LPEM FEB UI

MoT International ConferenceSeptember 5th 2017, Jakarta

Kiki Verico, Ph.D.

Indonesia’s Trade Competitiveness: Enhancing SMEs Role in GVCs

CONTENTS

01.

02.

03.

04.

05.

BACKGROUND

THE IMPORTANCE OF EXTERNAL BALANCE

INDONESIA’S SMES: LPEM’s FINDINGS

GVCs & SMEs

CONCLUSION

(S-I)+(T-G) = (X-M)

Source: NPI Report BI, 2017

Agriculture Manufacture Service

2000 4.9 15.6 27.7 38.5 21.8 8.0

2001 3.6 15.3 29.1 38.3 19.8 6.9

2002 4.5 15.5 28.7 40.1 20.8 7.8

2003 4.8 15.2 28.3 41.1 21.9 8.1

2004 5.0 14.3 28.1 41.0 15.9 1.6

2005 5.7 13.1 27.4 40.3 11.3 0.3

2006 5.5 13.0 27.5 40.1 22.9 10.9

2007 6.3 13.7 27.0 39.5 24.9 10.5

2008 6.0 14.5 27.8 37.5 12.1 0.1

2009 4.6 15.3 26.4 37.1 25.9 10.6

2010 6.2 13.9 22.0 40.7 22.1 5.1

2011 6.2 13.5 21.8 40.6 26.1 1.7

2012 6.0 13.4 21.5 40.9 -1.7 -24.4

2013 5.6 13.4 21.0 41.5 -4.1 -29.1

2014 5.0 13.3 21.0 42.3 -1.9 -27.5

2015 4.8 13.5 20.8 43.3 7.6 -17.5

Sector Contribution to GDP (%) Net Export

Merchandise

(Billion US$)

Current

Account

(Billion US$)

Economic

Growth

(%)

Year

Source: Calculated based on World Bank data -RI, 2017

Max Rank Max EigenCritical Value for

Max Eigen

Indonesia 0.029 0 15.28 14.07

1 9.96 3.76

Malaysia 0.073 0 23.26 14.07

1 10.54 3.76

Philippines 0.099 0 14.55 14.07

1 5.56 3.76

Thailand 0.000 0 26.37 14.07

1 11.44 3.76

Rejected

HO

VECM

NER & CA

Johansen Procedure

RER & CA

Rejected

HO

Indonesia TB - RER 0.037

RER - TB 0.165

Malaysia TB - RER 0.620

RER - TB 0.000

Philippines TB - RER 0.024

RER - TB 0.127

Thailand TB - RER 0.863

RER - TB 0.623

Granger Causality

(Prob)

Source: Prabowosunu & Verico, 2017, unpublished

Source: Kurniawati & Verico, 2017, unpublished

3SLS GDP to PI PI to GDP

Primary 1.35*** 0.4***

Manufacture 1.5*** 2.8*

Service 0.04* 0.97***

Source: Kurniawati & Verico, 2017, unpublished

Global Production Network Global Service Network Global Value Chain

Source: Tim GVCs LPEM based on OECD Data, 2016

Global Value Chains

Sumber: Verico, 2017Hijau = Potensi Spill Over ChinaOranye=AndalanMerah=MenurunHitam=Urgency

Number of Project Million USD

Food Crops 800 1,589

Farms 150 49

Forestry 108 78

Fishery 124 43

Mining 1,130 2,742

TOTAL 2,312 4,502

Food Industry 1,947 2,115

Textile 886 321

Footwear 279 144

Wood 240 268

Paper 274 2,787

Chemical 1,096 2,889

Rubber 710 737

Non Metal 397 1,076

Metal 2,185 3,897

Medical Instrument 22 9

Transportation 928 2,370

Others 599 75

TOTAL 9,563 16,688

Utilities 748 2,140

Construction 437 187

Trade 5,540 670

Hotel & Restaurant 2,026 888

Transportation & Communication 620 750

Property 1,151 2,322

Others 2,924 818

TOTAL 13,446 7,775

25,321 28,964Total

Agriculture

& Mining

Manufacture

Service

2016

Source: BKPM

Number

of

Prohject

Investment (Million

USD)

Jawa Barat 5,369 5,471 14,773

Daerah Khusus Ibukota Jakarta 6,751 3,398 51%

Banten 2,161 2,912

Sumatera Selatan 251 2,794

Jawa Timur 1,473 1,941

Sulawesi Tengah 252 1,600

Papua 169 1,168

Kalimantan Timur 466 1,140

Jawa Tengah 1,054 1,031

Sumatera Utara 688 1,015

Riau 394 869

Kalimantan Barat 569 631

Kepulauan Riau 880 519

Papua Barat 126 514

Bali 1,371 451

Nusa Tenggara Barat 636 439

Maluku Utara 67 439

Kalimantan Tengah 341 408

Sulawesi Utara 209 383

Sulawesi Tenggara 210 376

Sulawesi Selatan 309 372

Kalimantan Selatan 189 249

Kalimantan Utara 65 161

Aceh 111 135

Maluku 50 103

Lampung 129 86

Sumatera Barat 198 79

Jambi 161 61

Nusa Tenggara Timur 164 58

Bengkulu 59 56

Kepulauan Bangka Belitung 93 53

Sulawesi Barat 28 21

Daerah Istimewa Yogyakarta 252 20

Gorontalo 76 13

Total 25,321 28,964

Source: BKPM

Source: ASEAN Dashboard, 2017

RI’s SMEs in GPNs

Reflector (parabolic)

Solenoid

High Beam Filament

• Principle (built up import)

Lens

Light Bulb

Shield

• Locally Produced owned by Foreign

Brass Wire

• Locally Produced & Locally Owned (SMEs)

Source: Author own illustration based on interview, 2017

2nd, 3rd, etc. tier

2nd, 3rd, etc. tier

2nd, 3rd, etc. tier

0

5

10

15

20

25

30

35

40

45

50

Fashion Kuliner Kriya Film Musik Apl&Game

15.92

45.02

31.18

2.09 3.32 2.46

(%)

Source: Baseline Survey of Creative Economy Roadmap on 6 Provinces 6 Sub-Sector for BEK RI, LPEM FEB UI 2016

Country% of SMEs

in RPN% of Upper Middle

Industry in RPN

Malaysia 46.2 82.4Thailand 29.6 91.1Vietnam 21.4 64.6Philippines 20.1 51.1Indonesia 6.3 52

Source: Tegal SMEs of Metal Industry, 2017

Source: Wignaraja 2013, % of firms

SMEs Contribution in Export

Previous Studies: 1. In the mid- 2000s SMEs in the US, Switzerland, the Netherlands, United

Kingdom, China and Japan contributed around 30%-38% of national totalexports (Hammer & Stamps, 2010). SMEs in ASEAN member states contributedaround 23% of national total exports (Wignaraja, 2012)

2. SMEs in Indonesia (2005-2013) were around 99.99% of the total businessentities contributed around 56-59% of the GDP and absorbed around 97% ofjob vacancies while decreasingly contributed in non-oil and gas exports from18.5% (2005-2007) to 16.9% (2008-2010) and to 15.4% (2011-2013) and 9.3%(2011) of total export including oil & gas (Wignaraja, 2012)

Some Facts : Indonesia’s SMEs & Internationalization

Source: Recalculate % based on Revindo & Gan, LPEM Working Paper, 2017

Product Exporter %Non

Exporter % Total

Agriculture Products 23 74 8 26 31

Food & Beverages 17 30 39 70 56

Furniture 43 54 37 46 80

Handicrafts 59 65 32 35 91

Garments 33 48 36 52 69Leather Products & Fashion

Accessories 15 47 17 53 32

Utensils 15 56 12 44 27

Machinary Components 7 39 11 61 18

Other Products 9 47 10 53 19

Multi Products 50 68 24 32 74

Province Exporter %Non

Exporter % Total

Banten 11 73 4 27 15

DKI Jakarta 56 56 44 44 100

West Java 19 49 20 51 39

Central Java 13 32 28 68 41

DIY 53 90 6 10 59

East Java 76 41 109 59 185

Bali 43 74 15 26 58

Recent Study

Source: Revindo & Gan, LPEM Working Paper, 2017

Large Large

SMEs SMEs

International

Domestic

F&BElectronic,

Machinery, Automotive

1. In 2016 BPS did survey on SMEs of creative economy with 4,400 sample in 57 municipal & city & LPEM FEB UI with 1,055 sample in 6 big cities. Average sample of BPS is 77 per region while LPEM 176 per region. End user: BEKRAF RI

2. LPEM Survey: Western Indonesia: Medan, Jakarta, Bandung and Yogyakarta. Mid of Indonesia: Bali & Eastern Indonesia: Manado for six subsector for 2016: culinary, gift, fashion, music, film and application & game

3. Proportion of SMEs Culinary (46,3%), gift (35,8%), fashion (15,8%), music (0,01%), film (1,3%) and application & game (0,64%).

4. Access to credit is still limited as most uses own capital (85,9%) and this is similar to the BPS finding yet higher proportion of 92,37%

5. Producer directly sell to the consumer around 94,9% and similar to the BPS result with 93,42% of proportion

EducationBackground

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

0

10

20

30

40

50

60

70

Fashion Kuliner Kriya Film Musik Apl&Game

3 1.5 1.5 0 0 04.2

8.2 9.5

0 0 0

14.310.1

13.1

0

5.7

0

43.5

37.9

46.6

13.6

40

26.9

3 2.5 1.84.5 2.9

0

7.7 7.2 5.8

13.611.4

15.4

22.6

30.3

20.7

68.2

37.1

50

1.8 2.3 0.9 02.9

7.7

(%)

Tidak Tamat SD SD & Sederajat SLTP & Sederajat SLTA & Sederajat Diploma I/II Akademi/Diploma III Sarjana S1/Diploma IV Sarjana S2/S3

7,3%

11,1%

Elementary

Secondary

1,6%Unfinished SD

2,4%

7,3%

Diploma I/II

Diploma III

40,8%High School

1,9%Post Grad S2/S3

27,6%Undergrad S1/ Diploma IV

CapitalOwnership

85,9%

14,2%

Own Capital

Others

75%

80%

85%

90%

95%

100%

Fashion Kuliner Kriya Film Musik Apl&Game

83.586.1 84.8

89.194.7 95

16.613.9 15.2

10.95.3 5

Milik Sendiri Pihak Lain

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

Reasons onNot Borrowing

14,3%

5,5%

Difficult Proc

No Guarantee

4,6%Does not know Proc

1,8%

57,2%

Proposal Rejected

Not Interested

16,6%High Interest Rate

0

10

20

30

40

50

60

70

80

Fashion Kuliner Kriya Film Musik Apl&Game

3.8 5 5 5.60

4.2

10.415.5 15.5

5.6

13.3 12.57.5

3.27.7

22.2

3.30

19.817.5 16.4

0

16.7

4.20.9 1.2 2.7

5.60

4.2

57.5 57.752.7

61.166.7

75

(%)

Tidak Tahu Prosedur Prosedur Sulit Tidak Ada Agunan Suku Bunga Tinggi Usulan Ditolak Tidak Berminat

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

Plan to Increase

Capital

66,22%

33,78%

Yes

No

74.8563.48 65.55

76.19

57.1473.08

25.1536.52 34.45

23.81

42.86

26.92

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Aplikasi & Game

(%)

Ya Tidak

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

Barriers in Business

13,9%

31,6%

Raw Material

Marketing

22,4%

2,6%

Capital

BBM

1,2%Transportation

Skill 2,2%

7,2%

Worker Wage

Others

8,8%None

16 16.2 12.1 13.9

31.6 28.1 33.337.5 47.7 48.6

31.6

26.4

19.624.4 25

20.517.1 22.4

11.9

8.612.5

11.410.1

12.5

9.111.4 7.2

12 13.68.6 8.8

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Aplikasi & Game

(%)

Bahan baku Pemasaran Permodalan BBM/energi Transportasi Keterampilan Bayar buruh Lainnya Tidak ada kesulitan

10,1%

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

AdvertisementPRODUCT

66,73%

33,27%

Yes

No

78.5764.21 59.27

90.91 85.71 84.62

21.4335.79 40.73

9.09 14.29 15.38

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Aplikasi & Game

Ya Tidak

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

AdvertisementMethod

14,21%

4,64%

Printed Media

E-Commerce

40,58%

7,98%

Social Media

Website

4,86% 12,16%Distributor Exhibition

15,58%Others

8.718.32 12.41 9.09 14.55 12.28

44.7842.12

33.1657.58 50.91

40.35

6.965.68

8.1

9.09 9.09 31.586.09 2.2

8.35

3.033.64

3.51

14.788.06 17.47

12.129.09

7.0212.6120.33 14.18

6.06 10.91

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Aplikasi & Game

(%)

Media Cetak E-Commerce Media Sosial Website Distributor Pameran Lainnya

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

BuyerCoverage

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

74,42%City/Municipal

14,09%

8,73%

Outer City/Municipal

Outer Province

2,39%Export

66.62

83.7368.16

61.5968.86

52.42

17.57

10.08

16.6916.32

20.29

21.54

12.85.47

10.1315

10.86

15.96

3.01 4.41 7.09 10.08

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Aplikasi & Game

Kota/kab Di luar Kota/kab luar provinsi Ekspor

ProductSubstitution

73,12%

26,88%

Yes

No

76.79 73 72.6461.9

74.2965.38

23.21 27 27.3638.1

25.7134.62

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Apl&Game

Ya Tidak

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

SupportingReceived

5,72%

0,83%

Money

Raw Material

3,51%

1,48%

Marketing

Machinery

2,40%2,68%

Capital

Others

83,39%None

7.47 5.64 4.94 9.09 105.17 5.81

5.71

102.32.3

2.33 4.55

16.67

80.4687.89

80.52 81.82 88.57

56.67

0

10

20

30

40

50

60

70

80

90

100

Fashion Kuliner Kriya Film Musik Aplikasi & Game

Uang Bahan Baku Pemasaran Mesin Barang Modal Lainnya Tidak Pernah

Source: Baseline Survey Roadmap Creative Economy 6 Provinces 6 Subsector, LPEM - 2016

Conclusion 1. 2012- 2015 is the adjustment period for RI’s external economy, SMEs

participation remains a core matter

2. Trade Balance is the essential factor for Current Account & Stability of Exchange Rate

3. Low participation in GVCs & disconnecting comparative product to the ASEAN production network

4. Low participation of SMEs in RPNs

5. Internationalization of RI’s SMEs by product & by province

6. Factors of RI’s internationalization SMEs: Intervention is necessary both by G and NGO

7. Survey findings on RI’s SMEs: Education Background, Barriers in Business, Credit Exposure, Advertisement, Buyer Coverage, Product Substitution, Supporting System

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