Small business travails

Are our small businesses declining? Official data from the quarterly Labor Force Survey (LFS) of the Philippine Statistics Authority (PSA) suggest so. In July 2016, the LFS counted 1,434,000 workers classified as “employers in own family-operated farm or business.” This could be taken as the number of small enterprises (firms or farms) in the country then. Last January, the corresponding number was 1,361,000. This implies that we lost some 73,000 small enterprises in that span of two and a half years.

Those numbers from the LFS well exceed the MSME (micro, small and medium enterprise) count derived from the PSA’s List of Establishments (LoE), which recorded a total of 911,768 MSMEs in 2016. The substantial difference would be accounted for by informal (including farm) enterprises, which the LFS captures but the LoE does not, being based on data on businesses registered with local government units all over the country. The LoE
data showed a 1 percent increase in MSMEs in 2016-2017, consistent with a similar rise in the data derived from LFS for 2017. But it was in 2017-2018 that the drop in small businesses began showing up in the LFS data (unfortunately, LoE data beyond 2017 remain unavailable).

I find this decline worrying. It has been well-recognized that the key to a more broad-based, inclusive economy—hence economic growth with wide benefits—is to have small businesses contribute much more to our overall economic output and employment. I’ve written before of how we lag behind most of our Asia-Pacific neighbors on both counts, which likely also explains why income distribution in the Philippines is worse than in most of our neighbors. For this reason, the Department of Trade and Industry (DTI) has been giving great emphasis and priority on fostering MSMEs, even placing them at the forefront of international negotiations with our economic partners in the Association of Southeast Asian Nations and other regional forums. Yet recent indications suggest that the DTI’s goal is getting even more elusive.

To be fair, the task of fostering MSMEs cannot be the DTI’s alone. I am quite aware of, and even helped document in the past, the various initiatives and programs that the DTI has spearheaded to foster small business in this country, based on its agency mantra of “Trabaho at Negosyo.” But so much of what other involved entities do are stacked against small businesses, and end up negating the good work the DTI is doing.

Take the banks, for example. Bangko Sentral ng Pilipinas data have shown a consistent and continuing decline in the proportion of banks’ loan portfolios going to MSMEs, from 17.2 percent in 2009 to less than half of that (7.8 percent) in 2018. The proportion going to micro and small enterprises alone is down to one-third (3.1 percent) of what it was in 2009 (9.3 percent). And this is in spite of the Magna Carta for MSMEs mandating the allocation of 8 percent of banks’ lending portfolios for micro and small, and 2 percent for medium, enterprises. Banks prefer to pay the fines than find creative ways to comply. A big gap, whether from banks or government financial assistance programs, is in meeting financing needs of start-up businesses, who have nowhere to go as one needs to be in operation for at least 2-5 years before financing support is provided.

And then there’s the Bureau of Internal Revenue, whose zeal for squeezing as much revenue as it can, including from small business taxpayers, often chokes the latter to the point of stifling them. I constantly hear an earful from too many small entrepreneurs complaining that the BIR’s excessive documentary requirements take away too much of their time and effort from running their business.

Many local governments don’t help either. Rather than promote and nurture small businesses, they throw obstacles in their way, starting from just getting their businesses registered. I’ve written recently of trade services companies preying on hapless small firms to make windfall profits on freight forwarding and warehousing of imported inputs. And there’s a lot more. If we’re truly serious about MSME development, we need a well-orchestrated effort.

Need we wonder, then, if data show small businesses to be on the decline?

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