UMKM and PMA in Indonesia are business terms that are recently popular due to the introduction of the company establishment regulation. The new regulation introduced in early August 2021 has significant changes compared to the previous 2020 regulation. Among the changes are the requirements for foreign direct investment or PMA to invest in the country.
Aligning with the government’s agenda of increasing more foreign investments in the country, the new regulation aims to facilitate foreign investment in Indonesia. One of the driving forces for the government to push for this agenda is to improve the local economy. During this pandemic, the government realizes that the local economy relies heavily on imports and exports. Once borders close, businesses topple down one by one.
Worse, the local government is also forced to restrict businesses instead of health safety. The restriction causes more companies to close down while the unemployment rate climbs. The emergency aids that the government disbursed was not enough to revive the previously growing economy. The number of dying businesses continues to climb while the people grow restless from the lack of income.
Previous Company Establishment Regulation
One of the plausible solutions for this problem is to have more foreign investments in the country. It is no secret that Indonesia, a developing country with rich natural resources, is an attractive choice for foreign companies. There is still a lot of untapped markets. Plus, the large population poses a lucrative buying power. Furthermore, there is still much room for technology improvements which can be a good opportunity for foreign investors.
However, foreign investments in the country are limited due to strict regulations. Some attractive industries for foreign investors are only open for local investments due to the risk factor. The government deems that these strategic industries may be harmful if foreign companies have control.
In other industries that are less risky, the government imposes a partial ownership regulation. This regulation states that foreign companies can own a majority of the stake, depending on the industry. However, at the least, they must have a local partner. Furthermore, the regulation requires a foreign company to go through complicated bureaucracies to get a business permit.
Collaborating UMKM and PMA in Indonesia
Understanding the gravity of the situation, the government forms a plan that involves both UMKM and PMA in Indonesia. UMKM or micro-businesses are the largest occupants of the business category in the country. These businesses are very versatile, targeting various socioeconomic markets. The versatility of this category allows UMKM to cater to the needs of the lower-income population.
The existence of micro-businesses creates a miniature economy ecosystem in the lower-income sector. It allows money to move and transactions to occur. However, an economic stimulus is crucial to encourage the growth of local businesses. Since the government is unable to give financial stimulus, the best option is to let foreign money into the local economy.
Putting two and two together, the government decides to create a beneficial symbiosis between UMKM and PMA in Indonesia. Foreign companies must collaborate with local micro-businesses if they wish to invest in the country. For instance, foreign companies investing in a supermarket must have a collaborate with local micro-businesses. This way, foreign companies are still able to invest in the industry they are interested in, while micro-businesses gets the opportunity to grow.