Y20 Summit 2014, Indonesia Focus: Infrastructure Investment and Small and Medium Enterprise

Jakarta-Port

Below is my article to contribute for  the delegation of Indonesia to 2014 Y20 Youth Summit in Sydney in projecting the Indonesian economy  and development condition.

Growth and Job Creation

Implemented Through Infrastructure Investment and Small and Medium Enterprise (SME)

 

Job creation is a common goal of G20 member countries and a key to enabling pathways out of poverty and disadvantages. Improving inclusive employment outcomes is of vital importance to enabling inclusive growth and addressing economic inequality.

Investment, particularly in infrastructure and small and medium enterprises, is important for countries to support economic growth, create jobs and improve productivity. The government should prioritize the job creation through infrastructure and entrepreneurship as the most important factor to maintain steady economic growth. Infrastructure and housing development can be key drivers of economic growth and development by creating jobs, boosting a country’s competitiveness and productivity.

Following the 1997 Asian financial crisis, infrastructure investment in Indonesia has failed to keep up with its economic expansion, resulting in costly business disruptions such as power outages. Different from the large-scale corporations, small and medium enterprises proved strong when faced with crisis.

The main problem for the Indonesian government to invest in the country’s infrastructure is the lack of financial resources. Therefore, private sector participation – both foreign and domestic – is needed. However, in order for the private sector to join in, a conductive investment climate is required. Due to land disputes, infrastructure projects have been idle for years or canceled altogether, it has been a serious obstacle for infrastructure projects to materialize and makes investors hesitant to invest. At the end of 2011, the government and parliament approved the new Land Acquisition Law (UU No. 2/2012) that is regarded to speed up the land acquisition process notably as it deals with the revocation of land rights to serve public interest, puts the limits on each procedural phase and ensures safeguards for land-right holders. Both government projects and public-private partnerships (PPPs) and state-owned land are protected by the bill signed by The President in August 2012.

The government has put infrastructure as a top priority on its agenda in order to accelerate economic growth. Approximately 45% of the MP3EI (Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development Plan) is reserved for infrastructure development which to a large extent, the 70% needed in the MP3EI will be financed by the private sector. And the budget target will be increased to attract more private sector and foreign investors starting 2013.

After years of neglect, Indonesia is ratcheting up infrastructure spending to upgrade roads, port, water facilities, and power plants. During the Indonesia International Infrastructure Conference and Exhibition, the government is expected to showcase new infrastructure projects for foreign and domestic investors. China Railway Construction Corporation signed an agreement to invest in the 30 km Sunda Strait Bridge project. Japan J-Power consortium won the bidding to build a new power plant in Central Java. We can see that the infrastructure project already on this developing path.

The side effect of this development is the fact that large-scale can often have negative impacts on communities, the environment and on poverty reduction when the rights of local communities are ignored. We cannot forget that among policies of Indonesia infrastructure that undergo, many citizens are in great protest because of a mass land eviction for national project infrastructure. Then on, I suggest small and medium enterprises as the solution of the grand job creation for the Indonesian employees who get fired, the community who get affected by the land eviction, and for any other citizen and young people.

Based on the source from Forbes, The Indonesia government has not yet provided support to social entrepreneurship in Indonesia. Under the Cooperative and SME Ministry, the Indonesian government has recently launched support program in the forms of small loans for small business amongst the youth. There have been much concerted efforts from the funding agencies and multilateral agencies such as the AUSAID and World Bank to develop entrepreneurship in Indonesia.

Besides, entrepreneurship in Indonesia also has some weaknesses which are the implementation is held by poor education levels, and setting up a large business can be a long and costly process, while the high cost of laying off workers discourages expansion. From the publication of The EY G20 Entrepreneurship Barometer 2013, among the G20 countries, Indonesia is still lacking in entrepreneurship culture and education and training.

Looking to the future, entrepreneurs are strongly in favor of improvements in both business incubators and mentoring programs, which they believed would make the biggest difference to the overall support provided to entrepreneurs. Besides that, the government should watch over more to the KUR (Kredit Usaha Rakyat) for easy funding access, and tax and global trade regulations to keep the high benefit for Indonesia entrepreneurs.

smes-mainphotophoto source: establishmentpost.com and pdis.gov.ph

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