Strengthening MSMEs offers economic rewards

President Ferdinand “Bongbong” Marcos Jr. speaking at an event hosted by Go Negosyo. PHOTO BY JOHN RYAN BALDEMOR

WE welcome the attention given by the new government to micro, small and medium-sized enterprises (MSMEs). President Ferdinand “Bongbong” Marcos Jr. showed his support for small businesses when he attended the Go Negosyo summit last week. Hopefully, however, all the attention and promises of help will soon translate into action.

For starters, authorities should review the magna carta for MSMEs, officially known as Republic Act 9501 which was signed into law in 2008. Two key provisions of this landmark law remain poorly enforced and blamed for unrealized potential MSMEs to contribute more to the economy.

The first is access to capital. Magna Carta requires banks to set aside 10% of their total loanable funds for MSMEs, but since the law was passed compliance has been an issue. Instead, banks find it easier to simply pay the penalties for non-compliance.

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Some claim that banks favor large borrowers because they earn more than MSMEs. Meanwhile, others suggest the government should share the risk of providing loans to MSMEs, many of which lack the collateral and other requirements that financial institutions typically require.

Another key provision of the magna carta states that government, from national agencies to local units, should set aside 10% of its procurement budget for MSMEs. Clearly, the government is an important institutional client for all businesses in many sectors.

However, buying from MSMEs has been difficult. On the one hand, government procurement laws require government offices to buy in bulk, but small businesses lack the capacity to meet large orders. In fact, it is also a problem for MSMEs when doing business with large private companies. Obviously, buying in bulk saves money, as it reduces the unit cost of the items. Thus, procurement policies must be reconciled with magna carta goals to help small businesses.

New markets

Besides better execution of the magna carta, MSMEs would also benefit from better access to markets. In general, the government should review its export plans and strategies. And if a net importer like the Philippines sold more local goods and services abroad, gross domestic product or GDP growth would be more robust.

With this in mind, Ambassador Răduţa Dana Matache of Romania recently suggested that the Philippines should take advantage of the European Union’s interest to do more business with Filipinos. She told the Manila Times that Romania could be a stepping stone to Europe and that the Philippines should maximize the privileges of GSP+ status.

Under the GSP, or Generalized System of Preferences, more than 6,200 Philippine products can enter the European Union duty-free. To be fair to the government, exports to Europe have increased over the years, but the fact is that more can be done. Additionally, GSP status will expire at the end of 2023, and when the government negotiates its renewal, it is expected to push to expand the list of products covered.

Another way to develop new markets is for the Senate to ratify the Regional Comprehensive Economic Partnership Agreement, or RCEP. Once fully operational, the pact will create the largest free trade area in the world. The agreement covers the 10 members of the Association of Southeast Asian Nations (ASEAN), as well as China, Japan, South Korea, Australia and New Zealand.

RCEP already went into effect earlier this year. The Duterte government pushed for Senate ratification, arguing that it would support GDP growth by about 2 percentage points. RCEP covers half of the world’s population. Its signatory countries contribute 30% of global GDP and more than a quarter of total global exports.

While the new Marcos government is also supportive of RCEP, there has been no significant development in its ratification. More policymakers should understand that helping small businesses is part of the deal.

“RCEP recognizes the importance of being inclusive, in particular to enable SMEs to benefit from the agreement and face the challenges arising from globalization and trade liberalisation,” according to the RCEP website.

RCEP is expected to be ratified soon. This, combined with the other measures mentioned here, can turn MSMEs into an even more powerful engine of growth.

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