Aceh, a province at the northern end of Sumatra in Indonesia, was one of the areas hardest hit by the earthquake and tsunami in December 2004. About 165,000 people were killed, and half a million were left homeless. Infrastructure and livelihoods were destroyed. The impact of the tsunami was compounded in March 2005 when a second earthquake struck the area, killing some 900 people on the nearby islands of Nias and Simeulue and displacing tens of thousands.
These destructive events had one indirect benefit for Aceh: the end of a civil conflict that had raged for 29 years and cost some 15,000 lives. The conflict contributed to poverty in the province and devastated the private sector. Supply chains were disrupted because farmers could not harvest their crops, and palm oil plantations, a key sector for the local economy, were neglected. The conflict also spurred many of Aceh's best and brightest business people to leave the province and settle in Malaysia, Medan, or elsewhere.
Now that humanitarian relief efforts in Aceh are winding down, IFC's role has increasing relevance in supporting the steady growth of economic activity. The Corporation has intensified its activities through a regional facility, the IFC Private Enterprise Partnership for Aceh & Nias, which is supported by funding from Australia and recently celebrated its first anniversary. Over the past year the facility has gained momentum in its mission to promote private sector development, helping create jobs and improve people's lives.
Objectives of IFC's facility include:
- Developing the local business service sector
- Improving the business and investment environment
- Restoring livelihoods in strategic sectors
- Increasing access to finance
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Developing Local Business Services
Small business owners in Aceh and Nias have limited opportunities to enhance their business skills. IFC's solution is to develop local capacity for private enterprise. Since April 2006, some 500 local residents have participated in a pilot training program covering core consulting skills, financial management, and computer skills. Graduates have been hired by such institutions as the United Nations, the Mercy Corps, and the International Labor Organization to conduct surveys and provide similar training.
IFC's facility also operates the YES! (Young Entrepreneurs' Startup) program, which has provided training in business planning to 200 entrepreneurs and small businesses owners in Nias, Banda Aceh, Lhokseumawe, and Meulaboh. The program sponsored a competition in which six winners received up to $1,000 in seed capital and six months of advisory support. Winning submissions included making charcoal from coconut shells, cultivating mushrooms, producing corn snacks, recycling plastic packaging, marketing local spices, and managing a bookstore for women. IFC Executive Vice President Lars Thunell presented the prizes during his visit to Indonesia in October 2006.
Improving the Business Environment
Aceh has significant investment potential, thanks to its rubber, cocoa, coffee, and palm oil plantations, its shrimp farms, and its natural beauty. IFC is heavily involved in efforts to improve the area's business enabling environment and attract investment. Together with the World Bank Group's Foreign Investment Advisory Service, the facility is working with the Rehabilitation and Reconstruction Agency and the Aceh Investment Promotion Board to promote investment, draft a robust investment law, and develop a framework for economic improvement.
One key initiative is the Investor Outreach Office, which supports private sector investment by providing companies with information, contacts, advice on regulatory requirements, and policy advocacy. Most recently, the office helped draft a memorandum of understanding between a Canadian water engineering consulting firm and two local partners. It also advised on an exploration license for two local forestry companies.
Another initiative is the Business Gathering, a monthly networking session that IFC's facility hosts for key private sector players. Participants discuss challenges and issues related to the area's private sector development and identify solutions.
Increasing Access to Finance
Access to finance is a critical issue for many small enterprises in Aceh. Businesses destroyed by the tsunami have difficulty getting the new credit they need to get back on their feet. Also, small companies find it hard to obtain the equipment to expand their businesses. IFC's facility is developing programs to introduce leasing to Aceh and tackle the issue of nonperforming loans. These may include risk-sharing facilities and special funds to enable tsunami-ravaged businesses to recover.
Restoring Livelihoods
In Aceh, people's lives have been ruined by decades of civil conflict and the tsunami, and people in Nias have suffered not only from the 1995 earthquake but also from geographic isolation. IFC's facility is helping restore livelihoods in key sectors such as agribusiness, fisheries, and tourism.
In recent months the facility has completed and distributed a plan to guide development of the fisheries sector, introduced seaweed as a new livelihood in Nias, helped establish new shrimp farming methods in Bireuen, and launched an online booking system for Acehnese hotels and guest houses at
aceh-hotels.com, part of the
worldhotel-link.com network.
Looking Ahead
In December 2006, Aceh's first elections took place peacefully, giving an overwhelming victory to Yusuf Irwandi, a former rebel leader. The political process appears to have confirmed the end of civil conflict and has positioned the province to rebuild and expand its private sector. With several programs in Aceh successfully underway, IFC PEP Aceh & Nias is turning its focus toward Nias, which faces major challenges in integrating its economy with the rest of Indonesia. Current initiatives include conducting business training for small businesses, hosting networking sessions for key local business figures, and exploring options for developing the seaweed industry.
For more information contact:
Andrew Mak
Communications Officer
Hong Kong, China
Phone: +852 2509 8110
E-mail:
AMak@ifc.org
Puni Indrayanto
Communications Analyst
Jakarta, Indonesia
Phone: +62 21 5299 3001
E-mail:
PIndrayanto@ifc.org
Published March 5, 2007
