MEETING OF MINDS President-elect Ferdinand ‘Bongbong’ Marcos Jr. and Presidential Advisor for Entrepreneurship Joey Concepcion. CONTRIBUTED PHOTO
THE next government is on the right track in recognizing the value of micro, small and medium-sized enterprises (MSMEs), whose collective well-being is vital for growth and development. But more than helping them recover from the pandemic, policymakers should rethink or reimagine entrepreneurship in order to realize the full potential of MSMEs.
Last week, President-elect Ferdinand “Bongbong” Marcos Jr. met with Jose Maria “Joey” Concepcion 3rd, who is the presidential adviser on entrepreneurship in the outgoing government. They apparently hit it off. Both recognize the value of MSMEs in job creation and contributions to the national economy.
Concepcion told the media, “We both agree that MSMEs must be supported if we are to achieve inclusive growth for the Philippines.” He also said they needed access to capital and mentoring opportunities.
For starters, these businesses will benefit greatly from improved implementation of Republic Act 9501 or the “Magna Carta for MSMEs” of 2008. It requires banks to lend to micro and small businesses at least 8 % of their total loanable funds, 2% to medium-sized companies. businesses.
To date, however, the banks have not complied, opting instead to pay penalties. The paperwork and guarantees required can be obstacles to complying with the magna carta, but this must be studied. Also, the lending provision is supposed to last only 10 years from the date of enactment or until 2017. This provision should be extended and the bank lending process should be simplified.
Added to this is the problem of financial inclusion. Most Filipinos are unbanked. Seven out of 10 Filipinos do not have a transaction account even though 53% of the population have savings.
Going back to the magna carta, it also stipulates that MSMEs are entitled to at least 10% of the total value of purchases of goods and services provided to the government each year. The problem is that most MSMEs lack the scale and capacity to respond to large orders.
Worse, this magna carta provision also conflicts with existing government procurement laws that require bulk ordering to achieve economies of scale. The lower unit cost favors the government as a buyer.
Thus, the policy objective should be to help MSMEs become big businesses. And existing procurement laws and policies need to be aligned with the interests of MSMEs.
Second, Filipinos should think about entrepreneurship differently. For the most part, the focus is on cottage industries and self-employment. There’s nothing wrong with that, but maximizing entrepreneurship means equating it with innovation and disruption.
In other words, policies should encourage Filipinos to become inventors. There should be more programs, not to mention an ecosystem of venture capitalists, to help entrepreneurs incubate their new products or services and later bring them to market.
For this, policymakers should study Israel, which is known as the “start-up nation” due to the success of its MSMEs. Israel ranks first in the world for start-ups per capita and third for venture capital investment. This small country has more than 50 unicorns or MSMEs with valuations of at least $1 billion.
Closer to home, Singapore also calls itself a “start-up nation”. In 2017, the Global Innovation Index named it the most innovative country in Asia. And in 2019, the World Bank ranked this island state as the second-easiest place to do business.
To be an Israel or a Singapore, the Philippines must also resist populist measures that stifle innovation. Specifically, the disruption is the result of entrepreneurship, which means job losses in outdated or inefficient sectors. Job displacement may seem unattractive, even counter-intuitive. People favor entrepreneurship because it creates jobs.
Of course, successful innovations generate a net gain in jobs, as resources are reallocated from disrupted sectors to emerging industries. For example, fewer jobs were available in typewriter manufacturing when computers became common. Incidentally, few, if any, mentors from older industries can competently mentor those from fledgling companies.
Improving efficiency not only creates more jobs, but also increases wealth. However, workers in declining industries need safety nets.
Clearly, Filipinos should develop a more sophisticated approach to entrepreneurship and MSMEs. Policy makers also need to think big.