The Informal Sector:Gross Value Added, Productivity and Constraints to Growth(Case of Indonesia

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BPS-Statistics Indonesia Director of Production Account

INFORMAL SECTOR: A SUB-SECTOR IN THE NATIONAL ACCOUNTS

For statistical and SNA purposes, the IS is defined in terms of enterprise (producing unit). Thus, measuring its contribution to GDP is made more explicit. It is defined as part of household unincorporated enterprises and a subsector of the national accounts.

BPS-Statistics Indonesia Director of Production Account

Identifying Informal Sector

All Production Units
‡ ‡ ‡ ‡ ‡Corporations ‡Quasi-corporations ‡Government ‡NPIs

Unincorporated enterprises owned by HHs

Quasi-corporations

Other HH enterprises

Units producing goods/services exclusively for own final use (nonmarket)

Units producing all or some goods/services for sale/barter (market output)

HHs employing paid domestic employees

Other non-market production units

BPS-Statistics Indonesia Director of Production Account

Characteristics of IS activities
‡ Not registered ‡ Scale of operation:
o o o

small; low levels of organization, low levels of productivity and income

‡ Self-employed worker with no or very few regular paid employees ‡ Place of business:
o o o

µinvisible¶ places± small shops; at home; no fixed location

BPS-Statistics Indonesia Director of Production Account

Screening Through Informal Sector Survey

To carry out the survey, respondent households have to be screened to identify these enterprises following the dichotomy presented in Figure below

Household Unincorporated Enterprises with some Market Production (HUEMs)

BPS-Statistics Indonesia Director of Production Account

GROSS VALUE ADDED

BPS-Statistics Indonesia Director of Production Account

Economic structure of DI Yogyakarta

‡ The economy of DIY was growing at 4.39% in 2009 ‡ Dominant sectors in DIY are:
o o o o

Agriculture, hunting, forestry & fishery; Public admin & defense; Manufacturing; Hotels & restaurant

BPS-Statistics Indonesia Director of Production Account

Economic structure of Banten

‡ The economy of Banten was growing at 4.69% in 2009 ‡ Dominant sectors in Banten are:
Manufacturing; Wholesale & retail trade, repairs, etc o Transport, storage, communication
o o

BPS-Statistics Indonesia Director of Production Account

Contribution of Informal Sector

‡ Informal sector in DI Yogyakarta contribute 37.3%; while in Banten contribute 26.6%. ‡ It shows that Banten¶s economy is more formalized than DI Yogyakarta. ‡ DI Yogyakarta is famously known as educational city and tourist destination; therefore informal sector is flourish and contributing more than in Banten. ‡ Banten¶s economy largely influenced by its close proximity to the capital city of Jakarta; there are many large manufacturing industries located in Banten.

BPS-Statistics Indonesia Director of Production Account

Yogyakarta¶s Informal Sector by Industries

‡ In Yogyakarta these industries noted high contribution of IS:
o o o o

Agriculture (88.95%); Manufacturing (68.78%); Trade (53.11); Other services (52.55%)

‡ Industries noted small contribution of IS:
o o o

Finance (0.03%) Construction (0.83%) Education & health (3.04%)

‡ Two activities noted zero contribution of IS:
o o

Electricity, gas & water Public administration

BPS-Statistics Indonesia Director of Production Account

Banten¶s Informal Sector by Industries

‡ In Banten these industries noted high contribution of IS:
o o o o

Agriculture (87.43%); Other services (72.16%); Trade (64.54); Hotel & restaurant (55.02%) Finance (1.59%) Manufacturing (4.26%) Mining & quarrying Electricity, gas & water Public administration

‡ Industries noted small contribution of IS:
o o

‡ Activities noted zero contribution of IS:
o o o

BPS-Statistics Indonesia Director of Production Account

CONSTRAINTS TO GROWTH

BPS-Statistics Indonesia Director of Production Account

Reason to established HUEM
‡ HUEM tend to carry out business in informal activities not necessarily to maximize their income, rather because this is what they are familiar with. ‡ In Yogyakarta, reasons for establishing HUEM mostly due to:
o o o

Family tradition (48%) Others (20%) Profession known (16%) Profession known (62%) Family tradition (18%) Others (11%)

‡ In Banten, HUEM are motivated by:
o o o

BPS-Statistics Indonesia Director of Production Account

‡ ‡

In Yogyakarta ³Family tradition´ seems to be popular reason in Agriculture (69%) & Manufacturing (31%) ³Profession known´ is mostly popular in TCS (66%), Mining (42%), Other Services (42%), Hotel (27%)

‡ ‡

In Banten ³Profession known´ is mostly popular in all industries, except for Finance ³Family tradition´ seems to be popular reason for Finance (41%)

BPS-Statistics Indonesia Director of Production Account

Financing & other support structures

‡ HUEM¶s utility of credit schemes are limited due to its accessibilities are limited too ‡ The majority of HUEM are not applying for a bank loan o 89.86% in Yogyakarta o 88.76% in Banten ‡ In Yogyakarta the main reason not applying for loan is ³not interested´ (24.6%) ‡ In Banten the complicated procedures hinder 35.1% of HUEM in applying for loan

BPS-Statistics Indonesia Director of Production Account

Access to bank loan

BPS-Statistics Indonesia Director of Production Account

Microfinance service

BPS-Statistics Indonesia Director of Production Account

Access to loan from microfinance services

BPS-Statistics Indonesia Director of Production Account

Problems and Prospects

BPS-Statistics Indonesia Director of Production Account

Problems encountered & Types of assistance needed
Types of assistance needed

Notes: 1 - Technical training; 2 - Training in organizational and financial management; 3 - Assistance in obtaining supplies;4 - Access to modern machines; 5 - Access to loans; 6 - Access to information on the market; 7 Access to large business orders; 8 - Registration of business; 9 - Advertising of new products/services; 10 - Others

BPS-Statistics Indonesia Director of Production Account

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BPS-Statistics Indonesia Director of Production Account

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