Micro & Small Entrepreneurs of Indonesia – Backbone of the (Informal) National Economy
It is interesting to take a look at the micro and small entrepreneurs of Indonesia as they play an important role in the Indonesian economy. For example, street vendors can be found (almost) everywhere across Indonesia, usually selling food and drinks, clothing, accessories, artwork, crafts, and handmade goods.
Defining the Micro and Small Entrepreneurs of Indonesia
When we take a look at data obtained from the Indonesian government’s Statistical Agency (Badan Pusat Statistik, or BPS), then we see that there were an estimated 4.5 million micro and small entrepreneurs active in Indonesia (in 2023). However, if we take a look at data from the Ministry of Cooperatives, then there were an estimated total of 63.9 million micro establishments and 193,959 small establishments (with the data originating from 2018). And so, there exists a big discrepancy between data from BPS and the ministry. What might explain this?
Well, it is caused by the difference in definition. While BPS defines a micro business establishment as one that is “run by 1-5 people and has a net worth of less than IDR 50 million (or approx. USD $3,250)”, the Ministry of Cooperatives regards those that have “annual sales below IDR 2.0 billion (approx. USD $129,000)” as micro business establishments. We feel that the BPS definition is the better one, as it’s hard to regard someone enjoying USD $128,999 a year, in sales, a micro entrepreneur in Indonesia. Most street vendors in Indonesia can only dream of making those kinds of sales.
And so, we will particularly be focused on BPS data in this article. Another reason for this is that BPS data are more detailed (for example in its ‘Profile of Micro and Small Industries 2023’ report and ‘Statistical Yearbook of Indonesia 2024’ report as well as data that are available on the BPS website).
Characteristics of Indonesia’s Micro and Small Business Establishments
The micro and small business establishments are an important source of income for entrepreneurs and workers. And so, let’s take a closer look at the characteristics of Indonesia’s micro and small business establishments.
Informal Nature
Most micro and small businesses in Indonesia belong to Indonesia’s informal sector. Interestingly enough, and at the same time quite problematically, the informal sector of Indonesia is bigger than the country’s formal sector. In terms of employment, per August 2024, the informal sector employed almost 58 percent of the workforce. The problem here is that informal jobs are characterized by the lack of social protection, job security, and legal recognition. Moreover, informal workers tend to have lower wages, perform more dangerous tasks, and are more vulnerable to economic shocks.
Meanwhile, as informal business entities typically don’t pay taxes, the government’s tax revenue collection is undermined heavily when there is a large informal sector. This subsequently means that the government has less money available to spend on its social and economic development programs.
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