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SME and Entrepreneurship Policy in Indonesia 2018

image of SME and Entrepreneurship Policy in Indonesia 2018

SMEs play an important role for economic growth and social inclusion in Indonesia. Based on data from the Ministry of Co-operatives and SMEs, Indonesian SMEs account for nearly 97% of domestic employment and for 56% of total business investment. 

Indonesia has a Micro, Small and Medium Enterprise (MSME) Law and a specific ministry dedicated to co-operatives and SMEs. The wealth of public programmes for SMEs could be streamlined, and more could be done to support innovative companies able to generate productive jobs and participate in international markets. The development and implementation of an SME strategy would be instrumental to improve the overall coherence of national policy measures, objectives and measurable targets. 

The review of SME and entrepreneurship policy of Indonesia is part of a peer-reviewed series, by the OECD Working Party on SMEs and Entrepreneurship, which aims to improve the design, implementation and effectiveness of national SME and entrepreneurship policies.

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The business environment for SMEs and entrepreneurship in Indonesia

This chapter assesses the business environment for SMEs and entrepreneurship in Indonesia and, in particular, macroeconomic conditions, labour market regulations, the level of skills in the labour force, product market regulations, taxation affecting small business development, access to finance conditions, the innovation system and the ability of Indonesia to attract foreign investments. Indonesia’s macroeconomic conditions are healthy and supportive of business growth, small business taxation is light, and access to finance for SMEs has been enhanced by a series of regulatory reforms, including the requirement on state-owned and commercial banks to devote at least 20% of their business loans to SMEs. On the downside, there are signs of skills shortages in the labour market, the business license and permit system is still fairly complex despite recent improvements, and the national innovation system should be further developed. Stronger SME development policies, however, are likely to require an enlargement of the national tax base by bringing more companies into the formal sector and by improving efficiency in tax administration.

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