Small Medium Enterprise Promotion (SMEP) Project Jakarta, Indonesia

2007-2009

IMPACT STUDY 22 February 2010

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Table of Contents 1. Summary........................................................................................................................................ 3

2. Project Background........................................................................................................................ 4

2.1 Cipulir and Swisscontact 2007................................................................................................. 4

2.2 The SME Project (2007-2009)................................................................................................. 5

2.3. Strategy, Objectives and Indicators ........................................................................................ 5

3. Impact Chain and Internal Findings............................................................................................... 6

3.1 Impact Chain............................................................................................................................ 6

3.2 Baseline and Mid-line Surveys ................................................................................................ 6

4. Final Impact Survey & Findings.................................................................................................... 8

4.1 The Survey............................................................................................................................... 8

4.2 Summary of Impacts .............................................................................................................. 10

4.3 Impact on Enterprises ............................................................................................................ 11

4.4 Impact on Workers................................................................................................................. 14

4.5 Impact on Poverty .................................................................................................................. 15

5. Qualitative Changes in the Denim Cluster................................................................................... 18

6. A Success Story of Mr.Nasril Zainal – a lead producer .............................................................. 21

7. Conclusions.................................................................................................................................. 24

Annex............................................................................................................................................... 24

Annex 1: LFA Summary.............................................................................................................. 25

Annex 2: Survey Instrument: Questionnaire for Producers & Workers ...................................... 26

Annex 3: List of Respondents and Details of Meetings .............................................................. 32

Annex 4: Impact Survey Cost ...................................................................................................... 37

This Impact Study has been based on the experiences of the SME Promotion (SMEP) Project in Indonesia, financed by the Swisscontact Development Programme. Swisscontact Indonesia would like to thank the team who participated in finalizing the document. This includes the SMEP Project Manager Ade Suwargo Mulyo, Program Officer Miranda Rustam and Project Advisor Prashant Rana.

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1. Summary The SME Promotion (SMEP) project, financed by the Swisscontact Development Program, was implemented from September 2007 to December 2009. It aimed to improve the competitiveness of the denim cluster in Cipulir, Jakarta and to contribute in improving the livelihood of flood affected entrepreneurs which in turn will reduce poverty in the area. The project aimed to work directly with 200 denim manufacturers in the cluster; and to increase 400 full-time workers and 200 part-time workers in their enterprises. It also aimed to increase the incomes of these enterprises and family workers by 25%. The effect of improved competitiveness was envisaged to go beyond the 200 manufacturers and reach 1000 households who would increase their income. The objective of the impact assessment is to measure and understand the changes that the implementation of the SMEP Jakarta project has brought about on beneficiary level over the last two years. An in-house assessment of results was carried out in June 2009 and a more formal survey conducted in November/December 2009. Impact on Enterprises: After project support, the average sales of enterprise grew by 23%, profitability by 25% and productivity by 26.1%. The enterprises added 188 full-time and 44 part time workers. All figures were higher than for the control group. Likewise, the beneficiary enterprises developed new products and brands as compared to the control group. Impact on Workers: 53% of the workers of project beneficiaries saw increased income when compared to the previous year as opposed to 40% of the workers in the control group. For project beneficiaries workers, income increased by an average of 14% while for control group workers the average was 7.7%. As skills improved, the average production rate per hour for beneficiaries has increased by up to 1.53 from the baseline of 1.25. For the control group the productivity was 1.26 which shows only a slight increase. Impact on Poverty:

For enterprises: For beneficiaries increased sales led to savings of IDR30,000 (US$3.3) per day. The same figure for the control group was a saving of only IDR14,000 (US$1.55) per day. From this the net real savings increase for direct beneficiaries alone amounted to US$7218.75 per month which, conservatively only counting the project duration of 30 months, amounts to US$216562. This equals the project budget and excludes income multiplier effects and future income flows. 94% respondents from the project beneficiaries purchased new assets during 2008-2009 and respondents from the control group only 80%. 53% respondents from the project beneficiaries made improvements to their house during 2008-2009 and respondents from the control group only 40%. For workers: Nominal worker’s income increased by 14% from an average of 98 USD to 112 USD per month. The average employee lives together with 2 persons in a single household whereby the worker’s earnings constitute up to 90% of total household income. Hence, the rise in earnings contributed to boost overall household income benefiting indirectly around 1,882 households (3764 people if we take a HH as taking a minimum of 2 people). For the workers both in beneficiaries and control group, it seems that increased of HH expenses is higher than increased income. But the difference between expenses and income is higher in the control group. 87% respondents of the workers purchased new assets during 2008-2009 and 70% of the respondents of the control group did so. 36% respondents from project beneficiaries’ workers made improvements to their house during 2008-2009 and 20% of the respondents did so from the control group.

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Qualitative Changes in the Cluster: SMEP activities have fundamentally altered the characteristics of the denim market and its functions. New services introduced include: business information; productivity advice, sub-contracting; finance and insurance. The cluster has also been able to attract CSR activities from companies like Microsoft and Hewlett Packard. These CSR activities have been matched by public promotional programs related to embroidery promotion; start-up program for women entrepreneurs and on-the-job training of universities that assist small enterprises. This has all been possible as the cluster has been able to organize itself better, elaborate a strategy and convince others. A major indicator of the success of the project is the entry of more businesses from the garment supply chain into Cipulir. This includes Grozz-Beckert, a leading needle company from Germany; YKK, the Japanese zipper company and Coats, a yarn company from Scotland. Many agencies now look at Cipulir as a model for cluster development. Kudus municipal government in Central Java province together with Bank Indonesia started replicating this approach since January 2009 in the embroidery cluster in Pedurenan district. The Jakarta provincial government has also showed interest in identifying and developing 2 potential clusters along the model of Cipulir. This shows that Cipulir is on its way to becoming the second most important hub for the textile industry in Jakarta after Tanah Abang. A remarkable change in just over two years.

2. Project Background

2.1 Cipulir and Swisscontact 2007 Poverty is widespread in urban Jakarta and South Jakarta is particularly affected. The main clusters of the local home textile industry are located in Cipulir and Ulujami. The products are distributed mainly through a local market but also sold to other places in Java as well as in South Sumatra, Kalimantan and Sulawesi. There are about 1000 producers in this cluster employing 10,000 fix term and 5,000 part time workers. The textile business provides approximately 70% of income generating activities in this area which has a high degree of poverty and unemployment. During the first and second week of February 2007, Jakarta saw the most devastating floods with water levels reaching up to five meters. More than half a million people were affected and more than 260’000 people temporarily displaced. The floods paralyzed life in the area for almost a week and destroyed the livelihood of thousands. In this area, the floodwaters reached 4-5 meters high, affected around 1,000 small producers, damaged 580 kiosks and inflicted direct losses of machinery and stocks amounting to US$ 8 million. There was an urgent need to rehabilitate these enterprises as the peak season for sales was approaching. The enterprises needed to be back on their feet and start production by June at the latest to meet this demand. Otherwise they would be shut out of the market, and lose sales, profits and their reputation. Swisscontact Indonesia implemented the Small Textile Enterprises Promotion (STEP) project, funded by SDC, Charles Vogele Group, Medicor Foundation - Lichtenstein and Swisscontact from April to August 2007, with the focus to replace machinery for at least 300 enterprises and rapid rehabilitation of business. STEP worked in 2 districts of Cipulir and targeted 300 micro enterprises. At the end of the project, 370 entrepreneurs benefited from the machinery replacement activities out of which 43 were women. A total of 821 damaged machines were replaced. The employment of 3,377 full time workers (939 women) and 692 part-time workers in the flood affected enterprises have been safeguarded due to project activities. In addition, production levels which had fallen to 62% after the floods had recovered to 92% of pre-flood levels. To ensure smooth operation of the

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businesses, a training center was established on the initiative of the entrepreneurs, and 13 training events on machinery assembly and emergency repair were conducted for 168 participants. 3 enterprises obtained credits from Bank BRI and, for future protection; the small enterprises were covered by a special flood insurance scheme from Allianz Insurance.

2.2 The SME Project (2007-2009) Even after the flood recovery, the economic situation of micro and small entrepreneurs in this area was challenging. Positioned in the low quality-low price segment, the local industry faced heavy competition from products produced with more advanced technologies in low cost countries like China or Bangladesh. The fuel price increase in 2005; 2007 and 2008 worsened the situation and forced many enterprises to close or to lay-off part of their employees. Besides this, these enterprises faced several severe structural shortcomings such as a lack of variety and innovative designs, very weak organization and coordination within the cluster, lack of access to finance, general lack of competitiveness, insufficient support policies and supporting organizations, limited financial literacy and insufficient business management skills (book-keeping, household cash flow management), a lack of awareness and skills with regard to machine maintenance and repair.

The SME Promotion Jakarta project, which was built on the achievements of the previous STEP project, started in September 2007. It aimed to improve the competitiveness of the denim cluster in the area and to contribute to improving the livelihood of flood affected entrepreneurs which in turn would reduce poverty – Annex 1 presents the logical framework of the project. This cluster needed to move beyond the stage of flood recovery to improve the competitiveness of its products and to increase productivity. This required a value chain and cluster development strategy. The project focused on the denim sector. Swisscontact’s strategy in SMEP Jakarta was to concentrate on aspects like improved dialogue and communication between market players, skill development, better production techniques, improving productivity, and self-organization, awareness for business planning including maintenance, marketing and access to markets.

2.3. Strategy, Objectives and Indicators The SMEP project has the potential to contribute to wider learning as it uses a value chain and market development approach in a post disaster recovery setting. The starting point for such a project was working with the stakeholders in the denim cluster to develop a joint vision for growth (Output 1). This will allow both the building of social capital and provide momentum to the project through quick wins such as conducting a cluster study and developing joint strategies. Based on this strategy owned by the cluster actors the project supported interventions related to purchasing, production and marketing (output 2). In parallel, the project conducted capacity building measures (output 3) not only for the cluster or value chain actors but also for local government, banks and NGOs on why a cluster approach is a useful tool to integrate the poor into growing markets and what would be their role. Since this was a small project, the idea was that other promotional agencies be it from the government or private sector as part of their CSR activities would take this over and replicate it. The dissemination of experiences and crowding in of such players was a strong focus (output 4). The project aimed to work directly with 200 denim manufacturers in the Cipulir cluster and to increase 400 full-time workers and 200 part-time workers in their enterprises. It also aimed to increase the incomes of these enterprises and family workers by 25%. Project impacts were assessed through project records, sample surveys and case studies. The effect of improved

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competitiveness was envisaged to go beyond the 200 manufacturers and 1000 households in the area would increase their income through project activities. As an innovative Swisscontact project under the Development Program, the project had limited resources. The annual budget was CHF100,000 and technical inputs consisted of a part-time Project Manager at 20% capacity, a part-time Program Officer at 80% capacity and international inputs of 22 days per year. However, the project was successful in leveraging substantial resources from the Jakarta City Government, the Textile Association (API) and large textile entrepreneurs.

3. Impact Chain and Internal Findings

3.1 Impact Chain Based on the LFA, the following impact chain was established for the project. This was the backbone for the internal monitoring and impact assessment.

3.2 Baseline and Mid-line Surveys

A baseline was established by 10 February 2008 for the relevant indicators mentioned above. This exercise was done through a mix of instruments such as key informant interviews, visiting sample enterprises, in-depth intreviews with entrepreneurs and workers. 25 respondents (see Annex 3) consisting of producers, retailers, service providers and government institutions were interviewed to gather information on the prevailing situation in the cluster. A major part of the information gathering was outsourced due to the limited capacity of the project core team. An interim impact assesment – or mid-line status - was established by 30 June 2009 for the relevant indicators from the LFA. This exercise was done through a mix of instruments such as key informant interviews and a series of Focus Group Discussions on 3 July 2009. The reason for doing this was to look at impact in the low season to compare with the November/December final

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impact study. In addition, as oppossed to the final impact study which would be based on surveys, this was a more qualitative exercise that could complement the quantitative findings that would come out later. Two FGDs were conducted on July 3, 2009. The 1st FGD was for garment producers and attended by 6 participants. The main purpose of this FGD was to validate changes in the enterprise and household level based on informal interview to some producers during project implementation. The 2nd FGD was attended by stakeholders involved in the cluster. 5 participants from the private sector, service provider and association shared their perception about the project and their contributions for the future. Baseline and Mid-line Status LFA Indicator Baseline February 2008 Midline June 2009

1 1000 households, residing in flood prone areas with 15% headed by women, increase their incomes

Based on previous STEP project data, Cipulir cluster consists of more than 400 producers with average number of employees being 7 and 25% of enterprises being headed by women. The HH of an enterprise includes the owner, workers the wife/husband of the owner and 1 child

1700 HH with 28% headed by woman increase their income compared to baseline

2 Improvement of household assets

Like most households in Jakarta, HH assets in Cipulir mainly consist of land, house, vehicles, electronic devices (eg.TV, radio) and home appliances

Around 10% of HH improve their assets (land and house)

3 Increase in 400 fulltime workers

Average number of fulltime employees: 7 employees/ producer (Baseline number from STEP data)

Increase in 100 full time workers

4 Increase in 200 temporary workers

Average number of temporary workers: 4 employees/ producer (Baseline number from STEP data)

Increase in 50 temporary workers

5 Increase in incomes of 200 enterprise owners and family members by 25%

Income/sales: IDR 300 million – 1 billion / year

Increased enterprise and family member income by 12%.

6 Increase in enterprise profits by 15% per annum

Profits between 5 – 20% Increased profit by 25%

7 Increase in productivity by 20%

1.25 pieces/hour/employee Increase productivity by 12%

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LFA Indicator Baseline February 2008 Midline June 2009

8 Increase in new market linkages established

Main market for the products: a. Cipulir and b. Tanah Abang wholesale Market

4 new market linkages established

9 Increase in new products developed

Target group only produced kid denim pants

2 new products developed

4. Final Impact Survey & Findings The baseline and mid-line surveys, although major parts were outsourced, were largely project internal exercies. SMEP felt that it would be worthwhile conducting a survey based impact assessment just before the end of the project, which would have a larger sample and also involve a control group to gain insights into project attribution. Given the limited resources of the project, an impact study was conducted from 10 to 20 December 2009. The total cost of the survey, including personnel costs was under US$4,500 only (see Annex 4)

4.1 The Survey Due to limited time and budget, SMEP decided to apply a simple methodology, which required fewer resources and was practical. The respondents included beneficiary enterprises and workers as well as control group enterprises and workers. For the beneficiaries, the survey covered 32 producers and 15 workers in 5 areas (RW). The control group respondents were from 8 RW, where project activities did not take place. There will always be spillover effects from market development activities and in a sense it is not possible to get a pure control group. However, the project endeavoured to identify clusters away from the river where project impacts in all probabaility would not have reached. Therefore, 10 enterprises and 10 employees were selected as a control group. In total 67 enterprises and employees were interviewed in the Cipulir area. Selection of areas: Ulujami subdistrict in Pesanggrahan district consists of 9 RWs and 4 of them (RW2, 3, 5, 7) are located near Pesanggrahan river – where most of the beneficiaries continue from the previous flood recovery project. The selection of RW was based on population size of producers. The project selected the area with higher population of producers (RW 02, 03, 04, 06 and 07). RW 05 is excluded since the location is beyond the core cluster.

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Cipulir’s map: Distribution of beneficiaries based on previous STEP data

Area RW Number of Producers Sample Number

Jl. Swadarma 01 10 -

Kp.Baru 2 02 100 8

Jl. H Rohimin 03 50 6

Ulujami (atas) 04 50 6

Kp. Baru 3 05 30 0

Sangrila 06 20 6

Ulujami (bawah) 07 20 6

Petukangan 09 15 -

TOTAL

295 32

Sampling of enterprises: The sample size was defined as 32 respondents or 16% from the total 200 SMEP beneficiaries with sufficient number in each selected RW. The names of the respondent from each RW were chosen randomly based on alphabetical list of producers. If after 2 visits, the selected respondent could not be interviewed, he/she was substituted by producers whose name came below on the list.

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Sampling of control group enterprises: The control group was selected from Petukangan Selatan sub district near Ulujami sub district. 10 producers with similar characteristics as the beneficiaries were selected based on the “left hand rule”. Surveyors picked every 5th enterprise on the left side of the road. Screening questions were asked to ensure that the producers haven’t been involved or influenced by the project. Sampling of beneficiary enterprise workers: From the list of 32 enterprises (respondents), 4 enterprises were selected on a random basis. From those 4 enterprises, surveyors interviewed 15 employees. Sampling of control group enterprise workers: 10 employees were interviewed from 3 enterprises of control group which were selected on random basis from the list of 10 producers (respondents) above. Enumerators: To ensure unbiased beneficiary responses, interviews were conducted by independent enumerators. 3 enumerators conducted the field work for 67 respondents. Enumerators had knowledge of the area and survey experience. One day training for the enumerators was conducted before the field work regarding: the objective of the survey, the responses for each question and the art of asking questions. Simulation exercises were also conducted. Data entry: Data entry for completed questionnaire was carried out internally by using simple excel sheet. Questionnaire development: the questionnaire was designed to enable the project to get data concerning profit, income, asset, new product developed etc, as required in the LFA indicators. The questionnaire for producer consisted of 27 questions and the questionnaire for employees only consisted of 8 questions. To increase the effectiveness of questionnaire the project conducted pre testing questionnaire to 1 producer to ensure that the questions was clear and can be easily understood by respondents Proxies for poverty impact: As seen on the impact chain (figure 3.1) project should impacted in reducing poverty. For examples : trough better access marketing, access to material raw as well as business environment will progressively to improve business competitiveness then influencing on business performance such improve on sales, profit and, product development . From this achievement automatically will impacted on HH level (assumed 1 enterprises/workers having wife and 1 children) here in after contributed in reducing poverty. The survey instrument is provided in Annex 2.

4.2 Summary of Impacts

The following table summarises the findings from the final imapct study and compares this with the indicators in the project LFA. Subsequent sections will elaborate the details.

LFA Indicator Final Impact Study Findings

1 1000 households, residing in flood prone areas with 15% headed by women, increase their incomes

1882 households with 28% headed by woman, increase their incomes

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LFA Indicator Final Impact Study Findings

2 Improvement of household assets

Improvement of household assets

3 Increase in 400 fulltime workers

Increased 188 fulltime workers.

4 Increase in 200 temporary workers

Increase 44 temporary workers

5 Increase in incomes of 200 enterprise owners and family members by 25%

Increase in incomes of 165 enterprise owners and family members by 23%

6 Increase in enterprise profits by 15% per annum

Increase in enterprise profits by 25 % per annum

7 Increase in productivity by 20% From 1.25 to 1.53 or increase in productivity by 21.6%

8 Increase in new market linkages established

4 new market linkages established

9 Increase in new products developed

5 new products developed

4.3 Impact on Enterprises

4.3.1 Increased Sales This section illustrates the change in sales, new products, new brands as well as changes in emplyment during the project duration and compares this with the changes in the control group.

Beneficiaries

Control group

72% respondent of project beneficiaries stated that there is an increase in sales compared to the previous year as compared to 50% of the respondents from the control group. For Project beneficiaries the average increase in sales was 23% and control group 8%.

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4.3.2 New Products

Beneficiaries

Control group

Beneficiaries

Control Group

11 respondents from project beneficiaries or 34% developed new products during the project period (2008-2009). The Majority of them developed short pants (5 respondents) and the rest: adult pants, shirts, and towels. The control group only produced short pants.

4.3.3 New Brands

Beneficiaries

Control group

Entrepreneurs have taken the initiative to develop new brands in order to reach different market segments (high end) where the products are of better quality, finishing and competitive price. 3 respondents from beneficiaries (9%) answer that during the duration of project 2008-2009 they developed 1 new brand. On the other side, none of the respondents of the control group developed new brands in 2008-2009

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4.3.4 Full-time Employees

Beneficiaries

Control group

47% of project beneficiaries answered that they hired new employees during the project duration and for the control group the figure is 40%. During project duration project beneficiaries on average hired 2 workers and control group an averages 0.9 workers

4.3.5 Part time Employees

Beneficiaries

Control group

31% of project beneficiaries answered that they hired new employees during project duration. As for the control group 20% hired new employees During the project period beneficiaries on average hired an average of 0.7 workers and the control group hired on average 0.3 workers

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4.4 Impact on Workers

This section illustrates the change for workers in terms of income and productivity during the project duration and compares this with the changes in the control group.

4.4.1 Increased Income

Beneficiaries

Control group

53% workers of project beneficiaries answered they saw increased income when compared to the previous year. For the control group, 40% of workers saw an increase in income. For project beneficiaries workers, income increased by an average of 14% while for control group workers the average was 7.7%.

4.4.2 Increasing Productivity As skills improved, the average production results per hour for beneficiaries has increased by up to 1.53 from the baseline of 1.25. For the control group the productivity was 1.26 which shows only a slight increase

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4.5 Impact on Poverty

For the Enterprise owners This section illustrates the changes for enterprises in terms of sales, rising expenses, assets and home improvements during the project duration and compares this with the changes in the control group. 4.4.1 Sales vs. Rising Expenses

Beneficiaries

Control group

As sales increased, there were also increased in HH expenses. For project beneficiaries increased sales of 23% were accompanied by increased HH expenses by 14.3% but resulting in a saving of IDR30,000 (US$3.3)per day. The same figure for the control group was increased sales of 7% accompanied by increased HH expenses of 15% resulting in a saving of only IDR14,000 (US$1.55) per day. From this the net real savings increase for direct beneficiaries alone amounted to US$7218.75 per month which, conservatively only counting the project duration of 30 months, amounts to US$216562. This equals the project budget and excludes income multiplier effects and future income flows.

4.4.2 Change in Assets

Beneficiaries

Control group

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94% respondents from the project beneficiaries purchased new assets during 2008-2009 and respondents from the control group only 80%. Type of new assets purchased by beneficiaries are mobile phone, vehicle, electronic devices, home appliances and machineries

4.4.3 Home Improvements

Beneficiaries

Control group

Beneficiaries

Control Group

53% respondents from the project beneficiaries made improvements to their house during 2008-2009 and respondents from the control group only 40%. The most common type of house improvement done by beneficiaries is painting house walls

For the Workers This section illustrates the changes for workers in terms of income, rising expenses, assets and home improvements during the project duration and compares this with the changes in the control group.

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4.4.4 Increased Income vs. Rising Expenses

Beneficiaries

Control group

For the workers both in beneficiaries and control group, seems that increased of HH expenses is higher than increased income. But the difference between expenses and income is higher in the control group.

4.4.5 Change in Assets

Beneficiaries

Control group

87% respondents of the workers purchased new assets during 2008-2009 and 70% of the respondents of the control group did so.

4.4.5 Home Improvements

Beneficiaries

Control group

36% respondents from project beneficiaries’ workers made improvements to their house during 2008-2009 and 20% of the respondents did so from the control group.