The 3 Essential Steps for Indonesian MSMEs to Support the Circular Economy
The 3 Essential Steps for Indonesian MSMEs to Support the Circular Economy

The 3 Essential Steps for Indonesian MSMEs to Support the Circular Economy

Authors: Arrin Zatiky, Dwi Martutiningrum, and Nur Zahroh Hamidah

Reviewers: Farid Al-Firdaus, Nadia Faradiba, Alfi Nabila, and Dinda Ganisawati Javada

Indonesia has the vision of conducting Sustainable Economic Development, as mentioned in Indonesia’s Development Pillar 2045, and is committed firmly to ecological and environmental sustainability. One of the global megatrends is that nations will have natural resource competition. Natural resource availability is projected to experience a shortage, and it will be unable to fulfill unprecedented demand even though the optimization of technology will improve the efficiency of those resources. The Circular Economy endeavors the desire to achieve Indonesia’s vision. This noble model offers better production and consumption processes and ensures sustainability growth over time, including reassuring resource optimization. 

What Are the Essential Factors Triggering the urgency of the Circular Economy in Indonesia?

Every business activity will result in emissions. Five sectors generated a significant amount of waste in 2019, including food loss, and waste, excluding food loss at production, was nearly 57,4 million tonnes (Bappenas; Embassy of Denmark; and UNDP Indonesia, 2021). In some sectors, the volume of waste could scale up to 82 percent by 2030. These sectors, namely food & beverage, textiles, construction, wholesale & retail trade, and electrical & electronic equipment, contributed over 30 percent to Indonesia’s current GDP and employed more than one-third of Indonesia’s workforce in 2019.

Why Indonesian Micro Small Medium Enterprises (MSMEs) are essential to the Circular Economy?

Indonesia’s MSMEs represented around 90% of employment and nearly 60% of Indonesia’s GDP in 2019, so MSMEs will be necessary to engage in circular economy efforts. However, there are barriers to adopting circularity actions, such as difficulty in changing customs and habits (51%), unintended consequences of existing regulations (38%), insufficient end markets (38%), and imperfect information (21%) as reported from Bappenas, Embassy of Denmark, UNDP Indonesia (2021).

The Indonesian government has shown its determination to support the implementation of the circular economy model. It stated in the Law of the Republic of Indonesia Number 20 of 2008 as amended by Law no 11 of 2020, which regulates provisions regarding the provision of incentives for SMEs conducting business activities to preserve the environment, and Government Regulation Number 7 of 2021 concerning Ease, Protection, and Empowerment of Cooperatives and MSMEs. Even so, it seems that MSMEs have not widely applied the incentives provided by the government, so they do not have a progressive impact on the implementation of the circular economy in Indonesia.

Two of the seventeen UN Sustainable Development Goals are focusing on Sustainable Cities and Communities (No.11) as well as Responsible Consumption and Production (No. 12). Safeguarding Indonesian MSMEs to adopt the Circular Economy Model will eventually lead a strategic path to achieve those goals as they are having strong mutual principles with the Indonesian 2045 vision.

The Actual Steps for Indonesian MSMEs to Apply Circular Economy

1. Circular Economy Literacy

Several significant examinations on Circular Economy practices worldwide have concluded a considerable need for literacy (Furlan & Mariano, 2022; Luthra, et.al., 2022; Rizos, et.al., 2016; Fatimah, et.al., 2020). Awareness of the urgency and consistent behavior of the new economic, environmental, and socially responsible business model will escalate the accomplishment of the Circular Economy. From the individual level to the business realm, here are some of those proposed guidelines:

  1. Literacy for students either at school, universities, institutions, and business actors (MSMEs, national and multinational companies). Mainstreaming “less waste, more value” slogan for individual and business actors.
  2. The New Circular Economy Action Plan (adapted from the European new Circular Economy Action Plan, 2022). Indonesian MSMEs should be given clear, understandable, and feasible guidance for the production, selling, and post-selling activities to contribute to the Circular Economy. Especially, in the areas of specific focus on factors considered as resource-intensive, including the business and product designs.

 2.  Collaboration and Network

Indonesia Circular Economy Forum (ICEF) highlighted that commitment and collaboration among critical stakeholders and government regulations are key challenges in implementing a circular economy in Indonesia. Here are forms of support for policies that can be carried out by MSME:

  1. Tax Policy

Plastic Taxes is one of the action plans of Presidential Decree No. 83 of 2018 concerning the Handling of Marine Debris. As an environmental tax, Plastic Taxes are also one of the strategies carried out by the government related to the 2020-2024 Indonesia RPJMN target (BKF, 2021).

Unfortunately, the specific policies on carbon and plastic taxes have not been set yet due to the preparations that have been carefully deliberated. This legislation will be finalized in 2023, although it has been a discourse since 2016 (Kontan, 2022).

  1.   Triangle Golden Partnership Strategy

In order to trigger society to circularize actions, we propose a triangle golden partnership strategy which is collaborative actions between government, business, and society through the SMART (Sampah Tukar Iuran Terpadu) Government Model concept. This idea explains how the Regional Government imposes society participants to manage municipal waste while also ensuring their health access. By far, several groups with similar waste collection initiatives trade the waste with an amount of money or goods in the waste bank. There is a Social Security Agency of Health in operation. Thus, we propose both approaches, separate waste from the household level into health access assurance from the Regional Government. This is a development of the previous idea in 2017, where BPJS Kesehatan Malang Branch Office, in collaboration with Indonesia Medika, implemented the SMART (Sampah Tukar Iuran Terpadu) Company Model to finance due payment of PBPU Kolektif. If this alternative can be implemented, the environment and health problems can be solved simultaneously. Finally, waste that is already separated can be managed by MSMEs to increase their economic value.

3. Taking exemplary actions from the ideal practices, for example Griya Luhu (Bali) and RAPEL (Yogyakarta). Those are the regions where every village has its own digital waste bank platform provider. It enables waste bank managers to record deposits easily through their applications. The application provides better data traceability, more efficient ways of working, and improves community digital literacy.

Conclusion

The circular economy is our immediate need, as emissions will never be deterred and scarcity of natural resources will lead to severe disaster when we stick to the linear model.

MSMEs contribute significantly to Indonesian GDP and employment, including serving close impacts on society. Therefore, escorting MSMEs to implement this model will bring imperative progress. 

Sufficient literacy, powerful policy and strategic collaborations in Circular Economy are finally projected to contribute prominently in achieving the Indonesian 2045 vision in Sustainable Economic Development, especially the sub-focus of commitment to the ecological environment. 

References

Albinsaid, Gamal. 2015. Garbage Clinical Insurance: Micro Health Insurance Which Use Garbage as Financial Resources. Malang: Indonesia Medika 

European Parliament. 2022. New Circular Economy Action Plan. Legislative Train 06.2022 1 A European Green Deal. 

Fatimah, Y.A., Govindan, K., Murniningsih, R., and Setiawan, A. 2020. Industry 4.0 based sustainable circular economy approach for smart waste management system to achieve sustainable development goals: A case study of Indonesia. Journal of Cleaner Production 269 (2020) 122263. 

Furlan, M and Mariano, E. 2022. A confirmatory factor model for climate justice: Integrating human development and climate actions in low carbon economies. Environmental Science and Policy 133 (2022) 17–30.

Luthra, S., Kumar, A., Sharma, M.,Garza-Reyes., and Kumar, V. 2022.  An analysis of operational behavioural factors and circular economy practices in SMEs: An emerging economy perspective. Journal of Business Research 141 (2022) 321–336. 

Kementerian PPN/Bappenas, Embassy of Denmark, dan UNDP. 2021. Manfaat Ekonomis, Sosial, dan Lingkungan dari Ekonomi Sirkular di Indonesia.

Kurniawan, T.A., Avtar, R., Singh, Deepak., Xue, W., Othman., Hwang, GH., Iswanto, I., Albadarin, A.B., and Kern, A.O. 2021. Reforming MSWM in Sukunan (Yogjakarta, Indonesia): A case-study of applying a zero-waste approach based on circular economy paradigm. Journal of Cleaner Production 284 (2021) 124775.

https://griyaluhu.org/id/home/. Accessed on October 30, 2022. 

https://www.forbes.com/sites/forbestechcouncil/2021/02/11/how-understanding-the-golden-triangle-drives-procurement-and-digital-transformation/?sh=627f93a87eeb. Accessed on October 30, 2022. 

https://www.bath.ac.uk/announcements/golden-triangle-essential-to-deliver-social-and-economic-benefits-to-uk/. Accessed on October 30, 2022. 

https://nasional.kontan.co.id/news/penerapan-pajak-karbon-dan-cukai-minuman-berpemanis-ditunda-lagi-apakah-tepat. Accessed on November 5, 2022.  

https://www.cnbcindonesia.com/news/20220617201258-4-348147/cukai-plastik-minuman-berpemanis-bakal-diketok-2023 Accessed on November 5, 2022.

https://news.ddtc.co.id/pajak-karbon-dikenakan-mulai-april-djp-masih-menyusun-ini-36737. Accessed on November 6, 2022.

Rizos, V., Bohrens, A., Gaast, W., Hofman, E., Ioannou, A., Kafyake, T., Flamos, A., Rinaldi, R., Papadelis, S., Hirschnitz-Garbers, M., Topi, C. 2016. Implementation of Circular Economy Business Models by Small and Medium-Sized Enterprises (SMEs): Barriers and Enablers. Sustainability 2016, 8, 1212.

Hamidah, Nur Zahroh. 2017. Alternatif Model Pengumpulan Iuran JKN Pada Kelompok Peserta PBPU Melalui Pemberdayaan Program SMART (Sampah Tukar Iuran Terpadu).Jakarta.BPJS Kesehatan

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