In the period following the 1997–78 financial crisis, the informal and microenterprise sector has grown rapidly and become a backbone of the Indonesia economy.
Microenterprises and SMEs have played an important role in accelerating economic growth and job creation in the informal sector. Java, including Yogyakarta, is the centre of microenterprise (Tambunan 2005). In 2009, the number of small and microenterprises was recorded at over 33 thousand units (BAPPEDA-DIY 2010). In particular, the microenterprise sector holds a strategic position because of its characteristics embedded in the socio-culture of the society and how it influences the structure of the grassroots
economy. In this context microenterprises assist in the alleviation of poverty for destitute and agriculture-based households.
As explained earlier, engagement in off-farm income generation activities is a rational choice for poor peasants and the landless, both to survive and to supplement household earnings between harvest seasons. For better-off households, micro-businesses are another strategy to diversify income sources from agriculture. Similarly, in the urban areas, it functions to absorb the surplus labour due to urbanisation and the oversupply of the semi- and low-skilled labour force, which has not able to participate in the formal sector. The informal and microenterprise sector is important in the division of labour which allows women to participate in economic production outside the household and earn income to support their families.
Much of the informal sector in Yogyakarta is in handicraft industries (Tambunan 2005) which employ intensive low-wage labour. This is a sector characterised by low productivity because of lack of technology and obsolete production methods. The operations of businesses are solely controlled by family members who have only basic education and limited knowledge in business management. The other features of these informal enterprises are weak networking skills and marketing strategies, since their business sales and development rely upon the role of middlemen or intermediate traders, as well as limited access to financing from the commercial banks.
The informal and microenterprise sector varies in terms of legal status, size of the company, its products, activities and business orientations. As explained in Chapter 1, the government has defined microenterprises as having net assets of up to IDR 50 million and sales of up to IDR 300 million. Microbusinesses can be classified by product and economic activity into agribusiness (many kinds of traditional foods, snacks), trading (groceries, household goods suppliers, garments), services (restaurants, transportation and others), manufacturing and handicrafts (metal and iron casting, wood carvings, furniture, terracotta goods, leather craft, silver work, batik and garments).
Diverse microenterprises are part of the tourism sector for both domestic and overseas customers (Tambunan 2005).
As famous as Bali (Arsyad 2006), the Yogyakarta region is also a centre of handicraft production. The handicraft sector is cottage-based and the size of the businesses range
from micro to small enterprises. The Yogyakarta handcrafts, including Batik, are widely known and distributed in both the domestic and international markets. Traditionally, batik is associated with formal and informal uniforms, clothes, sarongs and other dress accessories, but recently it has been creatively developed for sale as souvenirs and contemporary art forms. The Batik supply chain is complex and involves self-employed artisans, middlemen (collectors and traders), wholesalers, boutiques, department stores, and the textile and garment industry as well. This craftsmanship is not only a distinctive cultural art but it generates economic value broadly in the society. Beside Batik, several other outstanding handicrafts such as silver work, leather craft and wood carving, and particular traditional foods, such as the Bakpia snack, are among the microenterprises and household products that generate economic benefit to the communities in the province.
Pasar Tradisional are an important element of the informal sector. Commonly, the market is a place where the sellers and buyers meet, and goods and commodities are traded outside formal retail buildings. Markets are complex social settings and are representative of informality, traditional cultures and symbols of poverty (Alexander 1987). In Yogyakarta, markets are situated across the city and smaller townships and in villages.
The number of markets and their size and layout follow the structure and size of cities and townships. There are usually more and bigger markets in the cities, and fewer and smaller markets in townships. The markets trade in a variety of goods and commodities.
In the early morning the trading activities are agricultural commodities; during the day, household goods, grocery and garments, and in the evening, the markets are occupied by food stalls and street cafes. In addition, several markets sell only specific commodities, such as cattle or batik.
Market places are a location of the informal and microenterprise sector. The sellers and traders in the markets are micro entrepreneurs linked to the supply and value chains and business networks. As trading centres, markets are also the focus for commercial banks, microfinance providers and informal moneylenders. From another angle, the market place is a miniature of society where the social, cultural and economic exchanges take place (Geertz 1963b).
The earthquake of 2006 destroyed many microenterprises, home-based industries and market places, especially in the Bantul district. In addition, the disaster caused psychological trauma to the traders who, temporarily, had to conduct their trading activities outside the market places.
The informal and microenterprise sector has played a vibrant role in the communities and it has been an effective tool in the socio-economic development of the region and in the alleviation of poverty. It is clear that the unique characteristics of the Yogyakarta economy and the dominance of the interwoven nature of microenterprise and household income-generating activities constitute a favourable environment for the microfinance sector, including the BMTs.
4.4.4. Employment and Labour Market Figures
The employment statistics for 2008 revealed that the total number of people in the labour force was approximately 2 million,32 and those were largely employed in various economic sectors. Unemployment stood at 4.4 per cent, being mainly in urban areas and including large numbers of youth and tertiary-graduated (BAPPEDA-DIY 2010).
Compared with the figures for 2007, the annual employment growth was nearly 2 per cent, and it was mainly due to new entrants who have just graduated and/or dropped out of formal education. In urban areas, the growth of the labour force was three times higher than in rural areas, which indicates migration to the city and suburban areas where economic activities are concentrated and more job opportunities are available. In the last five years, employment opportunities have been showing a positive trend indicating that more people are being employed and unemployment was slightly lower, particularly after the earthquake. It seems the disaster recovery programs have absorbed substantial labour in the short-term.
Furthermore, by comparing the employment rate and the economic growth (employment elasticity), the Statistical Bureau of DIY suggests that each percentage increase in economic growth created over 5000 jobs, thus, the average economic growth (4.5 per cent annually) absorbs nearly 26,000 workers annually (BAPPEDA-DIY 2008).
32 The total productive population (between the ages of 15 and 64 years of age) who worked, were jobless and do not work was 2.8 million. That consisted of a labour force of 2 million and the non-labour force of 800 thousand, hence the participation rate (a ratio of the labour force and the total number of productive residents) was 71.4 per cent (BAPPEDA DIY 2008).