Asian Development Bank backs support for MSMEs in Phl

MANILA, Philippines - The Asian Development Bank (ADB) said the Philippine government should redirect its support to the micro-, small and medium enterprises (MSMEs) instead of continuing to favor large corporations.

In a report, the ADB also said the Aquino government should continue to pursue the Public-Private Partnership (PPP) program, especially in the infrastructure sector.

The ADB report highlighted that one of the constraints for growth is the “disconnect” between large companies and the MSMEs.

“One constraint is the bias for large companies (mostly in the export industry) and domestic SMEs, many of which do not prosper due to lack of capital, unreliable supply chains, and weak demand for their output,” it said.

The report urges the government to help MSMEs by lowering the cost of doing business. This can be done by improving infrastructure; streamlining and removing excess administrative procedures; and creating a fair competitive environment through anti-trust laws and good business practices.

“The inability of MSMEs to provide efficient and cost-effective support to large firms on the one hand, and the lack of demand from large firms for such support from MSMEs, on the other hand, present a vicious cycle that debilitates the sector,” the report said, adding that the vertical integration of MSMEs into large enterprises has been less successful in the Philippines than in countries like Germany and Japan.

The report also said the Philippines critically needed better infrastructure as well as technical expertise to help move the economy.

Socioeconomic Planning Secretary Cayetano Paderanga, a former professor at the University of the Philippines’ School of Economics and author of the report, said the PPP program in the Philippines have typically been shunned by business because of unclear policy and regulatory frameworks, a cumbersome government approval process, and a lack of bankable projects. Other impediments, such as controversial judicial decisions, have also constrained PPP growth.

To encourage partnerships, the government should improve transparency in PPP project selection, provide better accounting of revenues and expenditures, and have a higher-profile anti-corruption drive, he added.

“The success of reforms in both rules and administrative processes and infrastructure support is expected to result in higher foreign direct investments and an increase in fixed capital,” the report added.

Meanwhile, ADB country director for the Philippines Neeraj Jain said it makes concrete proposals to realize the potential contribution of the private sector to inclusive economic growth in the Philippines.

“We are gratified that these proposals have contributed to the policy directions embedded in the Philippine Development Plan for 2011-2016,” Jin said.