development policies in decentralized indonesia?

HOW TO INTEGRATE SMALL AND MEDIUM INDUSTRY (SMI) DEVELOPMENT POLICIES IN DECENTRALIZED INDONESIA? Mudrajad Kuncoro Professor in Economics Faculty of Economics & Business Gadjah Mada University Indonesia Email: [email protected] ABSTRACT Various Small and Medium Industry (SMI) development policies introduced by the recent Susilo Bambang Yudhoyono regime have not overcome fundamental SMI’s obstacles. This study attempts to analyze current policy and situation regarding SMI development using primary and secondary data. The source of the data are obtained through field survey to Trade and Industry Office, Regional Planning and Development Board, and Chamber of Commerce and Industry of all provinces in Indonesia. There have been many SMI development policies that has been endorsed by Indonesian government. SMI development policies started from partnership program between State-Owned Enterprises and small enterprises, 100 days program of United Indonesia Cabinet, some economic policy packages under the Presidential Instruction or Inpres (i.e. Inpres No. 3 Year 2006 regarding Improvement of Investment Climate Policy Packets, Inpres No. 6 Year 2007 regarding Acceleration of Real Sector Development and Empowerment of Micro, Small, and Medium Enterprises (MSME), Inpres No. 5 Year 2008 regarding Focus of Economic Program 2008-2009), roadmap of regional core competencies development, Law No. 20 Year 2008 on MSME, and Presidential Decree No. 28 Year 2008 on National Industry Policy. SMI face many external factors in the process of development including global financial crisis in 2008 and ASEAN China Free Trade Area (ACFTA) in 2010. The recession in United States and other destination countries has hit SMI. ACFTA give ease to imported products especially from China to penetrate domestic market. Key obstacles in the implementation of SMI development are classified into three main category based on field survey on 33 provinces in Indonesia: internal SMI factors, government internal factors, and external factors. Internal SMI factors include lack of capital, raw materials obstacles, human resource incompetence, marketing obstacles & low competitiveness, lack of business networks, low technology & productivity, lack of entrepreneurship, and lack of partnership. Internal government factors include limitation of central/local government budget, government official incompetence, lack of coordination between government institutions with different level, lack of coordination between government offices, and unfocused program. External factors consist of inconducive investment and business climate, high cost economy, limited quality infrastructure, global competition & ACFTA, distant location between districts/cities, global economic crisis, legal uncertainty, smuggling practices, and inconducive social, politic, and safety situation. Obstacles in the implementation of SMI development policy in 33 provinces will be examined thoroughly. Our findings recommend a policy model to address SMI obstacles, and hence, hopefully can boost SMI development in Indonesia. Key Words: SMI, obstacles, development policies

1

1. INTRODUCTION Small and Medium Industry (SMI) has been the most important sector in the Indonesian economy. SMI has provided job opportunities hence becoming the source of income for households in Indonesia. Furthermore, SMI has also contributed to local economy by increasing non-oil export and become supporting industry to provide essential components for large-scale industries, with sub-contract mechanism. SMI development faces similar obstacles to those of other industry. The main obstacle of SMI is its incapability to anticipate the ever-growing and hyper competition. Competitive business situation often hamper SMI to develop optimally. SMI in Indonesia is also lacking in capital, marketing, technology, and management. Obstacles faced by SMI in Indonesia are shown in Table 1. The government offers serious consideration given SMI potencies and obstacles. The government has continuously implement policies that support the development of SMI. The policies are not limited to financial aspects but also marketing, capital, and production skills. Those policies are implemented by State Ministry of Cooperatives and SME and Ministry of Industry and Trade. The development of SMI is also supported by state-owned enterprises (SOE) through their corporate social responsibility (CSR) program. The banking sector also play an important role in the implementation of policy regarding financing of SMI. Private parties such as non-governmental organizations (NGO) also provide SMI development programs. Local governments, which play more intense role after decentralization, also prioritize SMI development to boost the economy. Local autonomy, which has been implemented since 2000, gives local government the opportunity to manage themselves including in allocating their resources. Since SMI has been the backbone to many families, local governments give more consideration on the development of SMI. We shall note that SMI is one of the sectors to survive in economic crisis in 1998. In order for SMI to develop optimally, local governments must establish conducive business environment. In addition, local policies should encourage the development of SMI. However, the fact shows that current SMI development policies have not pay their dividends. SMI product competitiveness is still deemed to be low. In 2008, Indonesia is ranked 51 out of 55 countries in term of competitiveness. Indonesia has not prove it readiness to compete in global market. SMI in Agriculture and manufacture sector for example have not applied modern technology hence they cannot achieve economies of scale to be able to compete with foreign industry.

2

Table 1. Obstacles Faced by SMI in Indonesia No

1

Classification

Human Resource

Obstacle Lack of necessary skills Lack of technology application productivity

that

trigger

low

Lack of knowledge and training which focus on business development Outdated production technology which is not suitable to current necessity 2

Technology

Reliance on simple technology Inadequate infrastructure Lack of marketing network to penetrate local and international market

3

Marketing

Complicated chain of distribution Limited information Limited access to financial institutions Limited access to raw materials

4

Business Environment

Non-optimal use of local resources and potentials Unhealthy competition

Source: Bappenas–Undip (2008) and Bappenas–UGM (2008)

Comprehensive approach to all stakeholders must be implemented to solve the obstacles faced by SMI (Figure 1). The approach must be exercised by local government which includes: Regional Planning and Development Board (Bappeda), Trade and Industry Office (Disperindag), and other related institutions. SMI development policy should draw attention to obstacles in financing, marketing, regulation, information, partnership, partnership, facility & infrastructure, and business opportunities. The role of local governments in formulating policy is essential since they have more thorough information relating to SMI in their respective regions. Figure 1. Comprehensive Support

3

The main objectives of this study are:  To evaluate current SMI development policies in every province in Indonesia  To evaluate problems in the implementation of SMI development policies in both national and local level  To evaluate the performance of SMI in national and provincial level after implementation of SMI development policy  To formulate appropriate SMI development policies in Indonesia 2. RESEARCH METHODOLOGY The research methodology is divided in three parts which are described in following order.  Source of Data Written report presents statistics and analysis based on field survey in each provinces. The report is constructed based on analysis using primary and secondary data. Secondary data are obtained from BPS (Statistics Indonesia) specifically the Economic Census in 1996 and 2006. The data are calculated comprehensively and analyzed to generate the overview of SMI development which is presented through tables, maps, and figures. Secondary data are also obtained from Bappeda, Disperindag, and Kadin in 33 provinces and selected districts/cities. Data obtained from those institutions consist of RPJPD (Long-Term Regional Development Plan) and RPJMD (Mid-Term Regional Development Plan), program/activities, and their budget for SMI development. The report also presents programs and activities from donor institutions in SMI development.  Data Analysis Data obtained from primary and secondary sources are then analyzed and formulated to present comprehensive overview on SMI (Figure 2). Data analysis consist of obstacles faced by SMI, regulations, SMI development policies in mid- and long-term, programs & activities and its budget regarding SMI development. The analyzed data are primarily obtained from LAKIP (Government Institution Accountability and Performance Report) and other report on SMI. Figure 2. Analysis of Data

Data Analysis

4





Geographic Information System (GIS) The result of the analysis is comprehensive thematic maps to present overview concerning SMI current situation based on number of firms, number of workers, and value of output. The maps also present situation and challenges in the implementation of SMI development policy. Recommendation of New Strategies New strategies will be recommended by the team in effort to support the development of SMI in Indonesia. The recommended strategies are formulated based on data analysis and key findings.

3. THE ROLE OF MANUFACTURING INDUSTRIES IN INDONESIA Industrialization in Indonesia has brought structural transformation since 1968. The pattern of economic growth seemed to be in line with common structural transformation pattern in many developed and developing countries. The transformation generally witnesses a continual decrease of agricultural sector (called as primary sector) contribution to GDP. In the other hand, secondary and tertiary sector contributions indicate a continual increase. Table 2 shows these tendencies between several key periods: 1968 (Repelita I), 1978 (Repelita II), 1988 (Repelita IV), 1993 (industry sector became the dominant sector), 1998 (economic crisis), 2000 (reformation era), 2004-2009 (Kabinet Indonesia Bersatu I).1 In 1968, agriculture sector contributed about 51% of GDP, the highest relative to other sectors. Manufacturing industry, for example, only contributed 8.5%. The industrialization had not dominated the Indonesian economy until 1978.2 Agriculture sector’s contribution in 1978 decreased 21.5% compared to that in 1968. However, declining role of agriculture sector had been compensated by increasing contribution in mining sector about 13.4%. In 1978, manufacturing industry contribution reached 10% of GDP, or rose 1.5% than that in 1968. Other sectors that had been experiencing increase in its contribution to GDP were service, finance, rental, and financial service, also transportation and communication sectors.3 Some phenomenal situation occurred after 1978: agriculture sector’s contribution decreased steadily. The domination of agriculture sector in GDP formation has decreased and started to shift to manufacturing industry. Agriculture sector in that period contributed 24.1% but the contribution had decreased for 6.4% compared to that in 1978. During the same period, manufacturing sector’s contribution increased 8.5% in 1988 and became 18.5%. Manufacturing industry replaced the predominance role of agriculture sector eventually. In the period of 1988-1993, Indonesian economic structure experienced some significant changes, where contribution of manufacturing industry exceeded the agriculture contribution. The decreasing of agriculture commodity production in late 1993, especially rice, resulted in decreasing 1

Repelita (Five Year National Development Plan). Kabinet Indonesia Bersatu is presidential cabinet under Susilo Bambang Yudhoyono. 2 We use non-oil and gas GDP and GRDP for the analysis. 3 We grouped these sectors to focus on structural transformation from agriculture and mining sector to manufacturing industry sector.

5

contribution to only 17.9% of Indonesian GDP. In the other hand, expansion in manufacturing industry resulted in the increasing of its contribution to 22.3% of GDP. Since 1993, agriculture sector’s contribution never exceeded that of manufacturing industry. In short, manufacturing industry has been the dominant contributor of GDP. Table 2. Sectoral Contribution to Indonesian GDP, 1968-2009 (%) 1968

1978

1988

1993

1998

2000

2004

2005

2006

2007

2008

2009

Agricultural

51

30.5

24.1

17.9

17.4

15.6

15.4

14.5

14.1

11.8

14.1

13.8

Mining and excavation

4.2

17.6

12.1

9.6

8.3

12.1

8.6

9.4

9.1

8.6

8.4

8.2

Manufacturing industry

8.5

10.0

18.5

22.3

23.9

27.8

28.3

28.1

27.8

27.7

26.9

26.3

36.3

41.9

45.2

50.3

50.3

44.6

47.7

48.1

48.8

51.8

52.9

51.6

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

Sectors

Others GDP

(Q1)

Note: Other sectors include the following: electricity, gas, and water sector; construction sector; trade, hotel, and restaurant sector; transportation and communication sector; finance, rental, and company service sector; and service sector. Source: Calculated from BPS (2009a)

Table 2 explains that manufacturing industry has become the major sector since 1993. Manufacturing industry contributed 22.3% of total GDP, higher than agriculture (for about 17.9%). In 1998, manufacturing industry contributed 23.9% to GDP. The number increased about 1.6% than that in 1993. During 2000 until 2009, contributions of the manufacturing industry remain stable between 26.3% and 28.3%. Manufacturing industry grew steadily from 2002. The highest growth of GDP of manufacturing industry was evidenced in 2004 that is 6.4% with sector GDP reaching Rp469.9 trillion. In 2006, it grew 4.6% or Rp514.1 trillion. Even though the manufacturing industry grew from 2002 to 2008, its share growth has been decreasing since 2005. The share growth decreased from 2005 to 2008 and in 2008 the share growth a negative 2.3% (Table 3). The last is largely due to global financial crisis that led recession in major Indonesia’s trading partner (Kuncoro, 2009). Table 3. Manufacturing Industry Growth and Share Growth, Indonesia 2002-2009 (%) Criteria Manufacturing Industry GDP (trillion rupiah)

2002

2003

2004

2005

2006

2007

2008

419.3

441.7

469.9

491.56

514.1

538.0

557.7

Growth

5.3

5.3

6.4

4.6

4.6

4.7

3.7

Share Growth

0.8

0.5

1.3

-1.0

-0.9

-1.5

-2.3

Source: Calculated from BPS (2009a)

4. SMI BY NUMBERS OF FIRMS, EMPLOYEES, AND OUTPUT Small medium enterprises (SME) play an important role in Indonesia. Most enterprises in Indonesia are small and micro enterprises which accounted for 99.8% of total establishment in Indonesia (Kuncoro, 2007; 2009). Brata (2007) shows small enterprises employed about 91% of total employment and the contribution of non-farm enterprises in total employment (53%) is higher than

6

that of farm-based enterprises although farm-based enterprises accounted for the majority of establishments (54%). The number of SME establishment accounted for 1,179,265 which absorbed 2,755,329 workers in 2006 according to Economic Census 2006 (BPS, 2009b). Value of output from SME in 2006 accounted for Rp15.4 trillion.4 In particular, Economic Census 2006 highlights that the number of SMI in Indonesia reached 189,732 units or 16.1% of total SME Indonesia. The number of SMI employee absorption accounted for 496,628 or 18% of total SME employees and value of outputs accounted for Rp 1.4 trillion or 9.3% of total SME value of outputs. The number of SMI in Indonesia in 2006 is concentrated geographically in Java, especially in the province of Central Java, East Java, and West Java. SMI in these three provinces reached 100,063 companies or 52.7% of the SMI in Indonesia. Those provinces, together with SMI in Java (Special Region of Yogyakarta, DKI Jakarta, and Banten) accounted for 111,414 companies or 58.7% of total SMI Indonesia. The figure shows that Java has been the heartland of SMI Indonesia. Concentrations of SMI in these provinces above can also be seen from the share of SMI in the provinces outside the top three provinces. Share of SMI in South Sulawesi, West Nusa Tenggara, and North Sumatra, are only 4.2%, 3.4%, and 3.2% respectively. The share of SMI in every province outside those already mentioned is less than 3%. The same phenomenon occurs in employee absorption by SMI in Indonesia in 2006. Employment creation by SMI in the Province of Central Java, West Java and East Java accounted for 262,272 employees or 52.9% of total employees. The share of employees in the province of South Sulawesi, North Sumatra and West Nusa Tenggara reached 3.8%, 3.5%, and 3.2% respectively, while the absorption in the other provinces is less than three percent. SMI value of outputs in the province of Central Java, East Java and West Java accounted for Rp659.12 billion (45.8%) of the value of outputs of SMI in Indonesia in 2006. North Sumatra Province contributed national value of outputs of 7.15% (Rp102.7 billion) while West Sumatra Province contributed about 5.6% (Rp80.3 billion) to the Indonesia’s SMI value of outputs. DKI Jakarta Province contributed output by 5.3% (Rp75.4 billion) although the share of SMI and absorption of employees is relatively small. This phenomenon may indicate that the scale of SMI in DKI Jakarta is relatively larger than the SMI in another province. Banten and NAD Province generated 4.4% and 3.2% respectively of the value of outputs of SMI in Indonesia. This shows the inequality of geographic distribution of Indonesia SMI as well as the spread of business and employees. The explanation of the number of SMI, employees, and the value of outputs of SMI in the 33 provinces of Indonesia are shown by in Table 4.

4

There are 18 sectors of SME in Indonesia which are agriculture, fishery, mining, manufacturing, electricity (including gas and water), construction, wholesale (including retail store and automobile service), transportation (including storage and communication), financial intermediaries, government administration service, educational service, health and social service, other social services, international body, and other sector.

7

Table 4. SMI by Number of Employees, Value of Outputs, and Number of Firms in Indonesia 2006 PC

Value of Outputs (billion of rupiah)

Number of Employees (person)

Provinces

Share (%) Firms (unit)

Number of Employees

5

Value of Outputs

Firms

1

Nanggroe Aceh Darussalam

13,412

45.4

4,987

2.7

3.2

2.6

2

North Sumatera

17,457

102.7

6,354

3.5

7.2

3.3

3

West Sumatera

11,639

80.3

4,603

2.3

5.6

2.4

4

Riau

6,299

19.2

2,189

1.3

1.3

1.2

5

Jambi

4,822

13.9

1,801

1.0

1.0

0.9

6

South Sumatera

10,794

26.5

4,045

2.2

1.8

2.1

7

Bengkulu

2,976

6.7

1,187

0.6

0.5

0.6

8

Lampung

14,068

31.8

5,562

2.8

2.2

2.9

9

Bangka Belitung Archipelago

1,934

9.5

727

0.4

0.7

0.4

10

Riau Archipelago

2,100

9.4

744

0.4

0.7

0.4

11

D K I Jakarta

14,010

75.5

2,737

2.8

5.3

1.4

12

West Java

71,801

218.7

24,043

14.5

15.2

12.7

13

Central Java

101,220

224.3

40,661

20.4

15.6

21.4

14

Special Region of Yogyakarta

10,293

22.2

4,019

2.1

1.5

2.1

15

East Java

89,251

216.1

35,359

18.0

15.0

18.6

16

Banten

12,909

63.1

4,595

2.6

4.4

2.4

17

Bali

12,253

29.4

4,580

2.5

2.0

2.4

18

West Nusa Tenggara

16,024

28.5

6,537

3.2

2.0

3.4

19

East Nusa Tenggara

9,305

11.6

4,570

1.9

0.8

2.4

20

West Kalimantan

6,657

17.8

2,739

1.3

1.2

1.4

21

Central Kalimantan

4,248

12.8

1,718

0.9

0.9

0.9

22

South Kalimantan

9,042

22.2

4,055

1.8

1.5

2.1

23

East Kalimantan

4,839

21.2

1,644

1.0

1.5

0.9

24

North Sulawesi

5,130

12.6

2,155

1.0

0.9

1.1

25

South Sulawesi

18,980

51.8

7,904

3.8

3.6

4.2

25

Central Sulawesi

4,897

10.0

2,041

1.0

0.7

1.1

27

Southeast Sulawesi

6,717

13.4

2,837

1.4

0.9

1.5

28

Gorontalo

2,856

5.3

1,232

0.6

0.4

0.6

29

West Sulawesi

2,373

7.7

1,081

0.5

0.5

0.6

30

Maluku

2,782

4.9

1,076

0.6

0.3

0.6

31

North Maluku

1,550

4.5

690

0.3

0.3

0.4

32

West Papua

1,215

3.9

372

0.2

0.3

0.2

33

Papua

2,775

13.6

888

0.6

0.9

0.5

496,628

1,436.2

189,732

100.0

100.0

100.0

National Total

Source: Calculated from BPS (2009b) PC = province code

Geographic distribution of SMI in Indonesia has changed considerably from 1996 to 2006. The concentration of Indonesia’s SMI in 2006 is consistent with the concentration in 1996 that is geographically concentrated in Province of Central Java, East Java and West Java. The share of SMI in these three provinces reached 60.6% in 1996 but the share decreased to 52.7% in 2006. These changes explain the development of SMI outside the three provinces above. The decline in the share of West Java in 2006 as compare to 1996 is due to the regional division into two provinces, i.e. Banten and West Java 5

; i refers to provinces. Same method is applied to calculate the share of employee

absorption and value of outputs contribution. The sum of all provinces is rounded to 100%.

8

Province. Bali Province ranks top ten in 1996 in the number of SMI in Indonesia with the share of 4.5%. In 2006, Bali’s share fell to 2.4% and no longer occupies the top ten positions in terms of the number of SMI in Indonesia. Special Region of Yogyakarta also experienced a decline in the share in 2006 than in 1996 in the amount of 3.2% to 2.1% and the province of Special Region of Yogyakarta is no longer occupied the top ten positions in terms of the number of SMI. The same phenomenon occurred in South Kalimantan Province, although a decrease in the share of the number of SMI in 2006 compared to the year 1996 was not as experienced drastic decline in Bali and Yogyakarta provinces. The decline of SMI companies in Bali and Special Region of Yogyakarta might be attributed to Bali Bombs in 2002 and 2005 and earthquake in May 2006 respectively. The decreasing number of SMI in Indonesia between 1996-2006 accounted for 29.7%. The underlying factors vary by provinces. The economic crisis in 1998 until 1999 is one of the main factors that slumped business, including business. The increase of gasoline price, electricity tariffs, transport costs, and other administered price also becomes the major factor. As for Yogyakarta, it is the force majeure factor that played a significant role in the decreasing number of SMI that reached 97.3%. The same factors are experienced by Central Java and East Java (Lapindo hot mud). The regional division autonomy program caused a decrease. Banten province which is a product of region division decreased the number of SMI in West Java up to 64.7%. The SMI spatial distribution in 1996 and 2006 can be seen in Figure 3 and Figure 4 respectively. Provinces having high number of SMI are indicated by black color. Provinces having medium number are indicated in gray while those with low number of SMI are indicated in white. It is clear that provinces with high SMI firms are located concentrations of high level in Java (marked with a red circle). Yellow circle in Figure 4 shows the provinces that experienced an increase in ranking from year 1996-2006 from low grade to medium grade. Provinces belonging to lower level for SMI units in 2006 were new provinces such as Riau Islands and Bangka Belitung in the western of Indonesia, and North Maluku, Papua and West Papua in the eastern of Indonesia. Figure 3. Spatial Distribution of SMI by Number of Firms in Indonesia, 1996

Source: Calculated from BPS (2009b)

9

Number of SMI in 1996 which concentrated in the Java Island covered more than 45% of the total number of national SMI, as illustrated in Figure 3.3. Distribution of SMI in the medium class (1,150-39,601 firms) covers the island of Sumatra, Sulawesi, Bali, Maluku, NTB, and NTT. In 2006, the dominance of Java Island in the number of SMI was even more prominence since Java Island accounts for more than 58% of the national SMI, an increase about 13% than that in 1996. The increase in the number of SMI level during 1996-2006 is found in Central Kalimantan and Bengkulu, from low level to medium.6 Figure 4. Spatial Distribution of SMI by Number of Firms in Indonesia, 2006


5. SMI DEVELOPMENT POLICY CHRONOLOGY Since the element of Law Number 22 Year 1999 regarding the Regional Government, there have been a lot of SMI development policies issued by the government. Chronologically, SMI development policy can be summarized in Figure 5. Law No.22 year 1999 is issued as the legal umbrella in the administration of regional autonomy, namely the division of authority between the central government, provincial, and district. Financial balance between central and regional governments is regulated by Law No.25 Year 1999. This policy was issued with the aim that each BUMN in Indonesia participated to empower and to develop the economic condition, social condition of society and the environment, namely through the BUMN partnership programs with small business and community development program. This is the first period of President SBY, in which the election is done by direct election. Nothing surprising in SMI handling-related programs. Among the 100 days program Lawivities in SMIs field are to solve the problem of arrears of Farm Credit (KUT), encouraging cooperation and SMI access and SME to banking, and held a public market in order to welcome the Idul Fitri holidays. 6

We use statistical approach to distinguish high, medium, and low class of SMI based on Economics Census 2006 data. Assuming normal distribution of the data, low class is mean minus standard deviation where high class is mean plus standard deviation. Medium class is ranged between high and low class cut-off point.

10

Figure 5. Chronology of SMI Development Policies After 1998

These bots Laws revised the Law No.22 year 1999 and Law No.25 of 1999. These Laws were issued to support the implementation of regional autonomy, in which it is expected that efficiencies and effectiveness of local governance can be achieved. The goal is to accelerate the realization of public welfare through the improvement, service, empowerment, and community participation, and increase regional competitiveness. In this latest Law, the central government only has the authority and responsibility for defense and national security, religious affairs, and other special functions such as macroeconomic planning, fiscal transfer system, government administration, human resource development, technology development, and national standards. While the provincial and district governments in addition to having the authority shall also have the authority option that has the potential to significantly improve the welfare of the community in accordance with the condition, uniqueness, and concerned superior potential areas. From the vision and mission of the central government, the seriousness of the government to promote SMI sector is clear the Central Government assessing of the basic criteria of the achievement of this vision is a high role and contribution to the national economy, the balanced ability between the SMI with big industry. The vision and mission of local governments to support the vision and mission of the central government develop economic sectors. The vision and mission in provinces are also based on human resources and the needs of respective regions. The 33 provinces in Indonesia have been trying to implement policies of central government by setting vision and mission that are oriented to the community economic development. Central government hopes that local governments conducts programs that support the planned targets of developing the regional core competence. This policy is intended in the context of industrial development in the region to

11

enhance regional competitiveness, through exploiting natural resources, capital or other tangible assets, and the use of intangible assets such as technology, knowledge, work processes, and planning. All of the provinces already have a program that supports the goals set by the central government. This is shown in Appendix I. 6. OVERVIEW OF SMI DEVELOPMENT POLICIES This section analyze to what extent the manufacturing industry development since 1968 has set structural transformation in Indonesia. Agriculture sector which has been the main sector since 1968 which contribute 51% of Indonesia GDP; at the same time, industry sector only contribute 8.5%. Industrialization has set aside agriculture sector as the main sector since 1978, furthermore, manufacturing industry sector has become the main sector in Indonesia since 1993. It is interesting to note that manufacturing industry sector's contribution to Indonesian GDP was relatively stable between 26.3%-28.3% since 2000. SMI has an important role in the process of industrialization through number of firms and workers absorption. The number of SMI in Indonesia accounted for 189,732 (16.1% of total MSME) and absorbed 496,628 workers (18%) in 2006. The increase of workers absorption in 2006 compare to that in 1996 accounted for 55.3%. SMI in Indonesia generated Rp1.4 trillion of output value in 2006, which increased 4.6 times than that in 1996. This study also prove that number of firms, number of workers, and value of output has positive and significant correlation. SMI spatial distribution in Indonesia in terms of number of firms, workers absorption, and value of output remains relatively unchanged during 1996-2006. SMI was concentrated geographically in Central Java, West Java, and East Java in 1996. The share of firm numbers in those provinces accounted for 60.7% in 1996. However, share of firm numbers of those provinces declined to 52.7% in 2006. Provinces which experienced increase in share of firm numbers relative to other provinces are Lampung, West Sumatera, and Banten. Table 5 shows that the dominant SMI sectors in each province in terms of number of firms and workers absorption are food, beverage, and tobacco industry (ISIC 31), wood, wood product, and furniture sector (ISIC 33), and textile, textile product, and leather sector (ISIC 32). In terms of output value, the dominant sectors are food, beverage, and tobacco industry, metal, machinery, and tools sector (ISIC 38), and textile, textile product, and leather sector. In general, SMI is concentrated geographically in Java particularly in Central Java, East Java, and West Java based on number of firms and workers absorption.

12

Table 5. SMI Spatial Concentration in 33 Provinces Based on Number of Firms, Number of Employees, and Value of Output, 2006 Provinces

Number of Firms

Number of Employees

Value of Output

Central Java

Food, beverage, and tobacco



East Java

Basic metal

Basic metal


West Java

Basic metal

Basic metal

Textile, textile product, and leather

South Sulawesi


Non-metallic mineral product


West Nusa Tenggara

Wood, wood product, and furniture



North Sumatera

Basic metal

Basic metal

Chemical product, rubber, and plastic

Lampung








West Sumatera




Banten



Metal, machinery, and tools

Bali




East Nusa Tenggara



Paper, printing, and publishing

South Kalimantan

Basic metal



South Sumatera








Southeast Sulawesi




West Kalimantan




D K I Jakarta

Basic metal



Riau




North Sulawesi




Central Sulawesi

Basic metal



Jambi




Central Kalimantan




East Kalimantan




Gorontalo




Bengkulu




West Sulawesi




Maluku




Papua




Riau Archipelago




Bangka Belitung Archipelago

Basic metal

Basic metal

Basic Metal

North Maluku




West Irian Jaya





SMI in each province has distinct main sector. For example, SMI in Lampung Province are concentrated geographically in non-metallic mineral product sector (ISIC 36) based on number of firms and workers absorption. However, SMI are concentrated geographically in wood, wood product, and furniture sector based on value of output. Same situation occurred in other provinces. The situation shows that SMI in each province has distinct industry structure in terms of number of firms, workers absorption, and value of output. Next section explains main obstacles in SMI development in Indonesia. The chapter comprises of three main discussions: (1) SMI development obstacles in Indonesia; (2) obstacles in the implementation of SMI development policies in 33 provinces; (3) special problems in SMI development.

13

6. MAIN OBSTACLES OF SMI Main obstacles and implementation obstacles are reported in detailed and tabularized. The analysis report that main obstacles are mainly faced by SMI in Central Java, East Java, and West Java. It is not surprising given the fact that SMI are concentrated geographically in these provinces. The three main obstacles that SMI faced include capital (34%), marketing (32%), and raw material (22.6%). Obstacles in the implementation of SMI development are classified into three main category based on field survey which include internal SMI factors, government internal factors, and external factors (Table 6). Internal SMI factors include lack of capital, raw materials obstacles, human resource incompetence, marketing obstacles & low competitiveness, lack of business networks, low technology & productivity, lack of entrepreneurship, and lack of partnership. Internal government factors include limitation of central/local government budget, government official incompetence, lack of coordination between government institutions with different level, lack of coordination between government offices, and unfocused program. Table 6. Obstacles in the Implementation of SMI Development Policy Matrix in 33 Provinces

√

√

√

√

West Java

√

√

√

√ √

√

√

√

√

√

North Sumatera

√

√

√

√

√

Lampung

√

√

√

√

South Sulawesi

√

West Nusa Tenggara


√

√

√

√

√

√

√

√

West Sumatera

√

√

√

√

√ √

√

Banten Bali

√

√

√

√

√

√

√

14

√

√

Smuggling practices

√

√

√

Social, politic, and safety situation

Legal uncertainty

√

Global economic crisis in 2008

√

Inadequate electricity infrastructure

Global competition and ACFTA

√

Distant location between districts/cities

Limited quality infrastructure

√

High cost economy

Inconducive investment and business climate

External

Unfocused program

Lack of coordination between government office

K Lack of coordination between government institutions in different level

Government official incompetence

Limitation of central/local government budget

Lack of partnership

√

Lack of entrepreneurship

Lack of business network

√

Government internal

Lack of technology and low productivity

Marketing obstacles & low competitiveness

Human resource incompetence

√

Central Java East Java

Raw material obstacles

Provinces

Lack of capital

SMI internal

√ √ √ √

√

√ √

√ √

√

√


√

√

√

√ √

√

√ √

Southeast Sulawesi

√

√

Social, politic, and safety situation

Smuggling practices

Legal uncertainty

Global economic crisis in 2008


Distant location between districts/cities



√

√ √

√

√

√

√ √

Central Sulawesi

√

Jambi

√

Central Kalimantan

√

√

√

√ √

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√ √

√

West Sulawesi

√

√

√

Maluku

√ √

Papua

√

√ √

√

√

√

√ √

√

√

Riau Archipelago

√

√

√

√

√

√

√

√

Bangka Belitung

√

√

√

√

Bengkulu

√

√

√

East Kalimantan

√

√

Riau North Sulawesi

√

√

√

West Kalimantan

North Maluku

High cost economy

√


√

Unfocused program

Lack of coordination between government office

√ √

Gorontalo

K Lack of coordination between government institutions with different level

√

South Sumatera

DKI Jakarta

√

External

√

East Nusa Tenggara South Kalimantan

Government official incompetence


Lack of partnership


Government internal


Lack of business network


SMI Human resource incompetence


Provinces

Lack of capital

SMI internal

√ √

√

√

√

√ √

√

√

√

√

√

√ √ √ √ Source: Field Survey of JICA UGM Team (2010)

West Irian Jaya

√

√ √

√

External factors consist of inconducive investment and business climate, high cost economy, limited quality infrastructure, global competition & ACFTA, distant location between districts/cities, global economic crisis, legal uncertainty, smuggling practices, and inconducive social, politic, and safety situation. Obstacles in the implementation of SMI development policy in 33 provinces are summarized in the following matrix.

15

Field survey shows three major obstacles in the implementation of SMI development policy in 33 provinces (Table 7). The major obstacle is lack of coordination between government institution with different level (centralprovincial government and provincial-district/city government). This obstacle may indicate negative impact of decentralization. Second and third major obstacles are government official incompetence and limited central/local government budget. Each province has distinct SMI development policy which depends on respective local potencies. SMI development policy are implemented through program and activities in each province. Field survey shows that not all official understand the roadmap regarding regional industry core competencies development established by Ministry of Industry (2007). Almost half of the official states the core industries in each province less than what the Ministry of Industry (2007) had set. In district/city level, core industries in selected district/city are consistent with the priority set by provincial government. This fact indicates that selected district/city has develop core industry based on the potencies of the region. Analysis of budget regarding SMI development activities shows that East Kalimantan Province has the highest budget for SMI development (Rp16 billion), followed by West Java (Rp15 billion), and East Java (Rp10 billion). On the other hand, Bangka Belitung province has the smallest budget for SMI development that is Rp116 million. SMI development budget allocation in other provinces ranges from Rp2 billion to Rp4.5 billion. The most executed action program were improvement of production skills with a budget of Rp35.6 billion (31.4%) and strengthening of business environment/networks with a budget of Rp34.7 billion (30.3%). Overall budget allocation for strengthening management competitiveness action program and marketing development accounted for Rp23.4 billion (20.4%) and Rp15.6 billion (13.6%) respectively. Action program with the least budget allocation were financial assistance and human resource development which accounted for only Rp3.1 billion (2.7%) and Rp1.9 billion (1.6%) respectively. Strengthening of management competitiveness action program was implemented by the majority of provinces in Indonesia except DKI Jakarta, Lampung, West Kalimantan, West Sumatera, and Bangka Belitung. East Kalimantan Province allocated the highest budget for this action program which accounted for Rp5.6 billion. As for improvement of production skills action program, West Java allocated the highest budget of Rp6.5 billion. West Kalimantan, Bangka Belitung, and Gorontalo did not implement improvement of production skills action program. Strengthening of business network action programs were implemented in all provinces except Riau, Bangka Belitung, Riau Archipelago, and Gorontalo. East Java Province allocated Rp8.4 billion which is the highest budget allocation for the program.

16

Table 7. Obstacles in the Implementation of SMI Development Policy in 33 Provinces Number of Provinces

(%)*

19

57.6

18

54.5


16

48.5


12

36.4

Lack of capital

11

33.3


11

33.3


11

33.3


11

33.3


9

27.3

Lack of coordination between government offices

8

24.2

SMI human resource incompetence

7

21.2

Unfocused program

7

21.2

Social, Politic, and Safety Situation

7

21.2

Lack of business networks

5

15.2


5

15.2

Legal uncertainty

5

15.2

High cost economy

4

12.1

Distant location between district/city

4

12.1

Smuggling practices

4

12.1


3

9.1


2

6.1

Lack of partnership

1

3.0

Global economic crisis

1

3.0

Obstacles in the Implementation of SMI Development Policy Lack of coordination between government institution with different level (CentralProvincial government and Provincial to district/city government) Government official incompetence

Source: Field Survey of JICA UGM Team (2010) Note: * indicates percentage from total 33 provinces in Indonesia

East Java province also allocated the highest budget for marketing development action program which accounted for Rp2.3 billion. On the other hand, DKI Jakarta, Banten, Lampung, West Sulawesi, and Gorontalo did not implement such action program. Financial assistance program were implemented in only 11 provinces in which North Maluku allocated the highest budget of Rp1 billion. Similar situation occurred for the implementation of human resource development action program which was only implemented in 15 provinces. Special Region of Yogyakarta allocated the highest budget for human resource development which accounted for Rp365 billion. 7. CONCLUSION Obstacles in the implementation of SMI policy are classified in three main categories according to field survey that is internal factors, internal government factors, and external factors. Internal factors comprise of lack of capital, raw materials obstacles, human resource incompetence, marketing obstacles & low

17

competitiveness, lack of business networks, low technology & productivity, lack of entrepreneurship, and lack of partnership. Internal government factors include limitation of central/local government budget, government officials’ incompetence, lack of coordination between government institutions, lack of coordination between government offices, and unfocused program. External factors consist of inconducive investment climate, high cost economy, limited quality infrastructure, global competition & ACFTA, distant location between districts/cities, global economic crisis, legal uncertainty, smuggling practices, and inconducive social, politic, and safety situation. The main obstacles in the implementation of SMI development policies are lack of coordination between government institutions (central with provincial government and provincial with district/city government), government officials’ incompetence, and limited central/local government budget. Special problems in the development of SMI are mainly caused by external factors. Major external factors in many provinces include: earthquake in NAD, Special Region of Yogyakarta, Central Java, and West Sumatera; Lapindo hot mud in Sidoarjo which caused the value of industry to decrease by 60-70%; and bomb attack in Bali which decreased the exports of handicraft products from West Nusa Tenggara. Field surveys suggest that not all government officials set the priority industry based on the roadmap established by Ministry of Industry (2007). There are 36.4% of officials from 33 provinces that state their core industry less than what the Ministry of Industry has established. Nonetheless, 97% of core industries in selected districts/cities are consistent with those established by Ministry of Industry. The fact shows that the majority of districts/cities have attempted to establish priority industry based on their potencies. Action programs implemented by each province are categorized into 6 activities which include: (1) strengthening management competencies; (2) improvement of production skills; (3) marketing development; (4) financial assistance; (5) human resource development; (6) strengthening of business environment/network. Most activities implemented in 33 provinces are improvement of production skills (31.4%), strengthening of business environment (30.3%), strengthening of management competencies (20.4%), marketing development (13.6%), financial assistance (2.7%), and human resource development (1.6%). The statistics shows that there is a need to improve activities regarding human resource development and financial assistance. Now is the time to arrange efforts, policies, and coordination between entrepreneurs (Kadin), donor institutions, and government (central, provincial, district/city) in attempt to establish pro-SMI policies. This study reccomends several strategic policies. First, functional coordination between related stakeholders must be improved. Government Decree No. 19 2010 regarding the Authority of Government as Central Government Representative in the Province, for example, can be put into effect to improve coordination between government institutions in provincial and district/city level. Second, there is a need for continuous evaluation regarding SMI development policies in central or local level to minimize adverse effects in the development of SMI. SMI development policies in Indonesia must integrate the following five

18

factors: (1) National Priority (for example, Presidential Decree No. 28 2008 regarding National Industrial Policy ); (2) The purpose of SMI development in provincial and district/city level according to RPJPD and RPJMD; (3) Policy direction of national industry development in provincial and district/city level); (4) Regional Spatial Planning of province and district/city, particularly in regional economy development zoning; (5) Analysis of primary subsector & commodity, value chain, and regional core competence (Figure 6). The integration of factors above is the foundation for provincial and district/city government to establish SMI development strategies which can later be derived into SMI development action program in each region. Figure 6. Integrated SMI Development Strategy

Primary subsector in district/city Purpose and direction of SMI development policy according to RPJP and RPJMD

Primary commodity

Value Chain

Regional Core Competence National priority (for example: National Industry Policy)

Regional spatial planning: regional economy development zoning

SMI development strategies in each province and district/city

SMI development action program

The fragmanted development of SMI in practice can be minimalied by aligning sectors’ perception regarding SMI: SMI profiles & obstacles and policy design to improve the performance. Figure 7 shows SMI problem solving scheme and the establishment of SMI development action program. SMI development must focus on: First, improvement of policy implementation in order to enhance the role of technology for the growth of SMI businesses and competitiveness. Such is feasible through the strengthening of production process workflow by improving production equipments, efficiency, and productivity.

19

Figure 7. Problem Solving and SMI Development Program  Availability of easy-to-attain working capital and investment  Availability of fund for innovation  Improvement of production equipment, efficiency, and productivity through workflow and track record

 Revitalization of Kredit Usaha Rakyat (Community Business Credit)  Credit insurance for SMI

 Industry standardization (intellectual property rights, ISO, SNI)

5

Capital

 Market Expansions

3

1

Raw Material  Availability of raw materials & their substitutes and supporting materials

Production Process 7

4

Market/Buyer 6

Partnership

2

Human Resource

Management

 Improvement of administration, financial, and production management  Business development service

 Establishment of partnership in capital, production, marketing, and raw material.

 Improvement of human resource through education and training

20

REFERENCES BPS (2008), Daerah Istimewa Yogyakarta dalam Angka [Special Region of Yogyakarta in Numbers], BPS Daerah Istimewa Yogyakarta: Yogyakarta. BPS (2009a), Produk Domestik Bruto Harga Konstan [Constant Price Gross Domestic Product], downloaded from http://bps.go.id, January 2010. BPS (2009b), Sensus Ekonomi 2006 [Economic Census 2006], Laporan Sensus Ekonomi 2006 BPS: Jakarta. Brata, A.G. (2007), ‘Spatial Concentration of the Informal Small and Cottage Industry in Indonesia,’ Munich Personal RePEc Arhive Paper, No.12622, downloaded from http://mpra.ub.uni-muenchen.de/12622/ Departemen Koperasi (2008), Undang-Undang Nomor 20 Tahun 2008 mengenai Usaha Mikro Kecil dan Menengah [Law Number 20 Year 2008 Regarding Micro Small Medium Enterprises], downloaded from http://depkop.go.id/keriteria-usaha-mikrouu-20-2008.html, January 2010. Department for International Development (2010), Where We Work: Indonesia, Department for International Development Official Website, downloaded May 2010 from http://dfid.gov.uk/ JICA (2010), Activities in Indonesia, downloaded May 2010 from http://jica.or.id Kementrian Perindustrian (2008), Peraturan Presiden Nomor 28 Tahun 2008 Mengenai Kebijakan Industri Nasional [Presidential Decree Number 28 Year 2008 Regarding National Industry Policy], downloaded from http://depperin.go.id/Regulasi/2008/05/Perpr es%20no%2028. pdf, January 2010. Kuncoro, M. (2007a), “Ayat-ayat Krisis UKM [Verse of Small Medium Enterprises Crisis],“ Rubrik Analisis Kedaulatan Rakyat, downloaded 12 Mei 2005 from http://kr.co.id/web/detail.php?sid=163203&actmen u=46. Kuncoro, M. (2007b), Ekonomika Industri: Menuju Negara Industri 2030 [Industrial Economics: Towards An Industrialized Nation 2003], Yogyakarta: Penerbit Andi. Kuncoro, M. (2007c), “Strategi Pengembangan Ekonomi Lokal Pasca Gempa di Kabupaten Klaten [Post Earthquake Economic Development Strategy in Klaten District],“ presented in Bappeda Provinsi Jawa Tengah, Semarang November 12th 2007. Kuncoro, M. (2008a), “Moraturium Kredit UMKM [Micro Small and Medium Enterprises Credit Moratorium],“ Rubrik Analisis Kedaulatan Rakyat, 4 Juli 2007, http://kr.co.id/article.php?sid=129397. Kuncoro, M. (2008b), “Penyusunan Rencana Strategis Pengembangan Ekonomi Lokal (PEL) Kabupaten Bantul [Establishment of Local Economic Development Strategy Bantul District],“ presentation by PEL UNDP-ERA Team, Bantul January 15th 2008. Kuncoro, M. (2009), Ekonomika Indonesia: Dinamika Lingkungan Bisnis Di Tengah Krisis Global [Indonesia’s Economy: Business Environment Dynamics in During Global Crisis], Yogyakarta: UPP STIE YKPN.

21

Kuncoro, M., Purnawan, M.E., Budiarto R., Wibawa S., Marwasta D., Suyatna H., Pentarjo, Aryo G.., Harahap P., Ivan S., Utami S.S., Wibowo A., Khasanah R., Arifin Z. (2010), The Study of Regional Policy Measures in 33 Provinces In JICA’s Technical Cooperation Project for SME HR Development Under Economic Crisis In The Republic of Indonesia, Yogyakarta, LPPM-UGM & JICA. Pemerintah Republik Indonesia (2006), Instruksi Presiden Republik Indonesia Nomor 3 Tahun 2006 Mengenai Paket Kebijakan Perbaikan Iklim Investasi [Presidential Instruction of Republic of Indonesia Number 3 Year 2006 Regarding Investment Surroundings Enhancement Policy Package]. Pemerintah Republik Indonesia (2007), Instruksi Presiden Republik Indonesia Nomor 6 Tahun 2007 Mengenai Kebijakan Percepatan Pengembangan Sektor Riil dan Pemberdayaan Usaha Mikro Kecil dan Menengah [Presidential Instruction of Republic of Indonesia Number 6 Year 2007 Regarding Acceleration of Real Sector Development and Micro Small and Medium Enterprises Empowerment]. Pemerintah Republik Indonesia (2008), Instruksi Presiden Republik Indonesia Nomor 5 Tahun 2008 Mengenai Fokus Program Ekonomi Tahun 2008-2009 [Presidential Instruction of Republic of Indonesia Number 5 Year 2008 Regarding Economic Program 2008-2009].

22

Appendix I No Province 1 Nanggroe Darussalam

Program Aceh

1. 2. 3. 4. 5. 6. 7. 8.

Technical training SMI database development Compilation profile of SMI Organizing contests, competitions, and festivals Financing SMI business units SMI training and education Quality control assurance implementation guidance SMI product exhibition

2

North Sumatera

1. Entrepreneurship development and competitive advantages of SMI 2. Support system for SMI development 3. The creation of SMI business climate 4. Micro empowerment 5. Increased promotion and investment cooperation 6. Improving the investment climate and realization of investments 7. Improving the investment climate and attractiveness 8. Improving the quality of human resources, facilities and infrastructure of the apparatus 9. Research and development investment

3

West Sumatra

1. Improvement, development and standardization of export products 2. Improvement of industrial technology capability 3. Develop and expand access of SMI and manufacturing 4. Structuring operating system and institutional builder 5. Enhancement and support institutional development 6. Improving the quality of personnel resources and actors of SMI 7. Support system for SMI Development 8. Development of entrepreneurship and SMI competitiveness 9. Improving the investment climate and realization of investment 10. Structuring a productive pattern of investment cooperation

4

Riau

1. Preparation of potential resources, facilities and infrastructure areas 2. Development of entrepreneurship and SMI competitiveness 3. Developing a support system for SMI business 4. Coaching and development of enterprises and non-banking financial institutions 5. Medium and large industry development 6. SMI development 7. Arrangement of structures and improvement of industrial technology capability

23

No 5

Province Jambi

6

South Sumatra

Program 1. 2. 3. 4. 5. 6.

SMI's empowerment Creation of the business climate for SMIs Entrepreneurship development and competitive advantage SMI Business development support system for SMI SMI institutional quality improvement program Preparation of potential resources, facilities and infrastructurerelated areas of investment 7. Facilitate the establishment of strategic partnership between big business with SMI 8. A coordinated investment promotion both within and outside the country 9. Revitalization abroad export promotion institution 10. Build a conducive atmosphere, a clear and transparent rules and enforcement 11. Implementation of integrated information systems 12. Creating a database of potential and investment opportunities in the form of profiles and audio visual

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Coordination of venture capital for technology-based industries Development services and venture capital incubator Development of SMI technological innovation system Facilitation for SMIs to the use of resources, technology, markets, IPR, packacing Development of SMI in strengthening industrial clusters Guidance policies related industries and supporting SMI industries Facilitating easy access for SMI banking Facilitation of micro-industry partnerships with large companies and SMIs SMI development of superior / one village one product SMI development in disadvantaged areas, border and coastal areas Development of potential industrial centers SMI product promotion Increased capacity and service area of SMI training unit

7

Bengkulu

1. 2. 3. 4. 5. 6.

8

Lampung

1. Populist economic recovery and development as well as handling the impact of global crisis 2. Development of entrepreneurship and SMI competitiveness 3. Development of business support system for SMIs 4. Increased promotion and investment cooperation 5. Increasing employment opportunities, investment and export

Micro empowerment program SMI development programs Bengkulu export development program Fostering SMI clusters in strengthening the network industries Socialization IPR to the SMI Potential industrial district development program by conducting Dekranasda

24

No 9

Province Bangka Belitung Islands

10

11

Program 1. 2. 3. 4. 5.

Consumer protection and trade security products of SMI Improvement and development of SMI products SMI technology development SMI development centers SMI development

Riau Archipelago

6. 7. 8. 9. 10. 11.

Development of counter marketing of SMI products Procurement workshops and training for SMIs The exhibition and bazaar products SMI Superior product training SMI superior product exhibitions Cluster development efforts

D K I Jakarta

1. Applying the principles of good governance in the management of affairs of SMI 2. Increasing the capacity of administering affairs of SMI 3. SMI policies are integrated and comprehensive solution to the problem of the city 4. Improving the regulation of safety of goods consumed by the community 5. Develop and implement the registration system, including street vendors and SMI to update the data every year 6. Improve management system and institution building and managing SMME and SMI 7. Improve SMI network performance 8. Regulations to improve SMI access to capital, technology and markets 9. Facilitate the development of local economic resources 10. Regulations to facilitate the provision of space for the SMI and a street vendor 11. Increasing the role of public and community affairs professionals in the organization of SMI 12. Meet minimum service standards and other matters concerning SMIs 13. Facilitate the development of training to improve the quality and quantity of export product 14. Perform relocation of industries that are not environmentally friendly and promote environmentally friendly industries, technology-intensive and capital intensive 15. Increasing the role of professional communities in matters of industrial development 16. Industry that facilitate mutual support between the upstream and downstream 17. The people doing the building industry 18. Building a favorable climate for industrial development

25

No 12

Province West Java

Program 1. 2. 3. 4. 5. 6.

7. 13

Central Java

14

15

16

Export improvement and development Domestic trading system development Securing trade and consumer protection SMI development Arrangement of structures and improvement of industrial technology capability Creating a conducive business climate in order to maintain the existence of an existing investment and attract new investment Increased promotion and investment cooperation

1. 2. 3. 4. 5. 6. 7. 8. 9.

Increasing the efficiency of domestic trade Improving and developing export Improving consumer protection and trade security Increasing international trade cooperation Developing SME Developing potential centers / industrial cluster Industry structure arrangement with the guidance of the SMI Improvement of industrial technology capability Improvement of human resources, training and equipment aid industry

D I Yogyakarta

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

SMI development Development of industrial centers of potential Science and technology capacity of production systems Upgrading of industrial technology Development and creative industries Increased cooperation and international trade Improvement and development of exports Increasing the efficiency of domestic trade Protection of consumers and trade security Improving investment promotion and cooperation Improving the investment climate and investment realization Preparation of potential resources, infrastructure and regional infrastructure

East Java

1. 2. 3. 4. 5.

6.

SMI development Structuring the industrial structure Improvement of natural resource-based industries Improving the quality of human resources Improvement of industrial standardization Increased capacity of industrial technology

1. 2. 3. 4. 5.

Improving the investment climate and investment realization Improving investment promotion and cooperation Protection of consumers and trade security Development of SMI Quality improvement and regional labor productivity

Banten

26

No 17

Province Bali

Program 1. 2. 3. 4. 5. 6.

Strengthening SMI development Achieve a strong economic populist SMI partnership development Development of small industries and home industries Technical training Promotion SMI business unit

18

West Nusa Tenggara

1. 2. 3. 4. 5.

Improving the investment climate and realization of investment Increased promotion and investment cooperation Consumer protection and trade security Development of SMI Quality improvement and regional labor productivity development of regional products

6. 19

East Nusa Tenggara

1. 2. 3. 4. 5. 6. 7. 8.

20

West Kalimantan

1. 2. 3. 4. 5.

21

Central Kalimantan

1. 2. 3. 4. 5. 6. 7.

Technical training Compilation / collection / processing / updating / analyst data and statistics Preparation of program and work plan / program technic Exhibition / visualization / publications and promotions Community services aid HR competency improvement apparatus SMI development and quality Operational guidance and smi empowerment services unit

Development of industrial technology innovation system SMI facilities with private partnership Fostering SMI clusters in strengthening the network industry Technical Education and Training The preparation / collection / processing / updataing / statistical data analysis 6. Preparation of programs and work plans / technical courses 7. Exhibition / visualization / publicity and promotion 8. Improvement of human resource competencies 9. SMI quality coaching and development 10. SMI Operational and empowerment coaching services unit

Education and training SMI data collection SMI development programs are coordinated, Exhibitions / visualization / and promotion of SMI SMI quality coaching and development Giving an award to the perpetrators of SMI Empowerment and SMI coaching services unit

27

No 22

Province South Kalimantan

Program

23

East Kalimantan

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

24

North Sulawesi

1. 2. 3. 4. 5. 6.

25

Central Sulawesi

1. 2. 3. 4. 5. 6. 7. 8.

26

South Sulawesi

1. Utilization of Education and Training Center for small industries and households 2. Technical guidance on development of industrial products 3. Provision of resources to the SMI facility 4. SMI in strengthening the coaching industry cluster networks 5. Granting business permits ease of SMI 6. Providing easy access to banking facilities to the SMI 7. Facilitation of cooperation and partnership with SMI

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

SMI development Development of potential industrial centers SMI's empowerment in East Kalimantan Increased capacity of production system technology Development of entrepreneurship and competitive advantage Improvement of industrial technology capability Development of SMI business support system Creation of a conducive business climate Structuring the industrial structure Strengthening and development of industrial clusters in East Kalimantan

Marketing development Skills improvement products Increasing competence management The financial aid system HR development Strengthening the business environment

Economic empowerment of the people SMI institutional quality improvement SMI Partnership Development of business support system for SMI business SMI's empowerment Development of potential industrial centers of SMI Development of entrepreneurship and SMI competitiveness SMI database development

Increased promotion and investment cooperation Improving the investment climate and realization of investment Structuring the industrial structure Improvement and export development Increasing the efficiency of domestic trade Development of entrepreneurship and SMI competitiveness Increased promotion and investment cooperation Improvement and development and exports Increased capacity of production system technology Improvement of industrial technology capability Structuring program of industry structure

28

No 27

Province Southeast Sulawesi

28

29

Program 1. 2. 3. 4. 5.

Creation of a conducive business climate for SMI business Development of entrepreneurship and SMI competitiveness Developing a support system for SMI business Supervision programs to improve institutional quality on SMI Development of savings and loan financing facility (FPSP)

Gorontalo

1. 2. 3. 4.

SMI management training / KUD SMI supervision, monitoring and achievement awards Facilitating ease of formalization of SMI business entity Supervision and control of the execution of local regulations regarding the management of the forest product industry

West Sulawesi

1.

Science and technology program to increase the capacity of production systems SMI development program The upgrading of industrial technology programs Industry structure planning program Program development potential industrial centers

2. 3. 4. 5.

30

Maluku

1. 2. 3.

31

North Maluku

1. 2. 3. 4. 5. 6.

32

West Papua

1. Improved facilities and infrastructure and resource capacity building apparatus 2. Development of entrepreneurship and SMI competitiveness 3. Infrastructure development of consumer quality tests and consumer goods 4. coaching and industrial development 5. Improving the quality of industrial competitiveness 6. Consumer protection and trade security 7. Increased institutional SMI

SME development Development of industrial clusters Consumer protection improved human resource capacity development activities as SMI

Improved technological capabilities SMI equipment Empowerment and SMI development Structuring the industrial structure Strengthening and development of industrial clusters Increased HR managers of SMI Improving science and technology manager of SMI.

29

No 33

Province Papua

Program 1. 2. 3. 4. 5. 6.

Trade promotion and business investment Extension and dissemination of information SMI Increasing human resource capacity through technical training and management, activities and internships Product diversification SMI development SMI product marketing development

Source: Compile from Middle Term Regional Development Plan in 33 Provinces of Indonesia (2010)

30

31

32