SONA 2013: SMEs wait for more help from PNoy

MANILA, Philippines - In his first State of the Nation Address in 2010, President Benigno Aquino III made a promise to businessmen and entrepreneurs that he will make investment in the Philippines easier by streamlining the process of business registration.

Aquino said the creation of jobs is his administration’s foremost agenda, and employment generation will come from the growth of the country’s industries.

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Three years into his administration, several processes have been improved and shortened, but some remain cumbersome for most entrepreneurs.

Aquino said in his speech then that “the never-ending horror story of registering business names, which used to take a minimum of four to eight hours depending on the day, will be cut down drastically to 15 minutes.”

He promised that the checklist of 36 documents needed to register a business will be shortened to a list of six, while the old eight-page application form will be whittled down to one page. He also urged local government units to review their own procedures.

For social entrepreneur Pacita “Chit” Juan, owner of ECHOstore and ECHOcafé, there remains a need to set up a one-stop shop in government offices.

“I think hindi klaro kahit sabihin nilang one-stop-shop. Sa DTI ba o sa SEC ba? Unless magpaturo ka, where do you start?” Juan said in an interview.

She shared that in a conference she attended in December, one of the participants, an employee of the Bureau of Internal Revenue, told her about trying to open a business. This participant found that registering her business with the BIR was the most difficult and lengthy.

“It would be ideal kung pagpunta mo sa DTI to find out if your business name is OK, the BIR is also there for your BIR permit and then you also have the SSS (Social Security System) for the employer’s form. You also need Philhealth (Philippine Health Insurance Corp.) because you’re not the only one who’s going to work, you have employees too. In other words, in all these government offices we [should] have the desks of all the other government agencies because then that’s the real one-stop-shop,” Juan said.

Presently, she said the improvement in the business registration process is in the simultaneous filing of all registration permits instead of waiting for one permit to be released before going to another government office.

Juan said the government was successful in making it easier for overseas Filipino workers to obtain their requirements and processes, noting that OFWs remitted some $21 billion in remittances in 2012. It is estimated that remittances have a multiplier of two to contribute to the Philippine economy.

However, economist Leonor Magtolis-Briones of the University of the Philippines-Diliman also said SMEs could actually contribute more to the Philippine economy through employment generation.

“Banks and the big companies can increase their profits without hiring more people or increasing the number of people in factories. If you really want job creation, then you have to improve the production of goods,” she told PhilStar.com.

The data from the Department of Trade and Industry indicate how crucial micro, small and medium enterprises (MSME) are to the local economy.

The DTI said that as of 2011, there were already 820,255 business establishments operating in the country and of the number, 99.6 percent or 816,579 are MSMEs and only 0.4 percent or 3,496 are large enterprises.

MSMEs also generated some 3.872 million jobs in 2011, more than the 2.473 million generated by large enterprises. MSMEs therefore contributed 61 percent of the total jobs generated by all types of business establishments in 2011.

Besides employment-generation, MSMEs contributed some 35.7 percent of the country’s total production. They also account for some 25 percent of the country’s total exports revenue, while it is also estimated that 60 percent of all exporters in the country belong to the MSME category.

The DTI, in an emailed message to PhilStar.com, said the ease of doing business in the Philippines has in fact improved through the implementation of the Enhanced Business Name Registration (EBNRS), Philippine Business Registry (PBR), and Business Permits and Licensing System.

Under the simplified business registration, the PBR now only takes an average of 30 minutes from the previous four to five days. The EBNRS only takes 13.14 minutes on the average from the previous four to eight hours, while the BPLS takes a maximum of 10 days.

“Effective March 2012, the PBR was rolled out to all DTI offices nationwide. At present, sole proprietorship           can already register their Business Names (BNs) from DTI, get or validate their existing Tax Identification Number (BIR) and Employer Registration Numbers (SSS, Philhealth and Pag-Ibig) through the web-based facility through the DTI tellers,” DTI added.

It also said the Securities and Exchange Commission (SEC) module was launched on March 12, 2012, allowing SEC-registered companies to get SSS, Philhealth, and Pag-Ibig employer’s registration numbers (ERN) ay the SEC head office where pre-generated TIN is available.

The PBR also aims to expand interconnectivity with LGUs. The DTI said the PBR has been rolled in all its offices nationwide and has been linked with the BPLs of Quezon City and Valenzuela City in March and October 2012, respectively.

Meanwhile, the BNRS and PBR have been migrated to the cloud computing environment on January 17 and February 4, 2013, respectively.

The DTI cited that through the EBNRS, there were 653,328 registered business names from 2011 to 2012. On the other hand, streamlined business registration process was implemented 823 LGUs as of December 31, 2012, out of the target 1,634 cities and municipalities.

Briones said any move to help investors and businessmen shorten registration process would also help reduce corruption in the government.

“The longer processing time, the more opportunities there are for private negotiation,” she said.   

Juan said in many instances, an entrepreneur is already paying the rent of his leased space while waiting for the mayor’s permit to be released.

The many problems of SMEs

Besides inefficient government processes, SMEs face a number of problems that the government must address.

Victor Abola, economics professor at the University of Asia & the Pacific, said access to credit is also another problem that SMEs or aspiring entrepreneurs face.

He said that although there are available mechanisms for SMEs to access microfinance, the intended beneficiaries are usually unaware that they may avail themselves of these government assistance.

Juan said another problem that SMEs face is the lack of knowledge about business operation, financial literacy, packaging and market access.

“More than funding, what micro-entrepreneurs need is knowledge about operating and sustaining their business. Financial literacy is very important. They know nothing about costing; the costing of their products is incorrect. The thing is, it seems that there is no convergence in the assistance given by the Department of Science and Technology, the DTI and the Department of Agriculture,” she said.

Juan described as uncoordinated the efforts of these government agencies.

“In the regions, it seems like they’re working in silos. In one region, the DOST performs very well; in another, it’s the DTI. They should have a common service facility,” she said.

The DTI, on the other hand cited four areas where SMEs face challenges:  business environment, access to finance, access to markets and productivity and efficiency.

Specifically, these challenges include the poor packaging and labeling of their products, the limited capacity for product development and design, lack of access to market information, the lack of knowledge and capacity to comply with international quality standards, the poor use of technology, little investment in productivity-enhancing technologies.

For Juan, the failure of SMEs to move up the value chain is one reason why most of them are unable to sustain their business.

Tougher times ahead?

A January 2013 study by government think-tank Philippine Institute for Development Studies said SMEs in the country would need more government support to help them survive and grow to take advantage of the full economic integration of the Association of Southeast Asian Nations in 2015.

The integration will lift all import duties for ASEAN products and services, while all economic sectors will be open for investment. Investors from within the region will also enjoy equal treatment in all other ASEAN countries. 

According to the ASEAN Economic Community 2015 SME Development: Narrowing Development Gap Measure by Rafaelita M. Aldaba, Philippine manufacturing SMES have been unable to substantially generate sufficient value added and employment to increase the country’s overall manufacturing growth.

Aldaba said the weak performance of SMEs “has been largely attributed to barriers particularly access to finance, technology, and skills as well as information gaps and difficulties with product quality and marketing.”

Aldaba said that over the past two decades, the growth of the MSME sector has not changed as the proportion of medium sized enterprises remained small.

“As a result, the country’s industry structure is often characterized by a missing or hollowed middle. The share of medium enterprises has remained miniscule at 0.4 percent while that of small enterprises was almost unchanged at 7.7 percent. Micro enterprises meanwhile formed the bulk of enterprises with a share of 91.6 percent,” Aldaba said.

The study also found that despite ASEAN’s plans to develop SMEs under the 2004-2009 ASEAN Policy Blueprint for SME Development and the 2010-2015  ASEAN Strategic Action Plan for SME Development, the programs have little or no effect to the development of SMEs in the country.

“Overall, the assessment of the ASEAN Strategic Action Plan for SME Development showed low average effectiveness scores that ranged from without to no or little concrete impacts on the implementation of various programs covering access to financing, facilitations, technology development, promotion, human resource development and other regional SME initiatives,” Aldaba said.

The assessment of the ASEAN Policy Blueprint for SME Development also indicated the same results.

She added that without government support, Philippine SMEs would face major challenge to become internationally competitive.

What now?

Both Juan and Briones said there is a need to help SMEs prepare for the ASEAN integration.

For Juan, one concrete way to help SMEs is to require government agencies to allot some five percent of their procurement budget to SMEs.

Under the 2013 National Budget, capital outlays have an allotted fund of P380 billion, while current operating expenditures have an earmarked P26.9 billion.

“It would be good if the government could help the SMEs by buying from the SMEs. When government offices entertain guests, they should not buy from Jollibee and Max’s anymore because they don’t need help,” she said.

Relaxing government bidding rules for SMEs would also encourage these small industries to participate in government projects.

“Sabihin naman nila ‘hindi kaya ng SMEs iyan’. Bakit,  kapag bumibili ka ba ng pansit na pagkain – government contract iyan – kunwari para sa visiting journalists  or coffee  - bakit kailangan bilhin sa malalaking restaurants? When you want to participate in government biddings, pagkuha pa lang ng bidding document may bayad na agad. Doon pa lang out na ang SMEs,” she said.

Bidding documents from government agencies may be obtained by paying P5,000.

Juan added that SMEs should benefit from the holding of the Asia Pacific Economic Cooperation here in 2015.

“If the government can buy from producers or the marginalized, whether the SMEs or women-operated enterprises, maraming matutulungan, more jobs would be generated,” she said.

Briones, on the other hand, said if the government really wants to make it easier for investors and businessmen to invest in the country, it can do so without changing the Constitution.

The DTI, meanwhile, said the MSME Development Plan 2011-2016 aims to create two million new and sustainable jobs by 2016 and raise the economic contribution of SMEs to 40 percent of gross value added to be at par with the share of the SME sector to GDP of other countries in the region.

For 2014, the DTI said various government agencies that have programs related to SME promotion and development is proposing P7-billion budget.