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Indonesia strives to expand coverage of digitalization of MSMEs

Indonesia strives to expand coverage of digitalization of MSMEs

A Papuan dancer bought MSME products online during the Proud of Indonesian Products (Gernas BBI) event in Jayapura City, Papua on August 24, 2022. ANTARA PHOTO/Arif Firmansyah/aww

Indonesia has over 65 million micro, small, and medium enterprises (MSMEs) capable of producing competitive products, though several of them had yet to integrate into the digital ecosystem to promote their products domestically and overseas.

They account for 99.9 percent of the business population and 61.07 percent of the national gross domestic product (GDP), or Rp8,573.9 trillion .

Eager to reduce imports, the Indonesian government has been striving to expand the coverage of digitalization of MSMEs, which is one of the strongest pillars of the Indonesian economy.

The government is targeting 30 million MSMEs to enter the digital market by 2024, including 19.5 million MSMEs in 2022, according to Minister of Cooperatives and SMEs Teten Masduki.

At least 19 million MSMEs have so far succeeded in going digital and expanding their market, while 11 million other MSMEs are lining up to adopt digitalization.

Aspiring to become the largest digital economy, with potential reaching Rp4,500 trillion in Southeast Asia by 2030, the government has accelerated economic digitalization transformation by involving various relevant stakeholders.

The digitalization effort also involves the digitization of MSMEs under various national initiatives, such as the Proudly Made in Indonesia National Movement and the Proud Indonesian Traveling National Movement.

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Minister Masduki has urged internet marketers to MSMEs to enter the digital ecosystem, as many of the MSMEs are not familiar with digital technology.

To reduce imports and promote domestic products, internet marketers could seek what the people need, such as creating technology application to facilitate marketing, Masduki stated during the Indonesia Digital MeetUp 2022 recently.

"I call for help for our MSMEs to enter the online market because 50 percent of the products sold in e-commerce are still imported products," he noted.

This is despite the fact that many of Indonesia's domestic products are already well-made. Hence, all MSMEs, no matter where they are from and/or how small they are, should enter the digital ecosystem, he emphasized.

In the meantime, the government has been supporting the development of local brands through a policy wherein 40 percent, or around Rp400 trillion, be used for the procurement of government goods and service from MSMEs products.

This policy opens up the opportunity for the creation of around two million jobs or drive economic growth by 1.8 percent, according to Statistics Indonesia's (BPS') calculation.

Currently, Indonesia has a state budget of Rp2,700 trillion. If this continues to improve, then it means that the government has more to spend.

In fact, President Joko Widodo (Jokowi) has opened the opportunity of government goods and service procurement spending that should come entirely from local products.

Moreover, Jokowi has urged that the Quick Response Code Indonesia Standard (QRIS) services connecting payments among countries should be able to facilitate MSMEs and tourism actors.

"I have urged Bank Indonesia (BI) to connect QRIS across countries as an effort to facilitate MSMEs and our tourism sector," he stated at the launch of Domestic Government Credit Cards and International QRIS last August.

The launch marked the cooperation between Indonesia and several ASEAN countries to link their payment systems. As of Monday, the intercountry QRIS tested with Thailand has begun to be fully implemented.

On the same occasion, BI Governor Perry Warjiyo explained that Indonesia had received commitments from four ASEAN countries -- Thailand, Malaysia, Singapore, and the Philippines -- to integrate their QR Code payment systems.

"We will connect QR, fast payment, and currencies. Today, we start with full implementation with Thailand. We have tested QR Indonesia with QR Thailand. MSMEs and tourism transactions can connect to the QR," he explained.

In addition, application of the QR payment system linkage has been piloted with Malaysia since January 2022, while the agreement with Singapore is being finalized, Warjiyo noted.

"In the near future, the five countries will be able to digitize payment systems, cross-border, QR, and fast payments with local currency payments, which also support tourism, MSMEs, and the digital financial economy nationally," he added.

According to data from BI, the value of QRIS transactions in one year was able to grow 305.49 percent to Rp4.52 trillion in February 2022.

The QRIS transaction volume also grew 268.64 percent (year on year) to 54.91 million in February 2022.

This growth is in line with the trend in the adoption of non-cash payments that continue to be strengthened among merchants.

The COVID-19 pandemic situation is also believed to have accelerated the adoption of the digital payment technology.

In the meantime, entrepreneurship deputy at the Ministry of Cooperatives and SMEs Siti Azizah called for a strategy for accelerating the digital transformation of MSMEs.

The digital transformation of MSMEs in Indonesia is still lagging behind as compared to several other countries in Asia, she noted at the 6th Annual Islamic Finance Conference recently.

This is evident from the fact that digital transformation of Indonesian MSMEs only reached 13 percent in 2020, and it is targeted to reach 47 percent in 2024.

In China and Japan, it reached 48 percent and 54 percent, respectively, in 2020, and could potentially rise to 78 percent and 84 percent, respectively, in 2024.

"We are still far lower as compared to these countries," she stated.

Hence, she believed that a strategy for accelerating MSME digital transformation is necessary from various aspects, including market access, production quality monitoring, finance and financing, organization management, production capacity, supply, distribution, and logistics.

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