Emerging Economic Development With Youth Entrepreneurship

Galih Prasetya Utama School of Pharmacy, Department of Science and Technology Pharmacy, Bandung Institute of Technology 2006

The Fact of Unemployment, Economic Stagnation, and Its Social Impact

First of all, we would like to discuss about our

national vision. Indonesia’s aim to become a welfare

state, to reach the target for prosperity for all, is still

exist in our life spirit. Indonesia’s way of life within

Pancasila ( The Five Basic Principles) wrote the hope

to become a prosperous country.

Secondly, the country enjoyed tremendous economic

growth in the 1980s and much of the 1990s, due to

Indonesia’s abundant natural resources and increases

in the manufacturing and services sectors. As a result,

Indonesia’s middle class grew considerably, but

poverty remained widespread. The agriculture sector

led the Indonesian economy in output until 1991,

when it was overtaken by manufacturing. In 2003

agriculture accounted for 17 percent of the GDP.

Annual output grew by 3 percent per year during the

early and mid-1990s. Indonesia has achieved

remarkable success in economic development in

recent years. During the last decade GDP growth ran

as high as 7.8% per year (in 1996), but since the

economic crisis that hit Indonesia in 1997, as a result

of the crisis that year in Thailand growth has plunged,

falling to just 0.85% in 1999. During the first quarter

of 2002, however, GDP growth has rebounded,

climbing to 3.25%.

The rupiah, which had been in a range around

Rp8,600/$1 since mid-2003, depreciated by about

12% over the first 6 months of the year to around

Rp9,600. Government subsidies insulate consumers

from the direct impact of rising oil prices, but higher

prices for imported food and other items put upward

pressure on consumer prices. Indonesia, traditionally

an exporter of oil and gas, did not get benefit from the

rise in global oil prices over the first half of the year.

The Government’s subsidies on domestic fuel are

projected to cost $2.4 billion this year, constituting a

major drain on the budget.

The total population of Indonesia was estimated to be

213 million as of 2001. At the same time, the size of

the economically active population age 15 and over

was estimated to be 144,033,873. Between 1997 and

2001, the employment rate increased 4.32%, from

87,049,756 to 90,807,417. The largest share of the

workforce is still dominated by workers with only a

primary-school education (50,280,736 workers in

2001). The share of workers with high school and

university degrees, however, has been rising in urban

areas, but less-well educated workers are still a

majority even in cities.

Indonesia's open unemployment rate is high

compared to the other developing Southeast Asian

countries. In 2003, the official rate of 9.5% was

astronomically higher than those of its neighbors,

Malaysia and Thailand, which were just 3.6% and

1.5% respectively. It is only lower than that of the

Philippines, which was 10.2%. Taking the comparison

a bit further, Korea’s unemployment rate in the same

year was only 3.6%. Open unemployment rate jumped

from 4.4% in 1994 to 6.5% in 2004, or there was a

47percent proportional increase. If one looks between

1994 and 1997, just prior to the economic crisis,

unemployment rate was relatively stable. During the

crisis, it skyrocketed to almost 6.5% in 1999 before

starting to descend in the following year and reaching

5.5% in 2001. Afterwards, the rate went on a generally

upward trend up until 2004. More than half of the

unemployed are highly educated, with at least 12 years

of education, and a further quarter having nine years

of education. This is in accordance with the higher

open unemployment rate among the highly educated

found in other studies (BPS, 2003; Irawan, Ahmed, &

Islam, 2000). Young workers dominate the

unemployed in both areas, hovering between 62% and

68% in urban areas and between 71% and 79% in rural

areas. This shows that it was more difficult for new

entrants, who were generally better educated, to get

into the labor market to find jobs in rural areas.

Hence, it is of little surprise that many of the young

and the educated leave rural areas and flock to urban

areas.

Social impacts of the high rate of unemployment are,

the rise of criminal number, the decrease of social

quality of life, lack of trust, and the worst, because of

most of the open unemployment are youth and highly

educated, meaning that, the future of Indonesia is still

in a big question mark! The future of country is the

youth, if there are so many young people live with

unclear future, lack of appreciation, and no guarantee

of good social life, meaning no trust, Indonesia facing

unclear future.

Creating Add Value by Idea and Knowledge

Walt Disney’s famous statement, “ If you can dream it,

you can do it”. We are definitely sure that Indonesia

will be back to the track of prosperity. Indonesia is

abundant of natural resources, the country has

significant deposits of oil and natural gas, most of

which are concentrated along the eastern coast of

Sumatra and in and around Kalimantan. Indonesia

produces more than 80 percent of Southeast Asia’s oil

and more than 35 percent of the world’s liquefied gas.

Large parts of Indonesia, especially in Kalimantan

and Papua, have not been intensively explored for

minerals. The seas surrounding Indonesia yield

abundant saltwater fish, pearls, shells, and agar (a

substance extracted from seaweed). Volcanic ash

creates rich soil that is ideal for growing crops.

Tropical forests cover 55 percent of the land, although

this proportion has been shrinking due to

deforestation Indonesia also rich of cultural resources,

Indonesian modern art is an adaptation of modern art

in other parts of the world, flavored with Indonesian

cultural influences. The country has a long and grand

architectural tradition. Indian influence is evident in

the large Buddhist monument of Borobudur and the

Hindu temple of Prambanan, both in central Java.

Borobudur is Indonesia’s most famous tourist

attraction. Arabic and Chinese Muslims have

influenced the architectural style of mosques

throughout Java.

But still, without any kind of goodwill from the people

to become independent in economic, this is very

difficult to move, or even think to develop the

resource, to add its value, so that it will have high

economical cost, for comparative and even

competitive advantage.

Young people can become a technical entrepreneur.

We are developing ideas to give an add value for

products. Developing new markets and even new

industries are generally the goal of those with

technical orientation. The creation of an enterprise is

merely a means to achieving our goals, not an end in

itself. Indonesia’s natural resources will have more

economical value with our knowledge. Without any

kind of add value in technology, Indonesia becoming

supplier of raw materials, lack of economic value for

the people, and it’ll be defeated in global economic

competition. It needs knowledge based entrepreneur

touch to change the present condition.

We can also become Organization builders. Young

entrepreneurs start their own businesses because they

like to build organizations. These organization

builders have skills in developing people, systems and

structures. Indonesia’s various cultural arts and the

beautiful scenery for many places need the touch of

young spirit with good organizational skill. Indonesia

can become the destination for the people from all

around the world who looking for tropical

environment, cozy place, and surround with various

custom cultural tradition. It needs organizational

based entrepreneur touch to build the identity of

Indonesia’s tourist destination to become prestigious

and exotic place in the world.

Young people using their idea as the builder of the

entrepreneurial framework and knowledge as a tool to

make the dream come true. The add value will give

comparative and competitive advantage for

Indonesian resources. But still, the precious resource

of Indonesia, is the human, the people of Indonesia it

self

Create our Future; the Step for Cultural Movement in Youth Entrepreneur and Policy

How to do that? That’s the logic and rational question,

how to? Because we ought to know how to do that.

The key success of entrepreneurs are, they’ve very

high standard, and long term goals, but still, they

know how to reach their goals, logically, rationally.

Five crucial factors for entrepreneurial engagement

that should be addressed by appropriate programmes

to foster youth entrepreneurship. This includes: Social

and cultural attitude towards youth entrepreneurship;

Entrepreneurship education; Access to finance/Start-

up financing; Administrative and regulatory

framework; and Business assistance and support.

Social and cultural always affected the existence of

entrepreneurial paradigm. Culture is the system of

collective values that distinguishes the member of one

group from another. “Masculinity”3, “power

distance”4 and “individualism”5 are also linked to

entrepreneurial behavior. Different levels of

individualism and power distance (hierarchies) can

partly explain the differences in entrepreneurial

activity among Japan, Europe and the USA.

Social perceptions and perceived legitimacy of

entrepreneurship are also an important factor in

helping of hindering entrepreneurial behavior.

However, for some societies, entrepreneurship

remains undervalued compared to, for example, a

career in medicine, law, with a large corporation or

with government. In these societies, perceptions

remain that family sacrifices made to help young

people gain a high level of education are not repaid if

they become self-employed.

For consideration, the cultural environment in

Indonesia is low in masculinity, high power distance,

and low cultural in invidualism. The communities in

Indonesia are more to be feminism, paternal, and

collectivism.

How should education be generally improved to

become more entrepreneurially orientated?

Entrepreneurship programs should be introduced at a

school level, not only at college. These programs

should be present in other areas of studies and

careers, not only business administration. Besides, the

experiences of local young entrepreneurs should also

be introduced in these programs. Nothing is better

than examples. Only by meeting young entrepreneurs

aware of the problems and difficulties of creating a

business and who experienced successes and failures

of making a business, young students will believe they

can make it as well. This is keyword. Teaching

administration skills is not enough. It is crucial to

teach the spirit, the confidence, the trust, the

leadership, the firmness that only those who chased

the ideal of setting up an enterprise know. This should

be incorporated into study plans, pedagogical

programs, mentorship facilities and enterprise

development programs, which should – in turn – rely

on the help and knowledge of young entrepreneurs,

besides teachers and professors.

Key entrepreneurship educative constraints are :

General lack of introduction and adoption of

enterprise education; Inadequate curricula and study

programs; Wrong learning methods; Negligence of

students’ personal environment (parents and family

members); Lack of trained/educated teachers; Lack of

career information and business possibilities; Lack of

business and education linkages; and Lack of ICT

infrastructure/capability.

Education is a key issue. Schools should send out the

message that being an employee is not the only option

after the completion of studies. The advantages of

being an entrepreneur should be promoted and the

hopes of those young entrepreneurs who face the risks

of starting their own business should be nurtured.

Entrepreneurship promotion programs can be

broadly divided into 5 categories: Curricula and study

programs (e.g. KAB, NFTE, CEFE); Student, Mini

companies (competitions). (e.g. “Junior”, “Achievers

International”); Information resources and material.

(e.g. “Go to school”, Internet portals); School-

entrepreneur/business activities and events (e.g.

“KEIP”, “Students in the boss’s chair”); and

Simulation games (often computer-based)

(e.g.“Primanager”, “Gründungswerkstatt”).

Young entrepreneurs often launch their businesses

without carefully estimating the amount of capital

(start-up and working capital) they will need to

actually get started. Many insist that passion and

enthusiasm will be enough to get them through the

rough periods. Furthermore, young entrepreneurs are

often not aware of all available types of finance,

funding forms and special support programs. They

often do not understand the concept, the benefits, the

possibilities and the drawbacks of the numerous

forms of debt and equity (venture capital) financing.

Key constraints to start-up finance are ;Lack of

personal savings and resources; Lack of securities and

credibility (for debt financing); Lack of business

experience and skills (for debt financing); Strict

credit-scoring methodologies and regulations;

Complex documentation procedures; Long waiting

periods (time needed to decide on an application for

funding); Lack of knowledge, understanding,

awareness of start-up financing possibilities;

Unfavorable firm characteristics and industry; Legal

status/form of enterprise; Lack of (successful) micro

lending/-finance and seed funding.

Promotional efforts can be broadly divided into four

categories: Research into start-up and business

finance; Provision of start-up and business capital;

Improving the regulatory environment for start-up

finance; Information and counseling on access to

finance and funding.

The impact of administrative and regulatory burdens

on youth entrepreneurship and business in general is

also a fairly new area of research. However, these

burdens are among the most important barriers to

start-ups of young people in high-income and

developing countries. Government regulations and

bureaucratic formalities also are seen as one reason

for large informal sectors in many developing

countries, since the costs of formalizing are higher

than the gain in productivity from entering the formal

sector. Key administrative burdens are: Unsupportive

tax regimes (system and tax levels); Business

registration procedures and costs; Bankruptcy laws;

Time and costs involved in insolvency

proceedings;Ineffective competition law; Regulatory

framework changes and lack of transparency;

Property rights, copyright, patent and trademark

regulations.

Minimizing and simplifying regulatory and

administrative procedures, as well as maximizing the

support needed to comply with them, will make it

easier for young people to start-up and run their

business. In the following section, we outline some of

the major strategies, initiatives and policy-

instruments currently used in different countries to

reduce these burdens.

What are corresponding government approaches to

and structures for policymaking? Entrepreneurship

policy has been defined by Stevenson and Lundström

(2001) as:

Policy measures taken to stimulate entrepreneurship;

Aimed at the pre-start-up, start-up and post-start-up

phases of the entrepreneurial process; Designed and

delivered to address the areas of motivation,

opportunity and skills; With the primary objective of

encouraging more people to consider

entrepreneurship, to move into the nascent stage and

proceed into start-up and early phases of a business.

Drawing up on this definition, youth

entrepreneurship policy can be defined as: Policy

measures taken to foster entrepreneurial activity of

young people; Aimed at the pre-start-up133

(including entrepreneurship education), start-up and

post-start-up phases of the entrepreneurial process;

Designed and delivered to address the areas of

motivation, opportunity and skills; with the main

objective of encouraging more young people to start

an entrepreneurial undertaking or venture and at the

same time to improve young peoples’ general

employability.

Entrepreneurship policy in general and youth

entrepreneurship policy in particular, are still fairly

recent and evolving areas. Therefore, it is crucial to

understand where these policies are or should be

situated. Youth entrepreneurship policy is cross-

cutting in nature and therefore necessitates a

collaborative multi-stakeholder approach on the part

of government and society. This means that for

successful policy development in youth

entrepreneurship collaboration between different line

ministries (educations, labour, industry, youth and

finance in particular) is vital.

The short advice for Indonesian government to

emerging youth entrepreneurship are:

1) Develop an individual, tailor-made approach

2) Invest in research, benchmarking and testing

3) Carry out detailed evaluations and impact

assessments

4) Balance speed with scale of impact and cost of

implementation

5) Focus on enterprise education

6) Mobilize, activate and involve all major

stakeholders

7) Close the gap between national policy and grass-

root, regional and local initiatives

I believe that Indonesia is able to reach our dream by

youth empowerment, especially in entrepreneurship.