MSMEs are key to Philippine growth

The growing pervasiveness of social media, electronic commerce, and online shopping sites in our daily lives, and lately with the pandemic and the ensuing lockdowns, have all helped spur the growth of micro, small and medium enterprises in the country.

In fact, according to a report from the Department of Trade and Industry, as of 2020, of the 957,620 business enterprises operating here, 99.5 percent or 952,969 are MSMEs and only 0.49 percent or 4,651 are large enterprises.

Of the total MSMEs, micro enterprises constitute 88.8 percent or 850,127, while small enterprises contribute 10.2 percent or 98,126, and medium enterprises, 0.49 percent (4,716).

The report also showed that MSMEs account for 25 percent of the country’s total export revenues,  with 60 percent of all exporters belonging to the MSME category. These enterprises are able to contribute to exports through subcontracting arrangements with large firms or as suppliers to exporting companies, DTI said.

The sector also is a major employer, accounting for 62.66 percent of 5.38 million jobs out of the country’s total employment, with micro enterprises producing the biggest share of the total at 29.38 percent, followed by small enterprises at 25.78 percent, and medium enterprises with 7.5 percent. The balance or 37.34 percent is from large enterprises.

The top five industry sectors, according to the number of MSMEs in 2020, the report revealed, were wholesale and retail trade, repair of motor vehicles and motorcycles (445,386); accommodation and food service activities (134,046); manufacturing (110,916); other service activities (62,376); and financial and insurance activities (45,558). These industries accounted for 83.77 percent of the total number of MSME establishments.

An MSME is defined as any business activity or enterprise engaged in industry, agri-business and/or services with asset size (excluding land) of up to P100 million, and an employment size with less than 200 employees.

The Magna Carta for MSMEs provides that micro enterprises are those with asset size of up to P3 million, while small and medium enterprises are those with more than P3 million up to P15 million and more than P15 million up to P100 million.

A Senate report showed that in 2010, the number of MSMEs in the country was only at 774,664, generating 3.5 million jobs. It said, however, that MSMEs had relatively low value added to the economy, contributing only 35.7 percent, compared to 53.28 percent in Indonesia, 39 percent in Vietnam, and 37.8 percent in Thailand.

The 2012 report noted that lack of access to financing is the most serious constraint to MSME growth and development. Although funds have been made available by government financial institutions and private banks, most MSMEs still have difficulty accessing such funds due to insufficient collateral, limited credit histories and banking relationships; inadequate financial records and business plans; and high interest rates. They thus tend to rely on informal non-banking channels for financing support.

With many of us stuck at home, MSMEs have helped solve many of our daily problems. Everything we need, from food, medicines and supplements, cleaning and repair services, and other items are now supplied by MSMEs and can be bought and paid for online. Most of my shopping is now done online, mostly from small sellers.

A report from UNDP Philippines revealed that to address the adverse impacts of the pandemic, MSMEs started implementing adaptive business measures, including digitalization or the use of online platforms for their business transactions, cost reduction, diversification of products and services, utilization of non-cash payment options, and allowing employees to work from home.

A number of initiatives have likewise helped spur the growth of MSMEs. For instance, we now have Republic Act 9178 or the Barangay Micro Business Enterprise Act which grants such businesses with incentives and other benefits, including exemption from income tax and the minimum wage. RA 10644 or the Go Negosyo Act, which promotes ease of doing business and facilitates access to services for MSMEs through Go Negosyo Centers -- including business registration assistance and business advisory services. The Philippine Business Registry, which allows sole proprietorships to register their names with the DTI and get their tax identification number and employer registration numbers through web-based DTI tellers, to name a few.

But a lot still needs to be done to fully harness the entrepreneurial spirit among Filipinos and improve the value-added contribution of MSMEs to the economy.

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A newly formed group has vowed to help elevate the stature of Philippine-made products, including those produced by MSMEs, in the global market.

According to the Philippine Export Service Providers and Consolidators Association (PESPCA), the vast opportunities, as well as the challenges that face the country’s export, have brought about their formation to help uplift not just their sector, but also allow more MSMEs to capitalize on the world market.

One of the measures being studied by the group is a proposal for a financing program to allow more MSME producers to cross over to overseas markets. To make this possible, PESPCA said MSMEs need to sustain a cash flow of 60 to 90 days.

The group, led by Tomas Medina as president, said the Philippines is cable of becoming a major food and non-food exporting country and that the continued patronage of Filipinos from all over the world serves as a key entry point for more people abroad to try out and eventually become loyal customers of Philippine brands.

The newly installed officers, which includes Jiten Lalwani as vice president, Michael Manalang as secretariat, Brian Tan as treasurer, and Angelo Reyes as PRO, said they would prioritize pressing issues facing the export industry in the continuing pandemic, particularly its effects on shipping and logistics, container availability, freight rates, port congestion, and verified gross mass.

PESPCA said that they would initiate dialogues with government on how to make Philippine exports more competitive and attuned with global standards.  They also intend to partner with the DTI, the Department of Agriculture, and the Food and Drug Administration to achieve their goals.

They said that close coordination with the three agencies is crucial to address export market regulation compliance such as foreign language label attachment, printing of correct data formats and order codes, and bundling of promos.

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