The Socio-economic Policy of The EU for Sustainable Development of SMEs versus The Indonesian experience


It has been recognized worldwide that small and medium enterprises (SMEs) play a vital role in economic development, as the enterprises have proved to be the primary source of job/employment creation and output growth. In almost all countries in the world including in the European Union and Indonesia, as they are the majority of enterprises, SMEs have a crucial role to play because of their potential contributions to poverty reduction, improvement of income distribution, employment creation, industrial development, rural development, and GDP growth and export growth. They also provide business opportunities to women, unemployed and less educated youths. These enterprises are important because they are very labor intensive and with their numbers far exceeding the number of large enterprises (LEs) making SMEs the main creators of job opportunities.

Given their vital role as discussed above, especially for poverty eradication, mostly amongst women,

the United Nations (UN) has assigned a great role to SMEs for taking a lead in achieving most of the economic related sustainable development goals (SDGs), including promoting inclusive and sustainable economic growth, increasing productive employment opportunities and decent work especially for the poor and vulnerable, particularly women and youth, advancing sustainable industrialization and innovation, and creating a positive push for a higher quality of life, better education and good health for all (OCED, 2017, cited from Dasaraju et al., 2020). At least theoretically, as they are the greatest generator of employment and business opportunities in developing/least developed countries, SMEs are the backbone for these countries to achieve the SDGs. But, for SMEs to able to play this role they must be highly competitive and able to grow rapidly in a sustainable manner.

Therefore, governments in many countries, including in the European Union and Indonesia, are supporting capacity building in their SMEs largely through a variety of programs, of which in Indonesia subsidized credit schemes are the most important one. International institutions such as the World Bank, the Asian Development Bank (ADB) and the United Nations Industry and Development Organization (UNIDO)and many donor countries through bilateral co-operations have also played a crucial role in empowering SMEs in many developing countries.

With this background, this policy discussion paper series discusses the socio-economic policy of the European Union (EU) in supporting the achievement of SDGs and promoting the development of SMEs and the role of SMEs in achieving SDGs in Indonesian.