In light of increasing global tensions, especially in the Middle East, Sahara, an economist at IPB University, has called on the Indonesian government to take swift and effective measures to protect small and medium enterprises (UMKM) from the negative impacts of these conflicts.
Sahara highlighted during a public discussion organized by CORE Indonesia in Jakarta that while small and medium enterprises in Indonesia may not be directly affected by conflicts, they are vulnerable to indirect repercussions such as rising energy prices, disruptions in supply chains, and increased costs of imported raw materials.
Event Details
Sahara explained that disruptions in global shipping routes, such as the Strait of Hormuz, could lead to increased transportation and energy costs, contributing to rising inflation rates due to imported prices. She emphasized that these conditions put pressure on small and medium enterprises that typically operate on narrow profit margins.
She pointed out that larger companies have a greater capacity to withstand these crises due to their strong financial reserves and available hedging mechanisms, whereas small businesses find themselves more exposed to external fluctuations.
Background & Context
Small and medium enterprises are a cornerstone of the Indonesian economy, contributing approximately 60% to the gross domestic product and providing job opportunities for millions of Indonesians. However, these businesses face significant challenges amid volatile global economic conditions.
Historically, Indonesia has experienced several economic crises due to external influences, necessitating the enhancement of these enterprises' ability to adapt to rapid market changes. Therefore, protecting these businesses from global crises is an urgent priority for the government.
Impact & Consequences
If the government does not take action to protect small and medium enterprises, the increasing pressure could lead to widespread negative effects on the national economy. Rising production costs could diminish the competitiveness of these businesses, which may adversely affect overall economic growth.
Additionally, the weakened purchasing power of consumers due to rising prices could lead to a decline in demand for products and services offered by small enterprises, exacerbating the crisis.
Regional Significance
The Middle East is a center for many conflicts that affect the global economy, including Indonesia. Therefore, any escalation in these conflicts could impact energy and commodity prices, reflecting on the economies of both Arab and Indonesian nations.
Under these circumstances, Arab countries must collaborate with others to enhance the stability of global markets and mitigate the effects of conflicts on their economies.