Retail liberalization to hurt MSMEs

by Roy Stephen C. Canivel, Inquirer, Oct 4, 2017

The move to liberalize retail trade in favor of foreign investors would harm local micro, small- and medium-sized enterprises (MSMEs), reversing “the gains of the past years” at a time when the government promised to put MSMEs at the forefront of development, an industry group said.

The Philippine Retailers Association (PRA), which considers itself the pulse and voice of the local retail industry, wanted the government to clarify the sudden change of position on the minimum paid-in capital required on the part of foreign companies that wanted to compete in the domestic retail market.

PRA vice chair Roberto S. Claudio warned that this move to liberalize the retail industry would put small Filipino players at a disadvantage, while giving foreign firms the upper hand.

This comes as Socioeconomic Planning Secretary Ernesto M. Pernia said on Monday that the 11th foreign investment negative list (FINL) would include the reduction in the minimum paid-up capital from the current threshold of $2.5 million to $200,000. The biennial list, which outlines the industries where foreign companies have limited participation, is expected to receive President Duterte’s approval within the year.

The Retail Trade Liberalization Act of 2000 reserves the minimum paid-up capital below $2.5 million exclusively to Filipino businesses, a form of protection that provides a space for MSMEs to grow in. Foreign players, on the other hand, are allowed to enter once their minimum paid-up capital exceeds that threshold.

Changing these rules, however, would be a step back for a sector many consider the backbone of the economy, according to Claudio.

“This sudden move of reducing the investment threshold will reverse the gains of the past years by concentrating income to either the local giant retailers or the global players with deep pockets and government subsidies to eliminate local competition,” he said.

Pernia recently said that opening up the retail sector to more foreign player participation would force local companies to be more competitive internationally. However, Claudio said that without actual steps being taken to help MSMEs be on par with their foreign counterparts, this “will only help benefit a few international players to the detriment of local entrepreneurs.”

The government has been pushing for MSMEs development, even making it one of their priorities as the current chair of the Association of Southeast Asian Nations (Asean) in its 50th year celebration. While the sector accounts for more than 99 percent of businesses in the country, they only contribute about a third of the gross domestic product (GDP).

“The $2.5-million threshold is supposed to protect the MSMEs in the retail industry, especially since it’s the easiest and most convenient entry point for those who want to do business,” Claudio said.

“Then all of a sudden, we would include foreign retailers into this business. So, instead of helping Philippine entrepreneurs, we give them an undue and unfair competition which may be detrimental. One foreign retailer who would succeed would result to one Filipino retailer who would fail,” he added.

Claudio, who chairs the company behind the Toby’s Sports franchise, said that many of PRA’s member companies have already grown and do not need to be guarded against foreign players. But the same could not be said for Filipino MSMEs, he noted, adding that “it’s the small ones that need protection.”