Save MSMEs, save the economy

Save the cheerleader, save the world” was the catchphrase of the NBC hit series “Heroes.” It was so prevalent, so repeated that it stuck in the minds of fans and nonfans alike. It was made clear that Claire Bennet, the cheerleader character, was a crucial cornerstone of the plot.

Today as we strive to survive and revive the economy due to the COVID-19 pandemic, a similar sentiment rings out, and a similar cornerstone needs protection. Hence, “Save micro, small, and medium enterprises (MSMEs), save the economy.”

Why MSMEs? In the 21 Apec economies, MSMEs comprise 97 percent of businesses and employ half of the workforce of those economies. For the Philippines, the numbers are even larger: In 2018, out of 1,033,111 businesses in the country, 998,342 or 99.5 percent were MSMEs, and only 4,769 or 0.48 percent were large enterprises. These MSMEs employed 5,714,262 jobs, equivalent to 63.19 percent of total Philippine employment.

It is difficult to conceive a situation where we can simply erase the economic impact of the past months of quarantine. While the government and the Bayanihan Acts impose means to help businesses cope by imposing moratoriums on collections, penalties, and late charges, these same businesses will end up with ballooned payments once the quarantine is lifted. With most MSMEs barely open, they have little to no revenue, and now face massive debt.

Indeed, one cannot simply order that those debts be waived, as that would put others in financial distress. One proposal is to restructure those obligations in a manner that would allow the MSMEs ample time to recover, restart their businesses, and prepare for the payments to come, by adding those obligations to the end of the contractual term. For instance, for a five-year term (60 months), the three months’ worth of installments would be added to the tail-end under a new five-year and three-month term (63 months).

Another proposal is to discount those obligations in light of the decrease in business. For those that were able to operate, albeit in a limited manner, they would have far-from-normal revenues. By recognizing that decrease in revenue, new deals could be struck between the business and the supplier, such as a lessor. Government can even intervene and entice the lessor to discount the lease proportionate to the revenues generated, in exchange for tax credits in the succeeding taxable periods.

Other options include looking to other markets. A 2018 PIDS study showed MSMEs had better survival rates trading with economies outside of the Asean region. Specifically strong are the longstanding relationships of MSMEs to markets such as Japan, though there has been some increase in MSME survival rate vis-à-vis newer Asean markets such as Cambodia, Laos, and Myanmar.

One way our MSMEs can achieve better export business is to focus on increasing market access to specific markets where we enjoy free-trade arrangements. Asean in itself is a massive halal market with 242 million people adhering to Islam (42 percent of the regional population).

Despite that opportunity, the Philippines is lagging in the $3.2 trillion global halal market. The DTI Export Marketing Bureau is taking significant steps to grow our piece of that pie. We need to beef up international recognition of Philippine halal certification, as well as continuously support our export MSMEs on understanding the business cultures of their target markets.

One thing is clear: The survival of our MSMEs is critical to the economy and to the workforce. We must find innovative ways to help them get back up.

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Ira Paulo Pozon (iap@caucusinc.com) is a lawyer and business consultant. He is founder of Caucus Inc. He graduated MBA (De La Salle University), Juris Doctor (Far Eastern University), and Master of Law in International Commercial Law (Honours, University of Nottingham, United Kingdom). He also studied Mandarin Chinese Language and Culture in Fuzhou, China, was a Chevening-HSBC UK Government scholar, a Confucius Institute scholar, an alumnus of the US State Department’s International Visitor Leadership Program, a fellow of the Asia Global Institute-University of Hong Kong, and senior fellow in Public Service of the Lee Kuan Yew School of Public Policy-National University of Singapore.