Emergency Assistance for Recovery and Rehabilitation from Recent Disasters (RRP INO 52324-001) POVERTY IMPACT ASSESSMENT A. Sector Performance, Problems, and Opportunities 1. This poverty impact assessment attempts to provide a first evaluation of the impact of the earthquake, tsunami and liquefaction that struck Central Sulawesi on 28 September 2018 as well as the earthquakes that occurred on 29 July, 5 August and 19 August on West Nusa Tenggara.1 Several data sets that are collected by Statistics Indonesia and Bank Indonesia have been used to provide key indicators and develop a baseline profile of the regional economies. Preliminary findings of the economic impact of the disasters based on simulations from IndoTERM2 are used to estimate the impact of the disasters on poverty incidence. It is estimated that the percentage of people falling below the poverty line in Central Sulawesi may increase from 14.01% pre- disaster to 16.39% post disaster, while in West Nusa Tenggara the poverty rate may increase from 14.75% pre-disaster to 16.82% post-disaster. Analysis indicates that the considerable progress made throughout Indonesia towards poverty reduction in recent years risks being setback by the impact of the recent disasters. 2. Primary commodities underpinned strong growth in Central Sulawesi. Economic growth in the province of Central Sulawesi has been outpacing national growth in recent years, as the province has been benefiting from its natural resource sectors that have contributed almost half of growth.3 Within agriculture, plantation crops and fisheries have performed well. In mining, the province is a producer of natural gas as well as raw ores and other energy products. While growth in the province has been strong, Central Sulawesi only accounts for approximately 1% of national GDP. Prior to the disaster, annual economic growth of Central Sulawesi province was expected to be in the range of 6.9% to 7.3% in 2018, with growth to be supported by an increase in export value, gains in resource intensive manufacturing, and an increase in the realization of government spending as well as other seasonal factors.4 Table 1. GRDP of Central Sulawesi, 2010 Constant Prices (Rp. billion), 2013–2017 Sector 2013 2014 2015 2016 2017 Agriculture, Forestry and Fishing 23,164 24,729 26,298 26,928 28,129 Mining and Quarrying 9,773 7,239 9,223 12,427 14,314 Manufacturing 3,957 4,274 8,120 10,971 12,209 Electricity and Gas 31 36 41 43 47 Water Supply, Sewerage, Waste 101 110 117 121 128 Construction 7,020 8,801 10,620 10,358 10,736 Wholesale and Retail Trade, Repair of Motor 6,756 7,487 7,860 8,285 8,618 Vehicles and Motorbikes Transportation and Storage 2,818 3,079 3,317 3,485 3,717 Accommodation and Food Services 363 397 437 463 501 Information and Communication 2,592 2,916 3,184 3,470 3,716 Financial and Insurance 1,598 1,659 1,760 2,070 2,217 Real Estate 1,398 1,540 1,649 1,716 1,815 Business 194 205 213 223 235 1 On 28 September 2018, Palu was hit by a 5-metre-high tsunami shortly after a magnitude 7.5 earthquake occurred 80 km north of the city. 2 A. Yusuf. 2018. Economic impact of Lombok earthquake and Sulawesi Earthquake and Tsunami. Jakarta (unpublished). 3 Statistics Indonesia. 2018. Gross Regional Domestic Product of Provinces in Indonesia by Industry, 2013-2017. Jakarta. Statistics Indonesia. 4 Bank Indonesia. 2018. Regional Economic and Financial Study of Central Sulawesi Province for August 2018. Jakarta. Bank Indonesia. 2 Public Administration, Defense, Social Security 4,125 4,509 4,892 5,193 5,532 Education 2,783 2,990 3,219 3,373 3,571 Human Health and Social Work Activities 972 1,074 1,147 1,196 1,298 Other Services 575 634 691 731 769 Total 68,220 71,679 82,788 91,053 97,552 Source: Statistic Indonesia, selected publications. 3. Weakening exports performance slowed growth in West Nusa Tenggara. Economic growth in the province of West Nusa Tenggara grew by 0.11% in 2017 as quota restrictions saw the performance of exports, especially copper and other mining exports, decline.5 Outside of mining, growth was supported by improving performance of the agricultural, trade and construction sectors. Economic growth in West Nusa Tenggara is expected to contract in the remaining half of 2018 due to the series of earthquakes that hit the islands in July and August, which is reflected in a decline in consumer confidence in August 2018 and is expected to affect household consumption and the trade sectors. Growth in the province accounts for less than 1% of national GDP. Table 2. GRDP of West Nusa Tenggara, 2010 Constant Prices (Rp. billion), 2013–2017 Sector 2013 2014 2015 2016 2017 Agriculture, Forestry and Fishing 16,947 17,702 18,965 19,587 20,880 Mining and Quarrying 11,255 11,239 23,175 24,501 19,635 Manufacturing 3,540 3,659 3,773 3,971 4,207 Electricity and Gas 48 67 67 75 78 Water Supply, Sewerage, Waste 59 64 66 69 72 Construction 6,697 7,219 7,744 8,414 9,055 Wholesale and Retail Trade, Repair of Motor Vehicles and 9,053 9,747 10,337 11,148 12,112 Motorbikes Transportation and Storage 4,964 5,335 5,680 5,919 6,345 Accommodation and Food 1,243 1,329 1,404 1,545 1,663 Services Information and Communication 1,555 1,685 1,825 1,986 2,158 Financial and Insurance 2,106 2,269 2,480 2,796 3,075 Real Estate 2,086 2,206 2,356 2,502 2,678 Business 123 132 139 149 158 Public Administration, Defense, 4,007 4,207 4,362 4,492 4,641 Social Security Education 3,141 3,352 3,595 3,813 4,062 Human Health and Social Work 1,413 1,511 1,613 1,705 1,826 Activities Other Services 1,532 1,652 1,754 1,865 2,002 Total 69,767 73,373 89,338 94,538 94,645 Source: Statistic Indonesia, selected publications. 4. A need to broaden the economic base to foster inclusive growth. Table 3 highlights that per capita GRDP in Central Sulawesi and West Nusa Tenggara provinces is lower than national per capita GDP. In Central Sulawesi strong resources led growth in recent years has seen per capita GRDP grow rapidly and stands at 87% of national per capita GDP.6 However, GRDP per capita in West Nusa Tenggara has hovered at close to 50% of the national average in 5 Bank Indonesia. 2018. Regional Economic and Financial Study of West Nusa Tenggara Province for August 2018. Jakarta. Bank Indonesia. 6 Statistics Indonesia. 2018. Gross Regional Domestic Product of Provinces in Indonesia by Industry, 2013–2017. Jakarta. 3 recent years. In both provinces economic growth has been narrow and volatile, with performance highly influenced by commodities. Outside of primary commodities, both economies are largely informal, and a large share of the population is vulnerable to economic shocks and natural disasters. For example, manufacturing outside of large-scale resource intensive industries in both provinces is mostly associated with informal micro and small enterprises (MSEs). These enterprises rarely receive government support for business development nor do they use the internet.7 These MSEs tend to finance their business through retained earnings, and only 4% of MSE in Central Sulawesi and 6% of MSEs in West Nusa Tenggara had a bank loan in 2017, mostly from the government’s subsidized credit program, despite access to credit being identified as a primary constraint to doing business. Due to the informality of MSEs, disaster relief support will be hard to target. Table 3. Per Capita GRDP at 2010 Constant Prices by (Rp. ‘000), 2013–2017 2013 2014 2015 2016 2017 Central Sulawesi 24,491 25,316 28,779 31,164 32,886 West Nusa Tenggara 14,810 15,370 18,475 19,309 19,099 National average 32,781 33,965 35,162 36,469 37,851 Source: Statistic Indonesia, selected publications. 5. Most rely on agriculture or services in the informal sector to support their livelihood. The largest providers of employment in Central Sulawesi include agriculture (42%) and trade (14%), followed by manufacturing (9%). 8 In West Nusa Tenggara, most employment is in agriculture (37%), followed by trade (35%) and manufacturing (14%). More than two-thirds of employment in both provinces is informal. With limited social assistance available for the jobless adult population, unemployment is low and labor force participation is high. Both Central Sulawesi’s and West Nusa Tenggara’s women’s labor force participation is higher than the national average, however many of these women work as unpaid workers. With a sizeable informal economy, growth in average wages has remain subdued and a considerable gender wage gap persists (Table 4). Education attainment is comparatively low in both provinces, with approximately 45% of the economically active population with primary school as their highest level of education attainment. Analysis highlights several risk factors for livelihood recovery from the of the impact of the disasters, including lack of income diversification, gender and income inequality, lack of access to finance and other social safety nets, and low levels of education. The implications of these risks include depletion of assets and higher vulnerability to falling into poverty. Table 4. Selected labor market indicators (No. employed people) Aug-16 Feb-17 Aug-17 Feb-18 Central Sulawesi Men Agriculture 457,214 484,771 444,092 441,867 Industry 158,677 151,461 161052 184,323 Services 287,153 294,726 280928 304,669 Total employed 903004 930958 866,072 930,859 Labour force participation rate (%) 86.81 88.44 84.1 87.28 Unemployment rate (%) 2.33 2.1 2.91 2.41 Average wage of employees Rp.