy System.
Second, aside from being included on the statistical radar, a business can contribute to state revenue through taxes by becoming a formal entity. In many cases, many informal businesses have avoided this process and enjoy remaining an informal business. This obstacle can be overcome by issuing a tax exemption policy for start-up businesses.
Although the business ecosystem of the future will be different, the principle remains the same, namely that the economy will only be strong if it is supported by strong medium-sized enterprises. Therefore, capacity building efforts are needed to turn informal businesses into formal companies and to grow formal MSMEs into medium-sized enterprises.
Scaling up is needed so that businesses can contribute to greater labor absorption and further expand their role in the economy. Although large enterprises comprised less than 1 percent in 2018, they contributed more than 45 percent to gross domestic product (GDP). Meanwhile, MSMEs accounted for 99.99 percent of all business entities and contributed just 55 percent to GDP.
During the Covid-19 crisis, many businesses have collapsed, both large enterprises and MSMEs. On the other hand however, the informal sector has expanded, thanks to the increased use of technology. With adequate assistance, this business activity can become the seeds of technology start-ups.
The Cooperatives and SMEs Ministry can gather expertise from established e-commerce companies like Tokopedia and Bukalapak, as well as recruit young talents from many universities and training centers. Success stories like Tokopedia need to be replicated on a micro scale, but in larger numbers. At the age of 11 this year, Tokopedia has more than 8.6 million vendors, most of which are ultramicro businesses. Its sales turnover accounts for about 1 percent of GDP and reaches 98 percent of all subdistricts in the country.
Indonesia needs more success stories in the future among technology companies that have a vision to empowerment. This must be generated through policy, and it should not stand by just waiting for luck.
A. PRASETYANTOKO, Rector of Atma Jaya Catholic University (Unika Atma Jaya), Jakarta.
