Chairman of KADIN, Arsjad Rasjid
Expanding export markets through Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs) are part of Indonesia's strategy to boost export and rev up economic growth and post-pandemic rebound. According to the Ministry of Trade, Indonesia has signed 23 FTAs/CEPAs, is negotiating 12 trade deals, including the Indonesia-European Union CEPA, and exploring opportunities with 21 country partners.
As Indonesian businesses are the key actors in the FTAs/CEPAs implementation, ARISE+ Indonesia spoke with the Chairman of Indonesia Chambers of Commerce and Industry (KADIN), Mr Arsjad Rasjid, about the meaning of FTAs/CEPAs for Indonesian businesses and their readiness to leverage the agreements. KADIN is the legitimate representative of Indonesian businesses. We also discussed the strategic role of KADIN in leading the B20 during the Indonesia Presidency of G20 to provide recommendations for the benefits of all businesses, especially the Micro, Small and Medium-sized Enterprises (MSMEs).
The following are excerpts from the interview.
What do FTAs/CEPAs mean for Indonesian businesses?
The EU and Indonesia represented a huge market of 750 million consumers in 2016 and continue to grow. CEPAs are the key to unleashing synergies between economies of both countries. Our trade relationship has enormous untapped potential. The EU -the world's largest trading block- and Indonesia -the largest player in the dynamic region of Southeast Asia– have lots to gain from a deeper trade and investment relationship.
This agreement will facilitate both countries to do business and carry out investment by addressing a wide variety of barriers, such as customs duties and other trade, service and investment barriers, as well as competition laws and intellectual property rights protection. We are optimistic that this agreement will open new doors for businesses and individuals in both nations for an economic rebound, especially during the post-pandemic and recovery period.
What is the readiness of Indonesian MSMEs to benefit from these FTAs/CEPAs? What should MSMEs do to leverage the FTAs/CEPAs?
Currently, there are over 62 million MSMEs (Small and Medium-sized Enterprises) in Indonesia. Of these, 98.75% (61.5 million) are micro-enterprises. Developing these small businesses into bigger ones will be an essential driver of the country's economic development. KADIN believes FTAs/CEPAs would benefit MSMEs by providing access to the global & regional market and improving their competitiveness.
Although MSMEs contribute to 60% of GDP and 97% of employment, MSMEs only account for a small proportion of exports, between 20%-40% of overall exports. Research stated that this is because many micro-enterprises do not have the managerial or operational capacity to grow, even with the help of digital tools. Many have not conquered the target market either, let alone expanded to the export markets.
MSMEs face considerable challenges in skills and technology, information, and accessing finance for new investments, all of which reduce their international competitiveness and their ability to meet trade costs. Currently, only 25% of MSMEs receive the financing required. It means there is a largely untapped opportunity for the unbanked and underbanked population. Imagine the growth that the other 75% of MSMEs can achieve if fintech provides funding.
Therefore, in order for MSMEs to be able to leverage the benefits of FTAs/CEPAs, we have to help them prepare to participate in the digital economy and engage in the global market. The following are the challenges that MSMEs face and the kind of support KADIN and Government can provide:
First, Digital Infrastructure Gap. Not only there is a major issue with infrastructure gaps, such as communications network accessibility, but also with personal equipment on the user side, such as the capacity to afford smartphones, computers, and the internet to enable digital payments, particularly in rural areas. This is the area where Government and private sector can help in increasing investment to improve nationwide digital and telecommunication infrastructure.
Second, Digital Capability Gap. MSMEs needs facilitation to broaden and deepen the skillset of the human capital, accelerate innovation, and enhance productivity. KADIN is committed to helping the Government improve the quality of Indonesia's human capital by reforming the vocational education system.
Third, Digital Ecosystem Gap. MSMEs needs support to connect and participate in the global value chains (GVCs). It offers new opportunities for MSMEs to integrate into the global economy as exporters, suppliers to large firms that export, and importers of price-competitive foreign inputs and technologies. Therefore, Government support is really needed to connect MSMEs to established companies as well as to create policies that improve the Ease of Doing Business and enhance MSMEs financing and investment.
KADIN will work along with the Government through our priority program "UMKM Naik Kelas" or "Scaling Up MSMEs" by implementing a closed-loop ecosystem for MSMEs, giving financing access to MSMEs, initiating KADIN Indonesia Trading House (ITH) to empower MSMEs to export their products through a single web platform, and other programs that will support Indonesia MSMEs.
KADIN's initiative on financing access aims to accelerate the recovery and bridge the financing gap of MSMEs by leveraging digital financing and increasing their awareness of digital financing. Some of the programs include but are not limited to MSMEs training on digital financing services, conducting a survey to understand the needs of MSMEs for the development of a suitable digital financing system, improving data protection and management in digital financing, and promoting fintech and bank integration to create financial products that are suitable for MSMEs.
KADIN believes that by supporting MSMEs to tackle these challenges and helping MSMEs to scale up and participate in the global market, MSMEs will benefit from the FTAs/CEPAs and strengthen our competitive advantage in the international market.
What are your views on the dissemination of information on FTAs/CEPAs? What would be your advice for ensuring awareness of the private sector concerning FTSs/CEPAs?
The limited dissemination of information related to FTAs/CEPAs to business actors has resulted in the private sector's low implementation of FTAs/CEPAs. For example, ASEAN has engaged in at least six regional FTAs and a significant number of bilateral FTAs. However, on average, more than 60% of respondents across countries in the manufacturing sector claimed that the information about FTAs and how to use them was still limited or very limited. The same happens in Indonesia.
Therefore, to reduce the impact of information asymmetry related to FTAs/CEPAs, we would propose several suggestions:
First, the information about FTAs should also be disseminated through other accessible means such as mobile phones or other communication devices. The Government's help desks or information units on the agreements should be adequately trained to respond to basic questions related to the trade agreement, including policy and regulations, benefits, FTAs/CEPAs procedures and costs to ensure that all business players can easily access FTAs/CEPAs information.
Second, KADIN's role as a national chamber of commerce and business associations also plays an important role in disseminating information about FTAs/CEPAs to promote the use of existing and new trade agreements. As a strategic partner of the Government and representation of the MSMEs population, KADIN will continue to collaborate with the Government by providing input and feedback to ensure the trade agreements can be implemented more effectively.
Third, Governments should also consider adopting an evaluation mechanism to review the effectiveness of the FTAs implementation, which would allow the private sector to provide input that could be used as a basis when forming other FTAs or any other type of cooperation, or preferential economic agreement.
As a business organisation, KADIN has been a strategic partner whose inputs to economic policies are critical to the Government. Could you please elaborate on the strategic role of KADIN and its strategies to contribute to Indonesia's development agenda, including the 2045 Indonesia Vision, Green Economy, and Towards Industry 4.0?
KADIN is the only national business organisation mandated by law to represent and coordinate the business sectors in Indonesia. We have been actively acting as a forum for communication and consultation between Indonesian business sectors and the Government on trade, industry, and investment.
KADIN has four pillars that form the basis of the vision and mission of the new KADIN (2021-2026): health, regional & national economy, entrepreneurship and competence, and internal KADIN organisation and regulations. These four pillars will be implemented through various KADIN strategic activities in 2022. Some of the focuses of KADIN in 2022 include:
First, restoring the nation's health from the pandemic by inviting all business actors to implement health protocols, improve vaccination to all regions and apply the PeduliLindungi app more evenly across the nation to facilitate more accurate tracing and tracking in accordance with the government regulations. We need to do this so that the business and industrial sectors can quickly recover from the pandemic and are able to operate immediately and optimally.
Second, restoring the economy and society from the impact of the Covid-19 pandemic by encouraging the acceleration of digital transformation towards the Industrial Revolution 4.0 and Society 5.0. Through this focus, KADIN has created various strategic programs that help business actors transform digitally and help them adopt industrial technology 4.0.
Third, collaborating with the Government and all business actors to attract investment in labour-intensive businesses that can absorb a large number of workers, developing regional potential by strengthening regional KADIN and increasing investment.
Fourth, collaborating with the Government and all business actors in supporting, implementing the Government's work program and formulating recommendations for policy improvement in three areas:
- Economic reform & transformation towards Green Economy, Green Energy, Green Tourism and Blue Economy;
- Structural reforms, including Ease of Doing Business and Investment, business licensing, employment, and tax harmonisation;
- Protection and empowerment of MSMEs by providing close and end-to-end assistance from large companies for MSMEs (closed-loop ecosystem) to improve the regional economy.
Could you please elaborate on the strategic role of KADIN and its strategies in leading the B20?
We appreciate our Mr President for entrusting KADIN to become the main facilitator & organiser of B20 2022. Kadin is prepared to convene and facilitate effective and fruitful dialogues among G20 corporate leaders to provide policy recommendations to the Government on the most pressing topics. KADIN's responsibilities through B20 include:
First, assisting the Government in recommending and advocating socio-economic related policies that lead to a stronger recovery and sustainable impacts.
Second, actualising regulations into concrete investments by using this B20 forum as a partnership platform for the business world.
Third, private enterprises will not be able to achieve these objectives on their own. Collaboration with the public (Government) to realise large-scale initiatives is required to have a significant positive impact on society and the country.
In alignment with the priorities of G20, the B20 2022 will focus on three big agendas:
- Global Health Architecture: pandemic management is the main key for economic recovery.
- Digital Transformation: digitalisation has an important role in accelerating economic growth and increasing the resilience of a business or country in overcoming challenges and becoming more resilient.
- Energy Transition: accelerating the transition towards New and Renewable Energy (EBT) towards net zero emissions by 2060 or sooner is a commitment of our Government and the business community for a sustainable earth and a healthy environment.
KADIN believes these three priorities serve as a stepping stone for Indonesia to realise President Jokowi's huge ambition of Indonesia becoming the world's fifth-largest economy by 2045.
How can ARISE+ Indonesia technical assistance fit into these agendas, especially in supporting the MSMEs to tap the benefits of FTAs/I-EU CEPA?
To accelerate the impact of the Indonesia-EU CEPA, KADIN would like to seek ARISE+ Indonesia's support in promoting the agreements and its benefits, specifically through raising awareness and helping MSMEs to participate in the global market through seminars, briefings, and consultations conducted to encourage the use of existing FTAs agreements and future FTAs agreements for MSMEs.