ILO Partners with Banda Aceh to Build ‘Perfume City’ and Strengthen MSME Economy

In a landmark move to elevate Indonesia's position in the global fragrance industry, the International Labour Organization (ILO) and the Banda Aceh City Government have formally signed a Memorandum of Understanding (MoU) to strengthen the micro, small and medium enterprises (MSME) ecosystem and accelerate the city's ambitious "Perfume City" programme.

The agreement, signed on April 23 at Banda Aceh Mayor's Hall, marks a strategic collaboration aimed at unlocking the full economic potential of patchouli oil—a prized aromatic commodity for which Aceh is globally renowned. The initiative is expected to transform Banda Aceh into a world-class hub for perfume production, while driving inclusive economic growth and job creation.

Harnessing a Global Commodity with Deep Local Roots

Aceh has long been recognised as one of the world's leading producers of patchouli oil, a key ingredient used by major international perfume brands. Cultivated for centuries in the region's highlands, patchouli contributes significantly to Indonesia's export earnings, with the country supplying an estimated 80–90% of global demand.

Despite this dominance, much of the value chain has historically remained underdeveloped, with limited downstream processing and value addition taking place locally. The new partnership seeks to address this gap by moving beyond raw exports toward high-value finished products, including perfumes, essential oils, and derivative goods.

A Strategic Push for MSME Growth and Financial Inclusion

The collaboration is part of the ILO's "Promise II Impact" project, funded by the Government of Switzerland, which focuses on improving access to financial services for MSMEs in priority sectors. By adopting a value chain approach, the programme aims to strengthen every stage of production—from cultivation and processing to marketing and export.

Banda Aceh was selected as a strategic location due to its strong patchouli base and its potential to lead innovation in downstream industries. The initiative is expected to directly benefit hundreds of local MSMEs, many of which face persistent challenges such as limited access to credit, weak market linkages, and gaps in technical expertise.

Three Pillars of Transformation

The programme is structured around three core pillars designed to create a sustainable and competitive ecosystem:

• Capacity Building: MSMEs will receive training in entrepreneurship, financial management, product development, and international quality standards, enabling them to compete in global markets.

• Product Innovation and Market Expansion: Efforts will focus on developing high-value patchouli-based products and expanding access to both domestic and international markets, including premium fragrance segments.

• Ecosystem Strengthening: Enhanced coordination between government agencies, private sector players, academic institutions, and MSMEs will ensure a more integrated and resilient value chain.

Vision of a World-Class Perfume Hub

Mayor Illiza Sa'aduddin Djamal described the partnership as a decisive step toward realizing Banda Aceh's long-term economic vision.

"Banda Aceh has all the ingredients to become a world-class perfume city. Collaboration with the ILO is a tangible step in preparing the right ecosystem to achieve this vision," she said.

The Perfume City initiative is not only about industrial development but also about branding Banda Aceh globally, positioning it alongside established fragrance hubs such as Grasse in France.

Inclusive Growth and Job Creation at the Core

ILO Director for Indonesia and Timor-Leste, Simrin Singh, emphasized that the partnership is designed to deliver inclusive economic outcomes by empowering local entrepreneurs and strengthening job creation.

"This collaboration ensures that MSMEs, including patchouli entrepreneurs, have greater and better access to financing, markets and capacity building. It further strengthens our efforts to build an inclusive, productive value chain ecosystem capable of creating decent jobs," Singh said.

The initiative aligns with broader global development goals, including promoting decent work, financial inclusion, and sustainable industrialization.

A Model for Commodity-Based Development

Beyond Banda Aceh, the programme is expected to serve as a replicable model for other regions seeking to leverage local commodities for economic transformation. By integrating value addition, financial inclusion, and market access, the project demonstrates how traditional industries can evolve into globally competitive sectors.

Economic experts suggest that even a 10–15% increase in value addition within the patchouli supply chain could significantly boost local incomes, enhance export revenues, and reduce dependency on raw commodity exports.

Looking Ahead

With implementation now underway, the ILO–Banda Aceh partnership is poised to deliver tangible outcomes for MSMEs, expand economic opportunities, and strengthen Indonesia's footprint in the global fragrance market.

If successful, Banda Aceh's transformation into a Perfume City could redefine how commodity-rich regions harness their resources—shifting from extraction to innovation, and from local production to global influence.