Enterprises: Key to Inclusive

Transcription

1 Small & Medium Enterprises: Key to Inclusive Growth in the Philippines Cielito F. Habito, Ph.D. Ateneo de Manila University Brain Trust Inc.

2 Overview The Problem: Slow and Non- Inclusive Growth The Need: High and Inclusive Growth The Key: SME Development SME Constraints Policy Environment Wanted: A Comprehensive and Concerted Agenda

3 Top Philippine Billionaires: Skewed Wealth, Skewed Growth Richest 1% account for 60% of GDP Top 150, families have as much income as bottom 6 million families

4 Wealth Increase of 40 Richest vs. Absolute Forbes Asia Increase in GDP (2011) Philippines: $13 billion vs. $17 billion (76%) Thailand: $9 billion vs. $26.7 billion (33.7%) Malaysia: $2.3 billion vs. $41 billion (5.6%) Japan: $11 billion vs. $381 billion (2.8%)

5 Fact: Asia has been more successful than the rest of the world in translating economic growth into poverty reduction (every 1% of GDP growth leads to greater poverty reduction)

6 Poverty Elasticity of Growth Poverty Elasticity of Growth World: PEG = -1.5, R 2 = 0.57 (ADB 2004)

7 Poverty Elasticity of Growth Poverty Elasticity of Growth Asia: PEG = -2.0; R 2 = 0.65 (ADB 2004)

8 except in the Philippines, where: Poverty went up from 24.9% (2003) to 26.5% (2009) No. of poor Filipinos increased by 970, (185,000 families) between 2006 & 2009 Net N t elementary school participation rate fell from 97% in 2001 to 85% in 2008; high school from 66% to 62% Malnutrition incidence went up in most provinces in the past decade

9 Philippines & Thailand: Et Estranged Twins Indicator Thai Phil Thai Phil Population (million) Population o G.R.. (%) GDP Per Capita (US$) GDP Share (%) Agriculture Industry Services Gross Dom Inv (%GDP) Gross Dom Saving (%GDP) FDI Stock (Billion US$)

10 Philippines & Thailand: Domestic Investment/GDP Ratio,

11 Philippines & Indonesia: Trading Places

12 Gross Domestic Capital Formation Average Annual Growth Rate (%)

13 Why did Philippine growth lag behind its neighbors? (ADB 2007) Tight Fiscal Situation: Poor revenue performance Inadequate Infrastructure: Especially in power, transport; Mindanao Weak Investment: Due mainly to governance concerns Small & Narrow Industrial Base: Concentrated benefits due to oligarchic structure, market failures

14 Agenda for High & Inclusive Growth (Habito 2010) How do we: Restore growth momentum? Ensure broad-based, pro-poor growth?

15 Restoring the Growth Momentum Revenues: Restore tax effort to at least 17%; boost tax collection & compliance; improve sin taxes, trim incentives Infrastructure: Need massive catchup program; requires revenue boost and better PPP management Investment: Now restored with ongoing governance reforms

16 Agenda for Inclusive Growth: The Key Element SME Development: Need to address traditional constraints of Finance Technology Availability of Inputs Access to Markets Overarching Issues

17 SME Growth Constraints Finance Technology Availability of Inputs Access to Markets Overarching Issues

18 SME Constraints Finance Problem is not so much lack of funds, but lack of access to them Mandatory allocation of 8% of loans; SME credit programs of GFIs, but: Banks are generally reluctant to lend to SMEs because of: High transaction cost of small loans Perception of high risks Lack of collateral

19 SME Constraints Finance Directed lending programs have been problematic and unsustainable Non-financial government agencies lack expertise for loan evaluation Subsidized interest rates below cost Low repayment rates SME loan guarantee programs failed to stimulate lending to SMEs; not viable without subsidy Mandatory allocation had mixed results

20 SME Constraints Technology (1) Most SMEs have poor or low level of technology Low productivity Inconsistent product quality High wastage Need for common support facilities (e.g. testing centers, standardization agencies) Reliance on home-grown quality systems rather than internationally recognized ones (e.g. ISO series)

21 SME Constraints Technology (2) Problems in acquiring New Technologies (PH): lack of funds for R&D insufficient i information i lack capability to evaluate alternative technologies lack of technical know-how on shifting to more advanced technologies

22 SME Constraints Technology (3) Problems in acquiring New Technologies (PH): inadequate mechanism for technology transfer inertia of entrepreneurs because of no perceived or actual need for technology, and difficulty in meeting government requirements for availing assistance

23 SME Constraints Availability of Inputs Difficulty in sourcing & transporting raw materials due to poor infrastructure Higher-cost inputs (e.g. packaging materials, sugar) due to government policies (e.g., tariffs) Uncertainty, seasonality and instability of raw materials supplies

24 SME Constraints Access to Markets Inferior transport and communication infrastructure Limited access to market information, especially Web-based Inability to respond to volume demands due to reluctance to organize/team-up with competitors Inconsistent quality due to low technology and lack of standards Weak gov t market access efforts

25 SME Constraints Overarching Issues Cumbersome government procedures and requirements for business start-up Weak SME support at LGU level Lack of organization among SMEs Weak entrepreneurial and management skills Low labor productivity stemming from poor quality education Opposition of organized labor to subcontracting

26 Current Policy Environment R.A. A 7459 (1992): Investors and Invention Incentives Act Incentives for inventions and commercialization Inventions Development Assistance Fund R.A (1991) amended by R.A (1997): Magna Carta for Small Enterprises Policy to promote, support, strengthen and encourage SMEs Created SBGFC, SMED Council

27 Current Policy Environment Philippine SME Development Strategy Philippine Export Development Plan R.A. 9178: Barangay Micro Business Enterprises (BMBEs) Act of 2002 E.O. 176 (2003): Institutionalizing the Isang Bayan, Isang Produkto, Isang Milyong Piso Program Philippine Development Plan

28 Wanted: A Comprehensive & Concerted Agenda for SME Development

29 General Environment Foster entrepreneurship culture Streamline government processes Separate treatment for micro and SMEs Overarching Concerns Foster effective SME clustering/associations SME Resource Centers nationwide Government-wide concern Overcome LGU disincentives

30 Financing Expanded equity financing mechanisms Bond market mechanism for SMEs Credit information system Further strengthen credit guarantee system led by SBGFC Technology Support Strengthen/promote DOST programs Common R&D facilities International quality system standards Facilitate access & usage of ICT Innovative access to proprietary p technologies

31 Access to Raw Materials/Inputs Industry studies (DBP, DTI) LE-SME linkages ( big brother-small brother program) Productivity improvement, power and water sector reforms Market Access Development diplomacy for market access Domestic market assistance ICT access in every barangay Foster coopetition

32 Final Remarks Distinguish micro-enterprises from SMEs SME clustering is critical; need facilitators ( nucleus, NGO, govt) Technology support is crucial (public R&D for SMEs) SMEs push does not mean bias vs. large enterprise; synergy needed

33 A shameless commercial: If you liked the movie, please buy the book! (National Bookstore or Powerbooks) Thank you very much!