COUNTRY SERVICE FRAMEWORK 2003-2004

Challenge

To support the initiatives of the Government of the Republic of Indonesia to concentrate its industrial development agenda on three priority areas (i) the need to further enhance industrial competitiveness to face pressures within the Asian region and internationally; (ii) the need to address the longer-term industrial development agenda in relation to its impact on poverty alleviation and (iii) the need to pursue environmentally sustainable industrial development as a response to local, regional and global concerns.

Objectives

The objectives of the CSF are twofold: a) to provide a comprehensive set of programmes to enhance the productivity and growth of the large SME sector in Indonesia and b) to provide support to promote energy-efficient and environmentally-friendly production practices in Indonesian industry to offset the threat posed to the country's abundant environmental resources by the rapid pace of economic growth and recent economic turbulence.

Country Service Framework Components

The CSF consists of two Components which address small and medium-sized enterprise (SME) development, energy efficiency and environment issues. The individual Components group together eleven programmes in total and Component I also incorporates a flagship inititative, the Eastern Indonesia Development Programme. All elements of the CSF are described below.

COMPONENT I: SUPPORT FOR THE DEVELOPMENT AND GROWTH OF SMALL- AND MEDIUM-SIZED ENTERPRISES (SMEs)

Although SMEs account for a sizeable proportion of manufacturing establishments in Indonesia, their development in terms of growth in output, productivity and product and market diversification has been minimal. Most SMEs are engaged in food-processing, handicrafts or low-level mechanical production and rely heavily on trading or distribution intermediaries for inputs such as product development, marketing, raw materials and capital. UNIDO's interventions take a five-pronged approach and provide for measures to facilitate conditions of transactive efficiency for the SME sector; demonstration projects for SME clusters; a technology and partnership pprogramme for agro-based SMEs; support for new technology-based SME sectors and for improved SME credit-access conditions. UNIDO assistance is being delivered through six specific programmes as follows:

Programme 1.1: Policy Supply for Supply Chain Management and Trade Facilitation

Programme 1.2: Cluster and Network Development Programme for SMEs in Selected Sectors/Regions

Programme 1.3: Pilot Development Centre for Leather Product Cluster

Programme 1.4: Support to the Formulation of Trade, Investment and Technology Partnerships in the Agro-Industry

Programme 1.5: Capacity-building for Technology Foresight

Programme 1.6: Transfer of the UNIDO Computer Model for Feasibility Analysis and Reporting (COMFAR)

Eastern Indonesia Development Programme

This Programme constitutes an element of Component I and is aimed very specifically at reducing poverty in remote and rural societies in Eastern Indonesia through capacity-building in industrial policy formulation and business partnership and network promotion. It comprises the two following components:

Component A: Industrial Framework Formulation for Sulawesi Island with Special Reference to Fishery and Agro-based Industrial Sector Development

Sulawesi Island has only a small number of entrepreneurs and mainly traditional handicraft workshops. The majority of the poor population is engaged in fishing and agricultural activities. In order to address the local development needs, UNIDO is to apply its global value chain (GVC) methodology to identify an appropriate industrial development direction for the region. Specifically this Component provides for the following support measures:

- completion of a GVC exercise to create within the Sulawesi authorities a managerial and operational team of decision-makers and practitioners to implement GVC programmes;
- analysis of the local capabilities, competitive environment and advantages in potential sectors in Eastern Indonesia;
- evaluation of the Eastern Indonesion fishery and agro-based industry's competitive advantages to create new jobs and better-quality products with higher added value for both local and international markets;
- formulation of a clear direction for the industrial framework with emphasis on the fishery and agro-based industry and prepartion of a set of integrated technology strategies to achieve the "Eastern Indonesia Industrial Development Vision for 2010".

Component B: Business Partnership and Network Promotion for SMEs with Special Reference to the Remote and Rural Areas in Eastern Indonesia

Building on the Eastern Indonesia Industrial Development Vision for 2010, this Component aims to strengthen the institutional support capacities to create new jobs and alleviate poverty in remote and rural areas. Initiatives planned include the promotion of trade, investment and technology partnerships between SMEs and other domestic/foreign companies with particular emphasis on the agro-based industrial sub-sector. In collaboration with the Ministry of Trade and Industry (MOIT), the following activities are to be undertaken:

- creation of a business partnership and network promotion unit in UNIDO Jakarta office and regional bureaux in selected Eastern Indonesia provinces;
- capacity-building to facilitate effective matchmaking processes covering trade, investment and technology promotion techniques and skills and applying UNIDO's established format, tools and methodologies;
- provision of ad-hoc advice and practical guidance to SMEs on structuring international business linkages;
- identification, formulation, appraisal and international promotion of specific trade, investment and technology matchmaking opportunities, using the UNIDO network of Investment and Technology Promotion Offices;
- provision of support to local companies in business negotiations with foreign partners.

COMPONENT II: SUPPORT FOR ENERGY EFFICIENCY AND ENVIRONMENTALLY SUSTAINABLE DEVELOPMENT

Indonesia has considerable environmental resources which are under threat as a result of rapid economic growth and recent economic instability. Although the large-scale manufacturing sector is not the greatest source of pollution at present, this situation may change in the future as it faces increased competitive pressure. At present urban and rural waste is the main source of sanitation problems, land degradation and inland and coastal water contamination. Other environmental problems in Indonesia include high urban air pollution, high levels of persistent organic pollutants (POPs), loss of biodiversity, growing emissions of greenhouse gases, mercury and other chemical contamination and deforestation. As the range of problems is large and complex, UNIDO's is adopting a three-pronged approach in its interventions which include alternative energy or energy efficiency pilot projects, demonstration projects to reduce emissions and pollutants and technological transformation support. Assistance is being delivered through five specific programmes as follows:

Programme 2.1: Modernization of Design and Engineering of Mini-hydro Plants for Rural Application

Programme 2.2: Establishment of a Common Effluent Treatment Plant for the Relocated Tanneries In Yogyakarta

Programme 2.3: Enabling Activities to Facilitate Early Action on the Implementation of the Stockholm Convention on POPs in Indonesia

Programme 2.4: Removal of Barriers to the Introduction of Cleaner Gold Mining and Extraction Technologies

Programme 2.5: Elimination of Use of Ozone-depleting Substances under the Montreal Protocol.

CONTACT: Imran Farooque, E-mail: I.Farooque@unido.org