Easing entry for women entrepreneurs in Indonesia's digital economy

Indonesian women
Felippa Amanta

Felippa Amanta | Head of Research, Center for Indonesian Policy Studies

Felippa Amanta is Head of Research at Center for Indonesian Policy Studies. She received her Bachelor in Sociology degree from University of California, Berkeley, and Master of Public Administration from the Australian National University. She will discuss how women are bringing about changes in their countries by advocating for free-market solutions to local problems at this year's Liberty Forum & Freedom Dinner on Nov. 11–12, which you can register to attend here.

Lanny runs a small restaurant selling nasi goreng (Indonesian fried rice) with her family for the past 20 years. During the Covid-19 pandemic, the restaurant can no longer operate and Lanny must switch to cooking her nasi goreng from home and selling it online through food delivery apps. Lanny is one of 33 million women entrepreneurs who own micro, small, and medium enterprises (MSMEs). These women entrepreneurs are slowly but increasingly tapping into the digital economy for greater market access as well as reduced barriers to entry. The digitalization has accelerated during the pandemic out of the necessity to survive. However, this thriving online entrepreneurship landscape is now at risk due to recent government regulations on businesses in e-commerce.

Women turn to self-entrepreneurship often out of necessity, as it is difficult for them to find formal employment. Female labor force participation in Indonesia is significantly lower than male at 54% compared to 82% respectively. In contrast, 60% of MSMEs in Indonesia are owned by women, with large concentration of women-owned micro-enterprises operating from home. For women, entrepreneurship becomes a solution from the high unemployment, providing economic opportunity to support their livelihood with the flexibility to also take care of domestic care work. The benefits of women entrepreneurship goes even broader, as they are more likely to provide employment for other women and they contribute significantly to the Indonesian economy.

In the digital economy, women entrepreneurs have the added benefits of lower start-up cost, the ability to reach consumers across Indonesia, and the gender-agnostic wealth creation. Consumers in e-commerce do not know or care about the gender of the seller. A McKinsey survey found that 35% of online sales in e-commerce are generated by women, compared to 15% in offline retail.

Amid the pandemic, MSMEs access to the digital economy is complicated with Government Regulation No. 80/2019 on E-Commerce and Ministry of Trade Regulation No. 50/2020 on Licensing, Advertising, and Supervision of Businesses in E-Commerce that require any businesses selling their goods and services online to have a permit for online sales. This is on top of the required location permit, operations permit, a business permit, and other specific permits for certain sectors like health and food safety certificate for food and beverage businesses. Without the online sales license, businesses may be blacklisted or even worse, terminated. This is bad news, as 94% of micro and small businesses in Indonesia are still informal, meaning they do not have a business permit yet. Applying for these permits can be time-consuming and costly.

Even before the online sales permit was implemented, businesses already face many regulatory barriers. Indonesia’s ranking in the World Bank’s Ease of Doing Business (EODB) Index have stagnated between 72nd and 73rd for the past three years, and its ranking on the Starting a Business indicator was especially low at 140th. CIPS have identified four barriers to register a business in Indonesia: lack of information, complicated procedure, long process, and high cost. These challenges are even harder for women who have little information on how to even begin the process of registering their business, little time to deal with paperwork and administration because of household responsibilities, and less access to capital and credit to pay for the permits and their requirements. Many women even decide to reject new orders altogether to avoid formalizing. The new online sales permit may deter entrepreneurship even further for women.

Center for Indonesian Policy Studies (CIPS) is now working to make sure women can continue to enjoy economic freedom without being bogged down by unnecessary regulations. Our research is looking at how the recently proposed regulations disproportionately impact women-owned micro-small businesses. Based on that, CIPS is advocating for policy reforms to reduce business regulations, including by exempting microbusinesses from the online sales permit requirement. At the same time, CIPS continues to engage with women entrepreneurs directly to connect them with the support to sustain and grow their businesses through workshops. These workshops will raise the awareness of the opportunities to conduct business on digital platforms and provide guidance on digitizing marketing, sales, and distribution of products, and ability to navigate the required permits. Through research, advocacy, and support program, CIPS wants to ensure a freer enterprise that would allow women entrepreneurs like Lanny to fully access the digital economy and to prosper.