2020 Entrepreneurial Activity Review

2020 was a difficult year for Indonesia, with many entrepreneurs hesitant about the future, due at least in part to the COVID-19 pandemic. On a macro level, 80% of Indonesian adults (18–64) stated that they had lost household income as a result of pandemic, one of the highest levels among GEM economies, though similar to other lower–middle-income Asian economies such as India (85%). This strong impact can be seen in the economy’s entrepreneurial activity as well. Of the 26% of Indonesian adults who expect to start a business within the next three years, 65% stated that their intention was influenced by the pandemic “to a large extent”. This is the secondhighest rate among all GEM economies, behind only the Russian Federation (74%).
Indonesia’s Total early-stage Entrepreneurial Activity (TEA) rate was 9.6% in 2020. Although Indonesia did not participate in the Adult Population Survey (APS) in 2019, it did so in 2018 and gained a TEA rate of 15% in that year, therefore signalling a decline since then. Neither is confidence high among this set of early-stage entrepreneurs. Specifically, 57% of Indonesian early-stage entrepreneurs stated that they saw no new opportunities as a result of the pandemic. Additionally, only 0.3% of the Indonesian population planned to hire six or more employees over the next five years, compared to 6.3% intending to hire no employees at all. This disparity between levels of high job creation and solo entrepreneurship points to a potential productivity issue for the future Indonesian entrepreneurial sector. However, Indonesia’s rate of Established Business Ownership (EBO), 11.4% of the adult population, is relatively strong for the region, placing it at about the same rate as Taiwan (11.1%) and above most other lowerincome economies participating in GEM. One worrying aspect among Indonesia’s established business owners, however, is that three-quarters do not see opportunities as a result of the pandemic.

2020 Framework Conditions Review

Despite some of the mixed results for Indonesia’s entrepreneurial activity indicators, Indonesian experts actually scored the economy quite highly on several Framework Conditions. Indonesia was highest of all GEM participating economies in “Government policy: taxes and bureaucracy” (6.1), “Entrepreneurial education at school” (6.6), “Entrepreneurial education post-school” (7.2) and “Research and development transfer” (6.5). All of these conditions have improved since 2019. The educational results are particularly noticeable. Experts gave “Entrepreneurial education at school” a 6.6 in 2020, compared to 5.0 in 2019, and “Entrepreneurship education post-school” a 7.2 in 2020, compared to 6.0 in 2019. This improvement in the assessment of entrepreneurial education portends a stronger set of future conditions for dynamic entrepreneurship in Indonesia.
However, these strong scores expose a disconnect between expert assessments of the conditions for entrepreneurship and the experience of many Indonesian entrepreneurs. This may explain the experts’ score of 6.13 for the Indonesian government’s response to the pandemic (12th among GEM participating economies), while scoring the entrepreneurial response at 6.6, which, while a higher score in absolute terms, was only 23rd among all GEM participating economies.
There appears to be much anxiety among current Indonesian entrepreneurs about the extent to which their activity will be curtailed by the pandemic. Leading indicators, such as seeing opportunities as a result of the pandemic, or future hiring plans, indicate wariness about the future. The significant loss of household income is also worrying. Therefore, policies aimed at boosting spending money and assuring stability if future crises emerge will be critical for encouraging Indonesian entrepreneurship.