COVID-19 Deals Crushing Blow to MSMEs

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Petir Garda Bhwana

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  • TEMPO.CO, Jakarta - The novel coronavirus disease (COVID-19) has not just attacked people, but also indirectly battered the Indonesian economy, leaving micro-, small-, and medium-scale enterprises (MSMEs), the country’s economic backbone, struggling for survival.

    Prior to the COVID-19 outbreak, MSMEs contributed 60 percent of the gross domestic product (GDP) and employed around 97 percent of Indonesia’s workforce.

    Based on the data from the Industry Ministry, a total of 43,016 small- and medium-scale enterprises (SMEs) have been impacted by the COVID-19 pandemic.

    Employing at least 149,858 workers, the SMEs are located in various provinces, including South Kalimantan, South Sulawesi, Central Sulawesi, Maluku, West Java, East Java, Lampung, and Banten.

    Few MSMEs have been quick to reorient their businesses to meet the demand for equipment, such as face masks and personal protective equipment (PPE), in the fight against COVID-19.

    Villagers in Ogan Komering Ilir District (OKI) of South Sumatra Province, for instance, have shifted from weaving mats to producing cloth masks, which are in high demand as the authorities have ordered people to wear masks in wake of the outbreak.

    "Since President Joko Widodo mandated the use of masks for anyone who goes (out) or is active outside of the home, the Menang Raya Village community has produced 8,000 pieces of cloth masks,” Suparedy, chief of Menang Raya Village, said recently.

    The women and men of Menang Raya, which is a peatland, have been traditionally weaving mats out of "purun" weed (Eleocharis dulcis), and they have the necessary sewing skills for producing masks and adequate facilities, which have been mostly provided by the Peat Restoration Agency (BRG).

    In Surabaya City, East Java Province, MSMEs have been producing thousands of masks and personal protective equipment per day since mid-March, 2020 to help the government contain the spread the virus.

    A total of 37 MSMEs are involved in the production of masks, and 11 MSMEs in the production of PPEs.

    Just in one day, the Trade Office can distribute thousands of masks and protective clothing among residents and medical workers in the East Java provincial capital, said head of the Marketing Section of the Surabaya City Trade Office Farida Fitrianing Arum. In total, the office has distributed 74,899 masks and 3,414 hazmat suits among residents and medical workers.

    Thousands of other MSMEs, however, are dying as they have lost customers, or lack the skills, materials, or facilities to reorient their businesses to produce necessities relevant to the COVID-19 pandemic situation.

    Hence, the government has decided to intervene and prepared measures to keep the MSMEs afloat.

    "Based on the President's instructions, economic stimulus is (being) prioritized for MSMEs because this sector contributes to 60 percent of the GDP and employs up to 97 percent (of the total workforce),” said Minister of Cooperatives and SMEs, Teten Masduki, on April 15, 2020.

    The stimulus policy is directed at MSMEs because 99 percent of business operators in Indonesia are engaged in the MSME sector, and the majority of such enterprises are micro businesses.

    Therefore, Teten noted, President Joko Widodo has requested that the MSME loan restructuring program be expanded.

    "The interest installment relief is also being given not only to micro credit program recipients, but also the recipients of loans under Rp10 million, through savings and loan cooperatives and others," Masduki informed.

    President Joko Widodo has also requested that micro businesses be included in the list of direct cash assistance (BLT) recipients.

    And, it has been agreed that a new loan scheme would be floated for MSMEs that are currently having trouble making payments, and a tax write-off program would also be implemented for them.

    Earlier, Finance Minister Sri Mulyani Indrawati had warned that the household, MSME, corporate, and financial sectors would be the most affected by the economic slowdown caused by the coronavirus pandemic.

    The household sector has witnessed a decline in consumption with people refraining from venturing out of their homes due to physical distancing measures, resulting in a drop in purchasing power.

    As for MSMEs, the outbreak has put their businesses under pressure. They have not been able to carry out business activities, which has affected their ability to meet credit obligations.

    The Finance Minister has predicted non-performing loans (NPLs) of banks may potentially increase significantly as MSMEs take a hit, which will further worsen the economic slowdown.

    "The MSME sector, which has usually been a safety net during economic slowdown, has also been badly impacted by the outbreak. The sector will now suffer a huge blow due to restrictions on some economic and social activities," she explained.

    In the meantime, the Industry Ministry has reported that since COVID-19 cases were first confirmed in the country in early March, SMEs have registered a 50-70 percent decline in sales.

    According to the ministry's Director General of Small, Medium, and Multifarious Industries, Gati Wibawaningsih, the ministry has been working closely with online shops, including Tokopedia, Shopee, Blibli, and Buka Lapak, to help market products made by MSMEs.

    Wibawaningsih pointed out that SMEs in the country are also dealing with scarcity of raw materials, particularly imported ones, as the pandemic has disturbed the supply chain.

    "Hence, the Industry Ministry has worked on cooperating with the domestic raw material industry to produce and supply raw materials for local SMEs," she stated.

    The ministry is also coordinating with related ministries, particularly the Foreign Affairs Ministry, to curtail the impact of the pandemic on the export of SMEs products, mostly handicraft items.

    ANTARA