Micro, small and medium enterprises, commonly referred to as MSMEs, contribute significantly to the economy and job creation and are thus critical to economic development. These enterprises accounted for 99% of business establishments and 65% of employment in the country in 2022. Further, MSMEs generate 40% of the country’s gross domestic product. Given such significant contributions to national outputs and employment, the MSME sector has been regarded as “the backbone of the Philippine economy.”
EMERGING TRENDS AND CHALLENGESAs we are aware, MSMEs were among the sectors that were severely affected by the lockdowns imposed during the COVID-19 pandemic. As the country is slowly recovering from the impact of the pandemic, the operating environment for MSMEs remains challenging. To cite some of the key trends and challenges which affect them:
• Restructuring of the global supply chain due to geo-political issues which suggest a change to a multiple supply sourcing model;
• Digitalization which needs to be accelerated to enable MSMEs to compete with the larger enterprises;
• Growth of e-commerce platforms for marketing, trading, payment, and delivery of services;
• Changing consumer behaviors and demand, including sustainability consciousness, focus on basic needs, online purchases;
• Rise of responsible and conscious businesses, being more environment-friendly and sustainable; and,
• Limited financing and accessibility to affordable and reasonable sources of funds.
While business trends have a significant impact on MSMEs, they also provide opportunities for those who are more flexible, innovative, and responsible. This requires policy support and reforms to enable them to adapt quickly to such changes and become sustainable businesses.
POLICY SUPPORT FOR MSMESIn terms of policy support and based on information from the website of the Department of Trade and Industry (DTI), the key legislation and initiatives that have been passed to support MSMEs include the following:
• Republic Act (RA) No. 10644: Go Negosyo Act, “an act promoting the development of MSMEs through the establishment of Negosyo centers nationwide, establishment of a startup fund for MSMEs, technology transfer, production and management training, and marketing assistance.” RA No. 10644 also provided for the recomposition of the membership and functions of the MSME Development Council.
• RA 9178: BMBEs Act of 2022 which provides incentives and certain exemptions, such as from income taxes and the Minimum Wage Law, to encourage the establishment of barangay micro business enterprises (BMBEs) with an asset size of not more than P3 million.
• RA 9501: Magna Carta for Micro, Small, and Medium Enterprises that defines the national policy to promote, support, and encourage the growth and development of MSMEs. Further, it seeks to promote the entrepreneurial spirit by providing a business environment conducive for MSMEs to thrive and grow.
• RA 11976 or the Ease of Paying Taxes Act (EOPT), passed in January this year, introduced reforms to modernize tax administration and improve efficiency to encourage easy compliance by taxpayers, particularly MSMEs. These mechanisms include “file and pay anywhere,” simplified withholding tax rules, and changes in VAT rules and documentation.
• Related to the ease of doing business initiative, a tool kit has been developed to address the challenges of business registration at the local government levels to encourage local government units (LGUs) to simplify their processes to benefit local businesses. Other programs implemented by the DTI include: “Go Lokal” for MSMEs wishing to sell their regional and traditional products; Shared Services Facilities which provide access to machinery, equipment and tools, skills and knowledge under a shared services system; Pondo sa Pagbabago at Pagasenso (P3) providing micro businesses with assistance in loan processing; and, the Kapatid Mentor Me program providing training on product development, accounting, and taxation, among others.
ARE WE THERE YET?In our younger days when families went on trips, it was not uncommon for the children to ask their parents this question: “Are we there yet?” I ask this same question of the journey of MSMEs to sustain and grow their important role in our economy.
I participated recently as a mentor in an event organized by Go Negosyo and had the opportunity to speak with six MSME owners in various stages of their businesses. Our discussions made me realize that challenges persist despite the plethora of policies and programs, suggesting that further improvements may be considered and implemented.
Following are some insights/suggestions I gathered from our conversations:
• Could the LGUs create a special desk for BMBEs and implement MSME-friendly fees, processes, and requirements for registration, etc.?
• Could government agencies be more transparent in evaluating and processing applications for permits, licenses, etc., and streamline these to allow for timely and speedy processing? Perhaps, government agencies concerned could compile their processes in a “Citizen’s Handbook,” certified by the Anti-Red Tape Authority (ARTA) as a reference for business owners?
• Could government agencies who deal with MSMEs and other businesses operate on a 24/7 basis by going online through digitalization, and, should going online be a challenge, could they run at least two shifts and provide wider time coverage, say 8 a.m. to 10 p.m., with shifts to minimize queues?
• Could government regulations relevant to MSMEs be aligned and synchronized for clarity and avoid confusion in the implementing rules and regulations?
• Could the government be more proactive and consciously implement the provisions of the Magna Carta for MSMEs which entitles these businesses to supply the government with at least 10% of total procurement value of goods and services? Similarly, could government not provide incentives to bigger private enterprises to intentionally allocate a percentage of their purchases for MSMEs to enable them to participate in their supply chains?
• Could the government also strictly require banks to comply with the requirement to allocate 10% of their credit portfolio to MSMEs as provided in the Magna Carta for MSMEs?
I am citing the above for consideration by policy makers and if indeed these have been addressed or proposed to be addressed through policy reforms, it would be a great boost to our MSMEs. Strong MSMEs fill the gaps that big businesses find difficult to reach and they can participate in national and international supply chains and keep healthy market competition alive. They have a pivotal role to play in employment generation and economic growth. Thus, the need to provide a conducive business environment and timely policy support.
We in the public and private sectors have the responsibility to empower our MSMEs to navigate the entrepreneurial ecosystem to inclusive prosperity. We must ensure that the journey of every small business follows a well-lit or paved path, or, at the very least, have the minimum roadblocks. Only then can we confidently say that “Yes, we should get there soon enough. I hope everyone enjoyed the journey.”
Ma. Aurora “Boots” D. Geotina-Garcia is a member of the Diversity, Equity & Inclusion Committee of the Management Association of the Philippines or MAP, and of the MAP Arts and Culture Committee. She is also president of Mageo Consulting, Inc., a company providing corporate finance advisory services.
