SME DEVELOPMENT & INCLUSIVE BUSINESSModerator: Prof. Nestor Raneses

University of the Philippines

28 November 2016

The goal of the New Industrial Policy is to create globally competitive, value adding, and innovative industries that would generate more and productive jobs and reduce poverty towards shared prosperity for all.

Shipbuilding

Electronics

AutomotiveAerospace

parts

Chemicals

Garments

agribusiness Furniture

IT BPM

Breakout Session Goal

• For each area, identify the most binding constraints preventing industry growth and recommend policy measures to resolve these constraints that would produce the biggest bang & lead to highly significant improvement in the overall business and investment environment • Competitiveness and innovation

• Labor & HRD

• Physical infrastructure

• Ease of doing business

• MSME Development & inclusive business

• Incentives & other forms of government support

• International Trade & FTAs

Current State of SME Development

MSME Macro Statistics (PSA, 2014)

• 99.6% MSME business establishments• 90.3 % micro

• 9.30% small

• 0.04% medium

• MSME Sectoral Distribution • 46.4% wholesale and trade

• 13.5% accomodation and food services

• 12.5% manufacturing• 62.8% MSME Employment contribution

• 30.5% micro

• 25.5% small

• 6.8% medium

• 35.5% empoyment in the wholesale and repair of vehicles and motorcycles

• 16.1% employment in manufacuring • 32.2 % in NCR

• 14.6 % in CALABARZON

• 10.1% in Region 3

• 7.9% in Region 6

• 5.6% in Region 8

MSME Macro Statistics (PSA, 2014)

• 35.7% Value Added Contribution • 6.87% Manufacturing – largest

• 6.58% wholesale and trade

• 6.0% financial intermediation

• 20.5% small enterprises contribution

• 10.3% medium enterprises contribution

• 4.9% microenterprises contribution

•25% Export Contribution • 60% (?) of exporters belong to the SME sector

PHILIPPINE SMEs

Source: 2014 List of Establishments, PSA

MICRO

90.3%

Ph ENTERPRISES

(942,925)

MSME99.6%

LARGE 0.4%

SMALL

9.3%

MEDIUM

0.04%

• 99.6% : TOTAL FIRMS

• 62% : EMPLOYMENT

• 35.7% :VALUE-ADDED

• 25% : EXPORT

PH SME Distribution by Industry Sector (PSA, 2014)

0 10 20 30 40 50 60

Real Estate and Renting

Hotels and Restaurants

Manufacturing

Wholesale and Retail

Education

Health & Social Work

Community, Social & Other

Personal Services

Medium

Small

Micro

Distribution of Manufacturing SME by Sector by Region (PSA, 2014)

REGION 118,749

NATIONAL CAPITAL REGION (NCR) 22,213 ( 18.7%)

CORDILLERA ADMINISTRATIVE REGION (CAR) 2,059

ILOCOS REGION 8,565

CAGAYAN VALLEY 4,696

CENTRAL LUZON 13,676 (11.5%)

CALABARZON 18,672 (15.7%)

MIMAROPA 3,927

BICOL REGION 5,325

WESTERN VISAYAS 6,643

CENTRAL VISAYAS 8,006

EASTERN VISAYAS 3,915

ZAMBOANGA PENINSULA 3,414

NORTHERN MINDANAO 4,473

DAVAO REGION 4,781

SOCCSKSARGEN 4,952

CARAGA 2,459

AUTONOMOUS REGION IN MUSLIM MINDANAO (ARMM) 973

Distribution of Manufacturing SMEs by Product Category (2014 Directory of PH Exporters)

PRODUCT CATEGORY Total %

CHEMICALS AND CHEMICAL PRODUCTS 32 2.5

COCONUT PRODUCTS (NON-FOOD) 94 7.3

ELECTRONICS 43 3.3

FOOD AND FOOD PREPARATIONS 248 19.3

HOMESTYLE 256 19.9

MINERALS AND MINERAL PRODUCTS 46 3.6

MOTOR VEHICLES, COMPONENTS, AND ACCESSORIES 22

1.7

SEEWEEDS AND CARRAGEENAN 8 0.6

WEARABLES 176 13.7

OTHER PRODUCTS 360 28.0

TOTAL 1285 1.00

Issues and Challenges

Access to Finance

• Stringent requirements and long processing time for loans and credit

• Lack financial capacity and capability for financial management

• No funds for start-ups in the regions

• Limited access to venture capital funds

• Lack of information on sources of funds and how to access them

• SMEs are not “bankable”

Connectivity to Markets & Conformance to Standards• High cost of selling abroad

• Limited knowledge of overseas markets

• Limited government assistance to international markets

• Limited financial resources/ working capital for exports

• Poor logistics and supply chain support infrastructure

• Onerous regulatory requirements

• Poor packaging and labelling

• Limited capacity to market and product development

• Low capacity to use modern tchnology including ICT

• Non-conformance to global standards and best practices

Enabling Business Environment

• High cost of starting and doing business ( registration, licensing, utilities, etc )

• Tedious, lengthy and convoluted requirements nad regulatory practices

• Fragmented policy and implementation support to SMEs

• Not fully enforced laws and policy implementation to SMEs

SME Internal and External Difficulties for Internationalization

INTERNAL DIFFICULTIES

EXTERNAL DIFFICULTIES

> In average scores

Government Support Policy

60.6% AWAREof the Government

Support

*includes not aware

45.1%* BENIFITED

from the Government

Support

Marketing

62.0%

Funds

53.5%

Loosening of

regulations for

entry and exit

52.1%

Technology

40.8%

Support

needed by

SMEs from

the

Government

Recommendations

Conformance to Quality Standards

• National Quality Infrastructure (NQI) support for SME Sector• Compliance with the Food Safety Act/Sanitation Code of the

Philipines (Food and Drug Administration - DOH; Bureau of Agriculture and Fisheries Product Standards - DA; National Meat Inspection Service - DA ; Bureau of Philippine Standards -DTI; National Metrology Laboratory- DOST, Food Innovation Centers -DOST, PhlSTMQ , Philippine Accreditation Board Accredited Testing Laboratories, LGU)

• Quality system certification of SMEs and SME clusters (DTI- BSMED, DTI-RODG, DTI-BPS, IGLF, PAB-accredited certifying bodies, etc)

• NQI legislation (DTI-BPS, Congress)

Access to Finance

• Inclusive Financing for SMEs• Financial literacy capability building for SMEs (ISSI, SB Corp, IGLF,

CDA, CHED, TESDA, PTTC)

• Relaxing rules on financial requirements for SME Credit Financing (BSP, DBP, LBP, SB Corp, Eximbank)

• Strengthening credit guarantee funds for SMEs (BSP, IGLF, SB Corp, Eximbank)

• Special windows /inclusive financing for SMEs (DBP, LBP, SB Corp)

• Venture capital assistance/ Interest-Free Techno-Financial Assistance (TAPI DOST, DOST- SET-UP, DOST TAPI CAMPI)

Accelerating Connectivity to Markets

• Integrating MSMEs into the Global Value Chain • Manufacturing cooperatives (CDA, DOST)

• Technology diffusion, transfer and adoption - (DOST Set-UP program, DTI -DA manufacturing clusters, manufacturing TBIs)

• Incentive for big companies who will take in MSMEs as suppliers and subcontractors (BOI)

• Setting up of cluster /domestic craft zones (BOI , PEZA (?))

• Supply chain hubs and networks for SMEs (DTI RODG, DTI BSMED)

• . Marketing Promotions and Product Development for SMEs• Subsidized Trade Fairs Promotions and Assistance (CITEM, EMB, SB Corp, LBP, DOT, etc)

• Product development & innovation (DTI PDC, Fablabs, DOST, DTI Negosyo Centers, Academe)

• Virtual Marketing (DOST, DICT)

• International Cooperation – Strategic alliances, licensing, joint ventures

THANK YOU.

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