State of the Ecosystem for Youth Entrepreneurship in Indonesia

Monitoring, Evaluation and Learning
Policy Research

Young people dominate the unemployed population in Indonesia: three quarters of unemployed people were youth in 2019 and the level of youth unemployment increased from 13.03 percent to 15.23 percent between August 2019 and August 2020. At the same time, with the country’s demographic dividend and a high volume of public consumption, youth entrepreneurship in Indonesia has the potential to mitigate youth unemployment, build robust and inclusive economic growth and contribute to sustainable development. Entrepreneurship does not only help young people acquire economic independence but allows them to drive job generation and well-being among their peers and communities. 

As of 2020, roughly twenty percent of employed youth were entrepreneurs in Indonesia. Approximately sixty percent of young entrepreneurs were men and 65.3 percent of them were aged between 25-30 years old. More than 50 percent of youth entrepreneurs operated either in the retail trade and car reparation and agriculture, forestry, and fisheries sectors. In terms of the scale of their businesses, most youth entrepreneurs operated alone. Only about six percent had one to four employees in 2020.

To amplify the potential of youth entrepreneurship, it is crucial to understand the strengths of youth-led businesses and the barriers they face relative to adult-led businesses. The challenges that young, aspiring entrepreneurs and youth-led businesses face can be enormous. For example, entrepreneurship education and training opportunities as well as services and infrastructure that are supportive of youth-led businesses are not equally available and accessible to all young people across the country. There are also cultural factors, such as familial expectations related to desirable career paths and gendered barriers that affect youth opportunities to start a business. 

The COVID-19 pandemic has brought on further challenges for young entrepreneurs: in the National Labor Force Survey, 56.1 percent of young entrepreneurs who operate alone reported a decline in their earnings between February and August 2020. In UNDP Indonesia’s survey in 2020, 79 percent of young entrepreneurs reported that their businesses had been negatively impacted by the pandemic

The United Nations Development Programme (UNDP) - under the Youth Co:Lab initiative co-led by UNDP and Citi Foundation – and the Islamic Development Bank (IsDB) jointly produced this research to identify entry points for strengthening the youth entrepreneurship ecosystem4 in Indonesia. The study provides data-driven recommendations and information on the actions needed to make the ecosystem for entrepreneurship more inclusive of youthled enterprises. The study aims to contribute to evidence-based programming and policy development in Indonesia and guide interventions by UNDP, IsDB and wider stakeholders to support youth-led enterprises. 

The study assesses Indonesia’s ecosystem for youth entrepreneurship though Youth Co:Lab’s ecosystem diagnostic framework by analysing the strengths and opportunities, challenges and good practices within the key domains of the ecosystem: 

  1. human capital and entrepreneurship culture; 
  2. access to finance and incentives; 
  3. business development support and infrastructure; 
  4. innovation and technology; 
  5. policy and regulatory framework; 
  6. access to the market. 

The study analyses the ecosystem at the national and regional levels, including case studies of the Maluku, East Kalimantan, and West Sumatra provinces, and provides recommendations to strengthen the ecosystem.

The research applies a mixture of quantitative and qualitative methods through secondary and primary data analysis, including literature reviews, policy reviews, media tracking, interviews, focus group discussions (FGDs), and case study surveys. 

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