Competitiveness and Sustainability: Switzerland’s Economic Cooperation and Development Program with Indonesia 2021–2024

As an emerging Middle-Income Country, Indonesia has made enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to 9.4 percent in 2019. Indonesia is the 7th largest economy in terms of purchasing power parity and a member of the G-20. Nevertheless, about 25 million Indonesians still live in poverty and another 50 million remain at risk of falling back into poverty due to COVID-19. The Swiss State Secretariat for Economic Affairs (SECO) will provide CHF 65 million in grant funding for high quality technical assistance to support Indonesia in overcoming remaining development challenges and in becoming more competitive, resilient, equitable, as well as resource-efficient.

Indonesia is committed to achieving the Sustainable Development Goals but still faces a complex set of environmental, economic, and social challenges, ranging from depletion of natural resources and pollution to growing income inequality.

Despite steady economic growth, the gap between rich and poor remains significant. Poverty and gender are strongly connected and the slow pace of job creation is another challenge that hampers poverty reduction efforts, largely affecting the two million young people who enter the labor market each year. Being one of the world’s largest greenhouse gas emitters , Indonesia plays an important role in addressing climate change. The country is also at high risk for climate change impacts which threaten sustained growth. Rapid urbanization further increases environmental pressures and stresses public services and infrastructure in cities.

What are SECO’s objectives?

The Cooperation Program has been carefully deliberated and it takes into account (1) Indonesia’s development priorities and needs, (2) Swiss interests and (3) the added-value that Switzerland can bring to the partnership. The Program fully aligns with Indonesia’s Medium-Term Development Plan and is in line with Indonesia’s post-COVID-19 economic recovery and transformation strategy, which puts a particular focus on SMEs, as well as improving competitiveness through vocational education and training.

SECO aims to assist Indonesia in overcoming remaining development challenges and becoming a more competitive, resilient, equitable, and resource efficient economy. The Cooperation Program will focus on:

(1) Effective public institutions, particularly in urban areas

SECO will assist the Indonesian government in strengthening institutional capacities at the national and the subnational levels to increase domestic revenue collection, manage public funds more efficiently, and implement effective economic and financial policies. With regard to infrastructure, SECO will support the capacities of secondary cities to prioritize infrastructure investments in the water, energy, and transportation sectors, based on data-driven analytics. SECO will support urban connectivity by promoting public transportation systems, which corresponds to the Indonesian Government’s commitment to reduce the country’s greenhouse gas emissions.

(2) Strengthening private sector competitiveness, in particular SMEs

Recognizing the importance of SMEs, SECO will continue to work towards reducing financing obstacles for SMEs and facilitate access to finance. The Program will promote women entrepreneurship, leverage fintech and digital platforms to boost SME productivity and growth. The Program will help SMEs obtain improved market access for goods and services. It will also support sustainable value-chain integration, in particular of export commodities, including palm oil. Another key factor to boost competitiveness is improving the skills of the workforce. Given Switzerland’s successful dual education system, SECO’s Program focuses on improving the quality of the vocational education system in order to develop a more skilled workforce that is able to meet market demands across different sectors. This will also enhance employability for graduates, including women.

Mainstreaming Gender and Climate Considerations

Gender equality and climate change are transversal themes, which will guide the Swiss engagement. SECO fosters gender equality, by building on existing engagements in the areas of gender-responsive budgeting and explore new avenues to reduce the gender gap through the use of digital services and new technologies. SECO also applies a climate lens when developing projects and utilizes adaptive strategies for implementation.

Addressing economic challenges related to COVID-19

Through its Cooperation Program, Switzerland is committed to assist Indonesia in addressing pandemic-related economic challenges. SECO’s technical assistance in the area of public financial management will support Indonesia in mobilizing more resources and using public funds more efficiently, as well as help develop reforms that support a sustainable and inclusive economic recovery. Moreover, mobilizing private financing to close the infrastructure gap is more urgent than ever as there are fewer public resources available. To this end, the program will continue to support Indonesia in preparing solid infrastructure projects that will be able to leverage much needed private investment. SECO will also assist Indonesia in upgrading policy frameworks to spur investments and in developing sustainable value chains, particularly in the tourism sector, which was hit hardest by the pandemic.