SME Policy Index ASEAN 2018 BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. Funded by the Government of Canada

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1 SME Poicy Index ASEAN 2018 BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH Funded by the Government of Canada

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3 ASEAN SME Poicy Index 2018 BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH ECONOMIC AND ENTERPRISE TRENDS IN SOUTHEAST ASIA 2 ORGANISATION PROFILES 4 ASEAN SME POLICY INDEX THE POLICY FRAMEWORK 7 THE ASSESSMENT PROCESS 8 KEY FINDINGS 9 Productivity, technoogy and innovation 10 Environmenta poicies and SMEs 11 Access to finance 12 Access to market and internationaisation 13 Institutiona framework 14 Legisation, reguation and tax 15 Entrepreneuria education and skis 16 Socia and incusive enterprises 17

4 Economic and enterprise trends in Southeast Asia An emerging economic powerhouse ASEAN AS A GLOBAL GROWTH HUB ASEAN is home to abundant natura resources and is one of the word s argest producers of agricutura commodities. Many ASEAN Member States (AMS) used this endowment as a springboard for industriaisation, and today the region is a thriving hub for goba manufacturing and trade. These deveopments have been supported by a number of common trends: most AMS have achieved sound macroeconomic fundamentas and a high savings rate, and they demonstrate reativey open trading systems with a young, rapidy growing popuation. Incomes have risen rapidy: the GDP per capita (PPP) of AMS has more than doubed over a seventeen-year period, from constant PPP Int$ in 2000 to constant PPP Int$ by CHALLENGES AND OPPORTUNITIES REMAIN Though the ASEAN integration project dates to the 1960s, it has acceerated in the run up to the estabishment of the AEC in The creation of the AEC promises to open up sizeabe new market opprtunities for ASEAN firms, incuding SMEs, yet it aso threatens to open up new chaenges. Significant income disparities remain between and across AMS the GDP of Singapore is more than 50 times the GDP of Cambodia or Myanmar, for instance. There is aso a concern that the AEC wi overwhemingy benefit arger firms, as further iberaisation exposes smaer firms to biting competitive pressures, particuary in the boc s newer member states. GDP per capita growth,. PPP ( ) Constant 2011 int$ (000) Source: Word Bank (2018), 2. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

5 one vision one identity one community SME DEVELOPMENT FOR A MORE RESILIENT, DYNAMIC AND INCLUSIVE ASEAN As recognised in the AEC Bueprint 2025, SME deveopment wi be critica in efforts to create a more dynamic and resiient ASEAN. Despite accounting for Structura contribution of SMEs in AMS economies % Note: Firm size cassifications vary by country, and atest avaiabe data is indicated. Data for Singapore from Data for Indonesia, Maaysia, the Phiippines and Thaiand from Data for Brunei Darussaam from Data for Cambodia from 2014, and data for Lao PDR from Data for Myanmar a rough estimate. SME contribution to GDP indicated for a countries except Brunei Darussaam (which uses gross business revenue) and Singapore (nomina vaue added). No data on GDP or equivaent for Cambodia, Lao PDR or Myanmar. Source: Nationa statistica agencies Empoyment GDP or vaue added a high share of firms and empoyment, SMEs broady account for a ow share of GDP and cross-border trade. Informaity is high, and a arge number of SMEs remain concentrated in ow vaue-added activities. ASEAN has co-operated on SME deveopment since 1995, and this has intensified foowing the creation of the AEC in AEC BLUEPRINT AND SAPSMED 2025 The AEC identifies SME deveopment as a strategic objective under the resiient, incusive, peope oriented and peope centred piar of its Bueprint The post-2015 ASEAN Strategic Action Pan for SME Deveopment (SAP SMED 2025) was deveoped to reaise the objectives of this piar. The SAP SMED 2025 identifies five overarching goas for SME deveopment in ASEAN: 1. Promoting productivity, technoogy and innovation 2. Increasing access to finance 3. Enhancing market access and internationaisation 4. Enhancing the poicy and reguatory environment 5. Promoting entrepreneurship and human capita deveopment ASEAN STRATEGIC ACTION PLAN FOR SME DEVELOPMENT Under each goa the pan identifies desired outcomes, actions and time-bound action ines. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 3

6 OECD Southeast Asia Regiona Programme A partnership for shared prosperity The OECD Southeast Asia Regiona Programme is part of the organisation s Goba Reations Secretariat, a body that supports the Secretary Genera in expanding the OECD s goba reach. Inaugurated by the OECD Secretary-Genera Ange Gurría and Japanese Prime Minister Shinzō Abe in 2014, the Programme aims to support the eaboration of pubic poicies in Southeast Asia as we as the advancement of regiona integration efforts. To pursue its mandate, the Programme works cosey with a number of regiona partners such as ASEAN, APEC, the ADB, ERIA and UNESCAP. The Programme is structured around six Regiona Poicy Networks (RPNs), three Initiatives and a fagship report, the Economic Outook for Southeast Asia, China and India. Each aims to deveop common soutions to economic chaenges, through systematic exchange of poicy advice and essons earnt. Ministeria Conference of the OECD Southeast Asia Regiona Programme hed in Tokyo, Japan in March ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

7 Partner organisations Furthering economic integration in Southeast Asia ECONOMIC RESEARCH INSTITUTE FOR ASEAN AND EAST ASIA (ERIA) The Economic Research Institute for ASEAN and East Asia (ERIA) is an internationa organisation based in Jakarta, Indonesia. It was estabished in 2008 with the mandate of conducting research and providing poicy recommendations for further economic integration in the East Asia, through forma agreement of the eaders of 16 East Asian economies. ERIA conducts anaytica work on SME deveopment reated to trade, investment, human resource deveopment and infrastructure enhancement, among other topics. ASEAN COORDINATING COMMITTEE ON MICRO, SMALL AND MEDIUM ENTERPRISES (ACCMSME) The ASEAN Coordinating Committee on Micro, Sma and Medium Enterprises (ACCMSME) comprises the Heads of SME Agencies/Assigned Senior Officias from a ASEAN Member States, with the objective of formuating poicies, programmes and activities on MSME deveopment. The ACCMSME serves as a consutative and coordination forum to ensure the deveopment of MSMEs under the on-going process of ASEAN integration and to support the estabishment of the ASEAN Economic Community. The ACCMSME is currenty guided by the ten-year ASEAN Strategic Action Pan for SME Deveopment (SAP SMED 2025) under the post-2015 ASEAN Vision. www. asean.org ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 5

8 ASEAN SME Poicy Index 2018 A too for benchmarking SME poicy frameworks across ASEAN The ASEAN SME Poicy Index 2018 was aunched in August The report: Assesses the intensity, sophistication and reform progress of SME poicies and programmes in ASEAN across 8 thematic areas based on around 600 quantitative and quaitative indicators Provides an overview of the SME poicy andscape in each ASEAN member state Provides suggestions for ongoing poicy reform Provides exampes of good practice from ASEAN and the OECD Tracks progress in impementing the goas and objectives of the ASEAN Strategic Action Pan for SME Deveopment Consut and downoad the pubication onine at 6. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

9 The Poicy Framework A hoistic view of SME poicy A COMPREHENSIVE SET OF INDICATORS COVERING EIGHT THEMATIC AREAS OF SME POLICY Productivity, technoogy and innovation Environmenta poicies and SMEs Access to finance Access to market and internationaisation Institutiona framework Legisation, reguation and tax Entrepreneuria education and skis Socia enterprises and incusive SMEs A SCORING METHODOLOGY T COMBINES QUANTITATIVE AND QUALITATIVE DATA TO ASSESS THE DEPTH OF THE SME POLICY FRAMEWORK IN EACH COUNTRY QUALITATIVE INDICATORS Measure the framework for SME poicy, taking stock of the institutions, poicies and programmes in pace, and assessing their sophistication and intensity. QUANTITATIVE INDICATORS Measures of country performance on other indices, as we as various input factors, such as the size of the budget apportioned to SME poicies and programmes. Leve 1 Leve 2 Leve 3 Leve 4 Leve 5 Leve 6 No framework Draft / piot framework Framework in pace and operationa Impementation of poicy framework is advanced Evidence of monitoring framework, with findings Fu poicy framework in pace, with evidence of good practices, incuding the use of independent impact evauations ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 7

10 The assessment process A participatory approach Quaitative indicator scores are determined via two parae but compementary assessments (one by the government and one by independent experts). Sef-assessment is competed by different government bodies invoved in the deveopment and impementation of SME poicies in each thematic area. This assessment was co-ordinated by the OECD, the ASEAN Secretariat and the ASEAN Coordinating Committee on Micro, Sma and Medium Enterprises (ACCMSME). The independent assessment (carried out by country consutants) aims to provide an independent and expert view of the poicy andscape in ASEAN, serving as a counterweight to the government assessment. It aso aims to integrate a broad array of voices and perspectives into the review, taking into account the mutipicity of stakehoders invoved. This assessment was co-ordinated by ERIA and the OECD. The harmonisation and vaidation phase, which takes pace at both the country and regiona eve, provides a patform for different stakehoders to vaidate or refute the findings of the assessment, to provide additiona information, to reach consensus and finaise resuts, and to generate future recommendations. 1 Questionnaire!" Government sef-assessment Independent consutant assessment Ministries Agencies Financia authorities 2 3 Independent consutant assessment #" Country-eve harmonisation and vaidation of findings RECONCILIATION Expert observers Private sector Academia Civi society Other stakehoders 4 Regiona vaidation workshop $" Region-eve harmonisation and vaidation of findings 5 FINAL ASSESSMENT 8. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

11 Key findings ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 9

12 Did you know? Productivity, technoogy and innovation Gross domestic expenditure on R&D (GERD) varies substantiay in Southeast Asia. DIMENSION MEDIAN SCORES GERD as a percentage of GDP by AMS % of GDP Score ASEAN median MAIN FINDINGS Eary stage Mid stage Advanced stage 0.5 ACHIEVEMENTS WAY FORWARD 0 (2013) (2013) (2015) (2013) (2014) (2015) (2015) Most countries incude productivity enhancement in their nationa deveopment strategy Haf of AMS offer a capita investment programme for SMEs Further deveop instruments and incentives to promote inkages between SMEs and arger firms Better match suppy and demand for BDS, and encourage private providers to enter the market through instruments such as cofinancing or voucher schemes Note: Graph refects most the recent avaiabe data. Recent data is not avaiabe for Brunei Darussaam, Lao PDR and Myanmar. Source: UNESCO (2018), fund. In countries for which data is avaiabe, GERD ranges from a high of around 2.2% of GDP in Singapore to 0.1% in Indonesia. The number of private providers of BDS has increased since the 2014 assessment Eight AMS offer both fisca and nonfisca incentives to promote productive aggomeration Nine AMS have estabished nationa offices to dea with inteectua property More mechanisms are avaiabe to support innovation in most AMS Further deveop mechanisms to ensure co-ordination between different poicy stakehoders, such as a counci or task force integrating academia and the private sector Ensure that SMEs are aware of the different instruments avaiabe, e.g. via signposting services Increase pubic investment in R&D 10. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

13 Environmenta poicies and SMEs Did you know? DIMENSION MEDIAN SCORES 6.00 CO 2 emissions per capita are generay ower in Southeast Asia than in the OECD except in the region s higher income countries Per capita CO 2 emissions by AMS Score ASEAN median Eary stage Mid stage Advanced stage MAIN FINDINGS ACHIEVEMENTS A growing recognition of the importance of environmenta sustainabiity Environmenta poicies that coud impact SMEs are being scaed up Some countries have adopted nationa pans on green growth and green technoogy A number of countries now offer financia incentives for greening, such as grants, soft oans and tax incentives WAY FORWARD Deveop poicies that specificay support SME greening Deveop informationa toos and communication strategies to inform SMEs of the benefits of energy and resource-efficient practices Estabish one-window agencies to advise SMEs on greening and signpost them to avaiabe resources Strengthen mechanisms to monitor and evauate the impementation of incentives Mainstream SME greening strategies into broader SME deveopment poicies Estabish environmenta reguatory regimes that differentiate SMEs from arger enterprises OECD kgco 2 /capita (000) Sector: Manufacturing and construction Other Note: No data avaiabe for Lao PDR. Source: OECD/IEA (2017), CO 2 emissions. In many AMS the manufacturing and construction industries contribute a higher share of CO 2 emissions than in the OECD. This is the case in at east seven countries in Viet Nam, these industries account for 30.1% of tota emissions per capita, compared to 11.5% in the OECD. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 11

14 Did you know? Domestic credit to the private sector, a proxy measure of the eve of financia intermediation in an economy, ranged from a high of 144.5% of GDP in Thaiand to 23.5% in Myanmar in Domestic credit to the private sector by AMS Access to finance DIMENSION MEDIAN SCORES Score ASEAN median Eary stage Mid stage Advanced stage MAIN FINDINGS OECD % Note: Latest avaiabe data. Data for most countries from Data for Maaysia and OECD from No recent data for Lao PDR. Source: Word Bank (2018), Access to externa finance remains ow and costy in a number of countries, particuary for SMEs. ACHIEVEMENTS Most countries have estabished a credit reporting system and a ega framework for securitisation a number are working to increase credit information coverage Over haf of AMS have estabished a junior board for SME isting Most AMS provide guarantees or credit ines to banks for SME ending Reguatory oversight of MFIs has generay increased since 2014 A number of AMS have strengthened the ega framework for asset-based financing instruments since 2014 WAY FORWARD Faciitating the creation of credit bureaus may increase credit information coverage Consider deveoping a nationa strategy for financia education Centraisation of the country s movabe assets registry may strengthen securitisation Consider pubic co-investment with private investors in high-growth firms to stimuate risk financing Some common aw countries may consider adopting a PPSA regime to govern secured transactions Reguatory sandboxes coud be used to test new rues to govern innovative financia products 12. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

15 Access to market and internationaisation DIMENSION MEDIAN SCORES Score ASEAN median Eary stage Mid stage Advanced stage Many AMS have embraced free trade, and some have pursued an export-oriented growth mode. Internationa trade pays a bigger roe in amost every Southeast Asian economy than in the OECD. Cross-border trade as a share of GDP by AMS Did you know? MAIN FINDINGS ACHIEVEMENTS A AMS have an export promotion agency, and over haf offer export programmes targeted at SMEs Haf of AMS impement a number of initiatives to promote MNC-SME inkages Four countries have deveoped a compre hensive ega framework to govern e-commerce Four countries offer programmes to promote SME access to e-commerce Most AMS have estabished a nationa singe window, but the eve of impementation varies Around haf of AMS offer programmes to support SME compiance with quaity standards WAY FORWARD Conduct a comprehensive assessment on the competitiveness gap of SMEs exports Conduct an assessment to ensure cross-country connectivity for seamess movement of goods. This shoud incude a consideration of both infrastructure and the country s trade and investment regime Consider measures to encourage SMEs inkages in investment promotion efforts Work on competing ega frameworks for e-commerce Further deveop quaity standards and certification for services, and increase SMEs access OECD % Exports Imports Note: Latest avaiabe data. Data for most countries from Data for Myanmar, Thaiand and OECD from Source: Word Bank (2018), Yet this masks significant variation between countries exports constitute 173.3% of GDP in Singapore, for instance, compared to 17.1% in Myanmar. Some countries continue to exhibit reativey high restrictions to trading across borders. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 13

16 Did you know? Institutiona framework A country s SME definition sets the scope of SME poicies and programmes, amd estabishes a common reference point for poicy co-ordination across different government agencies. DIMENSION MEDIAN SCORES 6.00 SME definitions by AMS Upper threshod for empoyment ASEAN median Sector approach Sectorspecific Crosssectoria Score Turnover 1.00 Eary stage Mid stage Advanced stage Criteria Assets MAIN FINDINGS ACHIEVEMENTS WAY FORWARD Type Empoyment Working Lega Economy SME definitions vary significanty across AMS. Most use at east an empoyment criterion and appy the same definition across sectors. In haf of countries the upper empoyment threshod to quaify as an SME is 200 workers. Amost a AMS have a forma SME definition, and some have updated it since 2014 Amost a AMS have a dedicated SME deveopment strategy These strategies generay conform to the goas of SAP SMED A countries share a cuture of buiding consensus around strategic objectives Four AMS have estabished a dedicated SME agency, one of which has been created since 2014 Most countries are starting to expore ways to tacke informaity Ensure that a viabe SME definition is in pace and has been sociaised throughout the government Define a mid-term SME strategy with measurabe, time-bound targets and annua action pans Set poicy objectives in reference to avaiabe resources Ceary define the roes of different government bodies and ensure a strong co-ordination mechanism Where human and financia resources are imited, consider everaging donor support Estabish a reguar census of enterprises or a reguar enterprise survey where resources are imited 14. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

17 Legisation, reguation and tax Did you know? DIMENSION MEDIAN SCORES 6.00 Southeast Asia is home to economies perceived as having some of the most we-designed and business-friendy reguations in the word, as we as those just starting out on a process of reguatory reform. Score ASEAN median Indicators of reguatory quaity by AMS Percentie rank MAIN FINDINGS Eary stage Mid stage Advanced stage ACHIEVEMENTS A countries use PPCs in the deveopment of pubic poicy, athough the eve of structure varies Over haf of AMS have created inter-agency bodies to review reguations affecting the private sector Most AMS are exporing the use of RIA. In some countries its use is mandatory Many AMS have consideraby streamined company registration and business icensing since 2014 WAY FORWARD Continue further deveopment of one stop shops and onine company registration services Where resources are acking, everage regiona co-operation initiatives and further invest in ICT Continue sociaising the use of good reguatory practices among reguators Continue to foster inter-agency coaboration, particuary in terms of database integration Continue to ensure incusive engagement with diverse enterprise needs Note: Graph iustrates the reguatory quaity dimension of the Word Bank s Wordwide Governance Indicators, which ranked 209 economies on six dimensions of governance in Countries are ranked on a scae of 0-100, with 100 being a perfect score. Source: Word Bank (2017), index.aspx#home. Singapore has hed the same percentie rank for some time: it hed a rank of 100 in Some countries have demonstrated remarkabe change over the past twenty years, however. Myanmar hed a percentie rank of 5 in 1996, and its score of 19 in 2016 was a eap from a score of 1 in 2011 (the ast time the assessment was conducted). ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 15

18 Did you know? Entrepreneuria education and skis Tota entrepreneuria activity is estimated to range from 23.3% of the working age popuation in Viet Nam to 7.5% in Indonesia. Entrepreneuria activity and perceptions by AMS DIMENSION MEDIAN SCORES ASEAN median Score Eary stage Mid stage Advanced stage MAIN FINDINGS % Perceived capabiities TEA Note: Latest avaiabe data. Data for Indonesia, Maaysia, Thaiand and Viet Nam from Data for the Phiippines from Data for Singapore from No data avaiabe for Brunei Darussaam, Cambodia, Lao PDR and Myanmar. TEA = tota entrepreneuria activity (share of nascent or recent entrepreneurs among the working age popuation (18-64 years od). Perceived capabiities = share of working age popuation who beieve they have the skis and knowedge required to run a business. Source: GEM (2017), Confidence is highest in the Phiippines, Indonesia and Viet Nam. It is estimated that 69.0% of the working age popuation in the Phiiipines beieve they have the required skis and knowedge to run a business, whie this stands at 57.4% in Indonesia and 53.0% in Viet Nam. ACHIEVEMENTS Most AMS have integrated entrepreneuria earning (EL) into nationa curricua for at east one eve of education Some regiona initiatives have emerged since 2014 to address the genera ack of trainingof-training programmes for EL in the region for instance the ASEAN SME Academy Haf of AMS undertake background studies to ascertain entrepreneur training needs, and around haf have impemented initiatives in this area WAY FORWARD Introduce entrepreneuria earning into nationa curricua where it is absent Consider expanding EL beyond vocationa education and incuding EL as a competency-based earning modue in non-vocationa schoos Deveop a robust and standardised training-of-trainers modue for EL and impement it nationwide Ensure that mechanisms are in pace to monitor and evauate EL impementation, particuary for programmes offered to entrepreneurs outside forma education 16. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH

19 Socia enterprises and incusive SMEs DIMENSION MEDIAN SCORES The youth NEET rate in Southeast Asia ranges from a ow of 0.6% in Viet Nam to a high of 42.1% in Lao PDR. Youth NEET rate by AMS Did you know? Score ASEAN median Eary stage Mid stage Advanced stage MAIN FINDINGS ACHIEVEMENTS Amost a AMS have a history of supporting socia ventures, and a number are deveoping poicy frameworks to promote socia enterprise Over haf are deveoping a working definition of socia enterprise Two AMS have estabished a dedicated institution for the deveopment of socia enterprise, and three have a registry of these enterprises A AMS have an agency and/or co-ordination mechanisms for women s economic empowerment A few AMS have estabished dedicated training centres for disabed entrepreneurs WAY FORWARD Promote awareness of socia enterprise and incusive entrepreneurship among the genera pubic Create patforms for stakehoder coaboration in this area, as we as a dedicated poicy framework Ensure that sufficient data is avaiabe on target groups Expore ways to increase market access for target groups, e.g. via pubic procurement provisions Further deveop impact measurement mechanisms, at both firm-eve and economy-wide % Note: Latest avaiabe data. Data for Brunei Darussaam, Indonesia, Lao PDR, Myanmar and the Phiippines from Data for Maaysia, Singapore, Thaiand and Viet Nam from Data for Cambodia from NEET = not in education, empoyment and training. Youth = tota popuation between the ages of Source: ILO (2018), The NEET rate is a hepfu measure of economic excusion, capturing the share of young peope seecting or being obiged to opt out of education and/or empoyment. A high NEET rate woud indicate that more targeted poicies may be required, to hep young peope find jobs, prepare them for the abour market and/or enabe them to remain in education and/or training. ASEAN SME POLICY INDEX 2018: BOOSTING COMPETITIVENESS AND INCLUSIVE GROWTH. 17

20 Funded by the Government of Canada Ms Nora in ALI Head of Enterprise and Stakehoder Engagement, ASEAN Secretariat e-mai: Mr Dionisius NARJOKO Senior Economist, ERIA e-mai: Mr Aexander BOHMER Head of Southeast Asia Division, OECD e-mai: Consut and downoad the fu report onine at