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Poor infrastructure, a lack of access to formal credit and
unfavorable policies on the movement of goods and labor are among the
main problems small businesses in rural areas face, the World Bank says.
In the bank's most recent report, "Revitalizing the Rural Economy: An
assessment of the investment climate faced by non-farm enterprises at
the district level," released Wednesday, it says small enterprises
could become important engines of pro-poor economic growth and help
reduce poverty.
The report says Indonesia's 15.7 million small enterprises make up 90
percent of the country's businesses and provide employment for 60
percent of the workforce.
"Micro and small enterprises tend to employ poorer people, so
stimulating growth in such firms tends to boost the incomes of the poor
directly," the report says.
"They are also dispersed throughout the country, so promoting the
growth of these firms can also help to reduce inequality between
regions."
A majority of the 2,500 small business owners in six districts surveyed
for the report said they were unable to develop their businesses. They
cited poor roads, unreliable electricity supplies and limited access to
credit and markets as their main impediments.
These obstacles were starkly different to those encountered by large
companies operating in major cities, the bank said.
To address the nation's poor infrastructure, the report suggests the
government provide incentives for the better construction and
maintenance of local roads. It should also revise policies that inhibit
local administrations from implementing performance-based contracts for
road maintenance work.
Some 37 percent of the country's 290,000-kilometers of local roads are
in disrepair, with the regions being able to provide only Rp 1 trillion
(US$107 million) out of the Rp 17 trillion needed for their minimum
maintenance, the report says.
The government should also restructure its blanket subsidies for
electricity and telecommunications, by targeting areas without coverage
instead of covering all users.
The report says achieving a 100 percent electrification rate in the
country, which would significantly help small rural businesses, would
cost only Rp 16.5 trillion, slightly above the existing Rp 13 trillion
spent on power subsidies this year.
Regarding policies on credit and market access, the report suggests the
government provide incentives for extending credits to non-bankable
small enterprises, instead of subsidizing the credits themselves.
Coordinating Minister for the Economy Boediono attended the launch of
the report with World Bank country director Andrew Steer. He said the
government would develop more rural credit schemes, possibly developing
the successful example of state lender Bank Rakyat Indonesia (BRI), and
would also encourage private banks to take part.
Boediono said the government would also scrutinize the market-related
policies of local administrations, particularly local taxes and levies,
to ensure the free movement of goods and labor.
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