QUEZON CITY, May 19 - Small and medium enterprises (SMEs) are the key drivers of growth among economies of Association of Southeast Asian Nations (Asean) members, but experts say these remain one of the regions untapped resources.
In a recent forum organized by state think tank Philippine Institute for Development Studies (PIDS), the Asian Development Bank (ADB), the Department of Trade and Industry, the Management Association of the Philippines, and the Financial Executives of the Philippines, trade experts said a lot could still be done to unleash the potentials of SMEs. Currently, SMEs comprise the largest number of firms in Southeast Asia.
They generate the majority of jobs and substantially contribute to the regional blocs GDP. ADB Vice President for Knowledge Management and Sustainable Development Bambang Susanto stressed in his keynote address the importance of opening access and opportunities for micro, small and medium enterprises.
To help SMEs play their role in the domestic, regional, and global production networks, Susanto urged the Asean Economic Community (AEC) to build the physical connectivity of SMEs, raise their labor productivity and skills to standards of global value chains, and improve their access to finance.
PIDS Senior Research Fellow Erlinda Medalla and ADB Advisor Ganeshan Wignaraja discussed ways to improve the SMEs access to market and investment opportunities in the AEC.
SMEs play a role not just as a vehicle for poverty reduction, but also as an engine of growth, said Medalla.
She underlined the sectors employment and value-added contributions to the Philippines, which peaked at 65 percent and 35 percent, respectively.
Across Southeast Asia, Wignaraja noted that SME employment makes up 74 percent of all jobs, and contributes 41 percent of the GDP of Asean economies.
Yet, Wignaraja lamented that these contributions were not yet reflected in international trade.
Wignaraja observed that high-performing SMEs make up only 21 percent of direct exports across Asean economies.
Many factors obstruct the growth of SMEs, but one of the oft-cited problems is the lack of access to finance and credit.
Wignaraja explained that the current banking and credit structure does not know how to deal with SMEs. Bank requirements on collateral and business and finance plans are strict. Unable to comply and lacking financial literacy, SMEs are often forced to rely on informal resources.
SMEs simply do not have access to the capital they need to expand or participate in larger business and trading activities, Wignaraja said.
He added that total credit gap, or the difference between formal credit provided to SMEs and the estimated SME financing needs in Asean, amounts to as much as $52.8 billion.
Wignaraja also pointed out that, as China begins to slow down and move out of labor-intensive industries, firms in countries like the Philippines, Malaysia, and Thailand will have more business opportunities as suppliers of a range of products.
International trade itself has fundamentally changed in the 21st century and is no longer about direct exports. Instead, trade increasingly means global supply chains where different production on stages are located across geographical space and linked by trade in intermediate inputs and final goods, Wignaraja said.
Medalla added that the Philippines does not have much of a choice on whether or not it wants to partake of this new landscape.
In an increasingly economically integrated Asean, she said, SMEs have to work within a globalized setting.
However, she added that not all SMEs can export, and they do not need to. The goal should be for them to have all the opportunities to participate and engage in business in order to help them grow and contribute in sustaining the expansion of the economy.
To do this, Medalla enumerated a number of factors that the Philippines must address to encourage SMEs to participate in value chains.
She agreed with Wignarajas point about addressing the lack of access to finance and credit, but added that enabling the environment for SMEs to develop competitiveness and connectivity must be given priority, as well.
While Wignaraja believes that much of the work must be done by the business and private sectors in boosting labor productivity, improving the investment climate, raising infrastructure spending, improving information and communication technology infrastructure, and increasing financial access for SMEs, both experts agree that the government also has a critical role to play in the success of SMEs.
The governments role is to enable and facilitate the linkages and access to markets, finance, and technology, and to remove various barriers to entry and exit. The role of the new Competition Law will be very important, Medalla said.
Policymakers should also concentrate on enhancing strategic opportunities, they said.
Medalla said the kind of policies needed depends on which SME sector policymakers intend to help. She recommended policies that would raise SMEs capability to comply with AEC standards, such as developing the halal industry, improving trade facilitation, and identifying standards to enable them to access a duty-free Asean market.
She also recommended helping each sector gain competitive advantage through industry clustering, sharing services facilities, and developing industry roadmaps.
The opportunities are there in the supply chains, said Wignaraja. The business sector has to adopt smart strategies to capture opportunities to participate in the production networks, and policymakers must create the enabling business environment for SMEs to thrive. (PIDS)
In a recent forum organized by state think tank Philippine Institute for Development Studies (PIDS), the Asian Development Bank (ADB), the Department of Trade and Industry, the Management Association of the Philippines, and the Financial Executives of the Philippines, trade experts said a lot could still be done to unleash the potentials of SMEs. Currently, SMEs comprise the largest number of firms in Southeast Asia.
They generate the majority of jobs and substantially contribute to the regional blocs GDP. ADB Vice President for Knowledge Management and Sustainable Development Bambang Susanto stressed in his keynote address the importance of opening access and opportunities for micro, small and medium enterprises.
To help SMEs play their role in the domestic, regional, and global production networks, Susanto urged the Asean Economic Community (AEC) to build the physical connectivity of SMEs, raise their labor productivity and skills to standards of global value chains, and improve their access to finance.
PIDS Senior Research Fellow Erlinda Medalla and ADB Advisor Ganeshan Wignaraja discussed ways to improve the SMEs access to market and investment opportunities in the AEC.
SMEs play a role not just as a vehicle for poverty reduction, but also as an engine of growth, said Medalla.
She underlined the sectors employment and value-added contributions to the Philippines, which peaked at 65 percent and 35 percent, respectively.
Across Southeast Asia, Wignaraja noted that SME employment makes up 74 percent of all jobs, and contributes 41 percent of the GDP of Asean economies.
Yet, Wignaraja lamented that these contributions were not yet reflected in international trade.
Wignaraja observed that high-performing SMEs make up only 21 percent of direct exports across Asean economies.
Many factors obstruct the growth of SMEs, but one of the oft-cited problems is the lack of access to finance and credit.
Wignaraja explained that the current banking and credit structure does not know how to deal with SMEs. Bank requirements on collateral and business and finance plans are strict. Unable to comply and lacking financial literacy, SMEs are often forced to rely on informal resources.
SMEs simply do not have access to the capital they need to expand or participate in larger business and trading activities, Wignaraja said.
He added that total credit gap, or the difference between formal credit provided to SMEs and the estimated SME financing needs in Asean, amounts to as much as $52.8 billion.
Wignaraja also pointed out that, as China begins to slow down and move out of labor-intensive industries, firms in countries like the Philippines, Malaysia, and Thailand will have more business opportunities as suppliers of a range of products.
International trade itself has fundamentally changed in the 21st century and is no longer about direct exports. Instead, trade increasingly means global supply chains where different production on stages are located across geographical space and linked by trade in intermediate inputs and final goods, Wignaraja said.
Medalla added that the Philippines does not have much of a choice on whether or not it wants to partake of this new landscape.
In an increasingly economically integrated Asean, she said, SMEs have to work within a globalized setting.
However, she added that not all SMEs can export, and they do not need to. The goal should be for them to have all the opportunities to participate and engage in business in order to help them grow and contribute in sustaining the expansion of the economy.
To do this, Medalla enumerated a number of factors that the Philippines must address to encourage SMEs to participate in value chains.
She agreed with Wignarajas point about addressing the lack of access to finance and credit, but added that enabling the environment for SMEs to develop competitiveness and connectivity must be given priority, as well.
While Wignaraja believes that much of the work must be done by the business and private sectors in boosting labor productivity, improving the investment climate, raising infrastructure spending, improving information and communication technology infrastructure, and increasing financial access for SMEs, both experts agree that the government also has a critical role to play in the success of SMEs.
The governments role is to enable and facilitate the linkages and access to markets, finance, and technology, and to remove various barriers to entry and exit. The role of the new Competition Law will be very important, Medalla said.
Policymakers should also concentrate on enhancing strategic opportunities, they said.
Medalla said the kind of policies needed depends on which SME sector policymakers intend to help. She recommended policies that would raise SMEs capability to comply with AEC standards, such as developing the halal industry, improving trade facilitation, and identifying standards to enable them to access a duty-free Asean market.
She also recommended helping each sector gain competitive advantage through industry clustering, sharing services facilities, and developing industry roadmaps.
The opportunities are there in the supply chains, said Wignaraja. The business sector has to adopt smart strategies to capture opportunities to participate in the production networks, and policymakers must create the enabling business environment for SMEs to thrive. (PIDS)
