Philippine SMEs not ready for Asean economic integration by 2015 — PIDS study

MANILA – Philippine small and medium enterprises (SMEs) will fall by the wayside once Asean economic integration comes into force by 2015, a state-run think tank said on Monday.

In a study authored by Philippine Institute for Development Studies (PIDS) vice president Rafaelita Aldaba, the country’s SMEs fare poorly in terms of access to credit, technology and skills compared with peers in other Asean member-states.

This is despite the implementation of the Asean Strategic Action Plan for SME Development 2010-2015 (ASAPSD) and the Asean Policy Blueprint for SME Development 2004-2009 (APBSD).

A perception survey was conducted to evaluate the impact of these plans. Four SMEs and one government-member of the SME Working Group were surveyed to evaluate the Philippine implementation. Both groups scored low in average effectiveness.

Majority of the respondents said the APBSD had limited impact on facilitating SMEs’ access to information, markets, human resource development and skills, finance, and technology.

Likewise, the ASAPSD was perceived as having little concrete impact in terms of enhancing competitiveness and flexibility of SMEs in moving toward a single market and production base.

In the study, the weak performance of SMEs was attributed to the large number of barriers they face, particularly when tapping finance, technology and skills, as well as to the information gaps and difficulties in product quality and marketing.

Although there are government institutions or agencies responsible for development and technology support of SMEs, the growth of the sector has not been vigorous enough to propel the economy, the PIDS study said.

In 2006, micro, small, and medium enterprises (MSMEs) dominated the economy and accounted for almost 99.6 percent of the total number of establishments. However, they only accounted for 61.2 percent of the country’s total employment and 35.7 percent of total value added.

Firm size distribution has also not changed significantly in the past two decades. Micro enterprises still formed the bulk of MSMEs, with a share of 91.6 percent, whereas medium and small enterprises accounted for only 0.4 percent and 7.7 percent, respectively.

The study also noted that in spite of programs and policies created for SMEs (e.g., establishment of Small Business Corp for SME financing), access to finance has remained one of the most critical factors affecting the competitiveness of the sector.

Many private banks are still reluctant to lend to SMEs because of lack of credit information and low appreciation of lending to small businesses.

More specific issues on SME financing include lack of acceptable collateral, slow loan processing, short repayment period, high interest rates, difficulties in loan restructuring, and lack of start-up funds. –Darwin G. Amojelar, InterAksyon.com