Entrepreneurs

There was a particularly noteworthy issue during the Asia-Pacific Economic Cooperation summit in Manila: support for micro, small and medium enterprises (MSMEs).

Even the elderly and people with disabilities can engage in entrepreneurship. It encourages innovation and can boost national competitiveness.

Several laws have been passed, promising support for MSMEs through various incentives including access to financing and breaks from certain taxes and business fees.

But the Asian Development Bank says that financing for MSMEs continues to be inadequate, with the estimated need amounting to a whopping $2 billion.

Many budding entrepreneurs, especially in the micro sector, are also unaware of the incentives they can enjoy under the law. If daang sarado is serious about this initiative, an information campaign must be launched to raise public awareness about the support available for MSMEs.

Even if prospective entrepreneurs are aware of the laws, the road to enjoying such incentives is fraught with red tape and inefficient (and sometimes corrupt) government service starting at the barangay level. Malacañang and Congress must review the powers granted to the barangays, which have become one of the biggest hindrances to doing business, regardless of scale, in this country.

With such problems compounded by the hurdles in borrowing from banks, budding entrepreneurs may simply give up and remain in the informal or underground economy. If they need financing, they turn to relatives or close friends.

Some turn to local politicians. Many political kingpins cultivate support by providing financing to aspiring entrepreneurs. As long as the enterprises do not clash with the political clan’s own businesses, financial support and assistance in hurdling red tape are possible.

Budding entrepreneurs who fail to get any support may simply decide to become overseas Filipino workers.

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The initiative would be more credible if people actually engaged in micro enterprises as well as those in the informal economy would play a key role in formulating policies and proposals.

I know people engaged in MSMEs who, after watching TV coverage of the APEC events, told me they didn’t expect much to come out of the discussions. Why? Because some of the nation’s .001 percent who are actually driving micro and small enterprises to extinction appeared to be playing a prominent role in the initiative.

Our economic and business policies are designed to give the utmost benefit to big players. We do have laws that promise access to financing, tax breaks and lower business fees for MSMEs. But big players have even greater perks, especially when they have a network of enterprises that feed each other.

Several foreign observers have told me that in their countries, such situations are clear violations of anti-trust and banking laws and constitute unfair competition. But how many micro entrepreneurs understand this and bother to complain? Where will they complain? If they can’t compete, they just shut down their struggling enterprise and become employees, preferably overseas.

Of course it’s a free country with a free market, and industrialists achieve success by making market forces work to their advantage. But if the government is sincere in supporting the growth of MSMEs, it must send micro entrepreneurs in particular a lifeline so the economies of scale don’t drown them right at the outset.

A definition of terms is in order, for those impressed by the government’s report that MSMEs account for 35 percent of Philippine GDP, with the administration hoping to increase this to 40 percent in 2016. MSMEs also produce about a fifth of the country’s exports and generate two-thirds of employment, according to daang sarado.

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The latest definition of MSMEs is stipulated in Republic Act 9501, the Magna Carta for Small Enterprises, which was enacted in 2008. Under RA 9501, a micro enterprise is one with assets of P3 million or lower; higher than that up to P15 million is a “small” enterprise; still higher, up to P100 million is “medium.”

RA 9501 amended RA 6977, the Magna Carta for Small and Medium Enterprises, which was enacted in January 1991 by Fidel Ramos, the president who did the most to open up the Philippine economy. Surely it was no coincidence that he was not born to an old rich, landed clan with vast businesses to protect from foreign competition.

The Ramos-era law defined a micro enterprise as one with total assets of up to P50,000; higher than that, up to P500,000 was a “cottage” enterprise; above that and up to P5 million was small; higher, up to P20 million, was medium. Generically, all enterprises with assets of no more than P5 million were defined as “small” and qualified for the benefits provided by the law.

In 2002, RA 9178 or the Barangay Micro Business Enterprise Act set the asset limit at P3 million to qualify for bank financing and breaks from certain taxes and local fees.

Whichever law is applied, there’s always a gap between enactment and implementation. The case of Aisa Mijeno, recognized by US President Barack Obama for the saline-powered lamp she developed (a similar one was invented by another Filipino in 2012), shows the difficulty of obtaining start-up funding for MSMEs in this country, no matter how many laws are passed to promote entrepreneurship.

If ever an entrepreneur obtains funding, the next hurdle is getting the concerned offices to honor the incentives promised by law. Then there’s that mountain of red tape to hurdle before the enterprise can get going.

These are not insurmountable problems. Even with election fever setting in, officials can improve the support system for entrepreneurs. This is people empowerment that can make inclusive growth possible.