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Growing role of SME’s in ASEAN Economic Community

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Tue, 13 Sep. 2016
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    Muhammad Shodiq
    The Jakarta Post

ASEAN is a diverse and economically dynamic grouping of 10 Southeast Asian countries, collectively accounting for the world’s third largest consumer base and a 3.2 percent share of the world’s gross domestic product (GDP).

That proportion is set to rise in the coming years, as “catch-up” growth sees emerging ASEAN countries close the gap on the major European economies by 2030. Small and medium enterprise (SME) development in ASEAN is a key strategy, focusing on supporting SME access to finance, markets and global opportunities, human resources development, information and advisory services, technology and innovation.

The contribution of SMEs to economic growth, employment and development in the region plays an important part in achieving equitable economic development and regional economic integration.

Below is the comparison of the three ASEAN countries on economic strengths, the banking penetration of micro, small and medium enterprises (MSME) and the opportunities and challenges faced by the MSMEs.

Indonesia is the largest economy in Southeast ASEAN with GDP nominal at US$888 billion and GDP per capita at $3,500.

Indonesia’s banking sector is characterized by a growing economy. About 76 percent of assets of the financial sector are in the banking sector.

It has low banking penetration with a loan to gross domestic product ratio of 26 percent with only 41 percent of Indonesians having their own bank accounts. About 32 percent of the population don’t save.

The informal sector plays a significant role in serving Indonesians on the lending side where only 17 percent of Indonesians borrow from the banks, 43 percent borrow from the informal institutions and 40 percent of them don’t borrow at all. MSMEs play a crucial role in Indonesia’s economy.

There are about 52 million in Indonesia and they represent 99.9 percent of all business units, employ 97.7 percent of total labour force and contribute 57.8 percent of GDP.

However, even though MSMEs are the backbone of Indonesia’s economy, they get only small portions of bank financing. Total loans to MSMEs are worth about $57 billion, just about 20 percent of total bank loans with a growth rate of about 15 percent per year.

Since the micro segment can employ a lot of people and produce cheap products, it is a main contributor to national GDP and is widespread around the country.

Several advantages to developing micro-segment enterprises are their strategic value in the economic growth of national schemes and widespread economic distribution.

Meanwhile, the economy of Malaysia, the 44th most populous country in the world with more than 30 million people, is the third largest in ASEAN behind Indonesia and Thailand with a nominal GDP of about $375.6 billion and GDP per capita at about $12,000.

Based on the Economic Census 2011, the total number of SMEs in Malaysia is 645,136. They employ about 65 percent of the total labor force with 3.67 million workers, make up 97.3 percent of all business units and contribute 35.9 percent of GDP.

 

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