Helping MSMEs
THANKS TO the Philippines’ hosting of the 2015 Asia-Pacific Economic Cooperation meetings, governments in the region have finally recognized the plight of MSMEs (micro, small and medium-sized enterprises) and are moving to bring them into the economic mainstream.
Leaders of the 21 Apec economies consider MSMEs the engine of growth and innovation: This sector accounts for 97 percent of all enterprises and employs more than half of the workforce in the region, contributes 20-50 percent to GDP, and is responsible for up to 35 percent of direct exports in this part of the globe.
The Apec actually began recognizing the small entrepreneurs when the region’s economic leaders called for the convening of the first SME ministerial meeting in 1993 (the Philippines pushed for the inclusion of micro enterprises in the SME sector, thus the new acronym “MSME”). This was followed by the adoption of the Action Program for SMEs under the Osaka Action Agenda in 1995 and the subsequent preparation of an integrated plan of action for the sector. Apec officials admitted that much work remained to be done, and the organization has broadened its work to give more attention to innovation, entrepreneurial development, business ethics, business resiliency, women’s economic development, finance and the provision of capacity-building programs in order to address the numerous challenges to MSMEs.
The Philippine government was instrumental in pushing the small entrepreneurs to the center of many discussions during the forums leading up to the Apec leaders’ summit, which issued a declaration on the need to bolster the region’s MSMEs as part of efforts aimed at making economic growth inclusive.
The Philippines has promised to continue mainstreaming MSMEs in the so-called global value chains (by linking them with conglomerates that operate in different countries) or developing them as direct exporters of finished goods and services. This will mainly be done by pushing for the implementation of the Boracay Action Agenda crafted last May during the senior officials’ meeting in Boracay. Briefly, it’s a Philippine-led initiative that aims to encourage the participation of MSMEs in global and regional trade.
According to the Department of Trade and Industry (DTI), emphasis will be placed on facilitating the access of MSMEs to free trade agreements and regional trade agreements; streamlining customs-related rules and regulations; providing timely and accurate information on export and import procedures and requirements; widening financing options and infrastructure; using e-commerce as a platform to internationalize MSMEs; and strengthening institutional support to breed dynamic and global MSMEs.
Other initiatives aimed at empowering MSMEs include the creation of a marketplace that will provide opportunities for new business deals and strengthen their ties with the private sector, and a commitment from private banks and international finance groups to offer access to financing.
The DTI is also pushing for the branding of MSME products to make these more competitive especially in foreign markets. It is helping these small businesses create distinctive names and images for their products, having noted the importance of branding in ensuring the impact of a certain commodity. It is working with the Design Center of the Philippines on this matter.
Locally, the bureaucracy, high taxes and lack of financing have hampered the growth of MSMEs. Just imagine all the local and national regulatory requirements, starting with the business permit, the registrations with the DTI and the Bureau of Internal Revenue, the mayor’s permit, the monthly and quarterly reports and payments to the BIR, to name a few. While MSMEs need bank financing to fund their operations, this is hard to come by for those without the credit record or collateral. In the end, they are forced to use their savings and funds borrowed from friends and relatives.
Apec leaders now acknowledge the significance to inclusive growth of MSME participation in global commerce, and promise to take action to facilitate it. They recognize that internationally-oriented MSMEs can make substantial contributions to poverty reduction through employment creation. It is commendable for the Philippines to start focusing on internationalizing the local MSME sector. But before doing so, it should find solutions to the endless local problems faced by small entrepreneurs. Cutting bureaucratic red tape will be a good starting point.
