Are Mindanao’s MSMEs ready?

The Philippines stands to benefit from improved access to the Association of Southeast Asian Nations (ASEAN) member countries, but are Mindanao’s businesses particularly micro, small and medium enterprises (MSMEs), ready to compete in the highly competitive market?

Mindanao Business Council President Vicente T. Lao believes products made in the region have a fighting chance in the ASEAN market, especially in terms of quality and presentation.

“We just have to keep our costs at a reasonable level and government has to do their job in getting concessions from the different countries we are doing business with, so that our products will be competitive when it arrives at their shores,” he said in an interview with BusinessWorld.

Data from the Department of Trade and Industry (DTI) showed as of 2014 there are 3,414 SMEs in Zamboanga Peninsula, 4,473 in Northern Mindanao, 4,781 in the Davao region, 4,952 in Soccskargen, 2,459 in Caraga and 973 in the Autonomous Region in Muslim Mindanao.

MSMEs are defined by size of assets and the number of employees. Micro-enterprises have an asset size of up to P3 million and up to nine employees, while small enterprises have an asset size above P3 million up to P15 million and have up to 99 employees. Medium enterprises have assets from above P15 million to P100 million, and a workforce of 100 to 199 employees.

In terms of industry, 46.37% of the MSMEs in Mindanao are engaged in wholesale or retail trade, while 13.5% are in accommodation and food service activities, and 12.48% are into manufacturing. The rest are in information and communication, financial and insurance activities, agriculture, forestry and fishing, mining, construction, utilities, education, and other types of industries.

Mr. Lao said MSMEs in Mindanao need help in terms of financing and market access. He said the Department of Trade and Industry (DTI) and Department of Finance (DoF) should come up with better programs for MSMEs to help them go head-to-head with ASEAN firms.

In a separate interview, Ateneo School of Government Dean and economist Ronald U. Mendoza noted the DTI “despite its best efforts, is still not reaching all of the MSMEs.”

“It is only reaching a fraction of the MSMEs. There are any number agencies that can provide support to the SMEs in ways that actually are more sustainable — not the kind that are continuous subsidies,” he said.

“I think the other part of the support will be to bring in more of the private sector to support these MSMEs, such as interconnecting them with strong value chains that go to export markets or connecting to the large conglomerates that also want to tap the comparative advantages of MSMEs and that is still missing in our countries,” Mr. Mendoza added.

SUPPORT FOR MSMEs
For its part, the DTI has continued to provide support for MSMEs through the Investments Priorities Plan (IPP) which is provides fiscal incentives to “inclusive business” projects benefiting MSMEs, as well as financing schemes such as the Pondo Para sa Pagbabago at Pag-Asenso (P3) program.

The DTI has also rolled out the Go! Lokal retail concept stores which gives MSMEs a chance to test their products’ marketability without incurring costs of operating retail spaces.

Another part of the government’s program to develop MSMEs is the Shared Service Facility (SSF) Project, which aims to improve the competitiveness of small businesses by providing machinery, equipment, tools, systems, skills, and knowledge under a shared system.

At the same time, the Duterte administration is pouring in significant amounts for programs supporting the development of MSMEs.

Trade Secretary Ramon M. Lopez said President Rodrigo R. Duterte recently already ordered the allocation of P50 billion for the development of MSMEs, acknowledging their importance to the economy.

“With regard to incentives and other forms of government support, we are coordinating with the Department of Finance to ensure that these are performance-based, time-bound, transparent, and easy to administer. We maintain that incentives can be effective tools for industry development and ensure our competitiveness,” Mr. Lopez said in his speech during the Manufacturing Summit 2017.

The DTI chief noted the government is supporting SME development “by boosting their growth and profitability through the 7Ms (Mind-set, Mastery, Mentoring, Money, Machine, Market, and Models) as well as programs focusing on the establishment of common service facilities, and improving access to finance, technology, and skilled workers.”

Despite government efforts, National Competitiveness Council Co-Chairman Guillermo M. Luz said the government has limitations, such as granting credit to the MSMEs in Mindanao, which he said is just as important as improving infrastructure in the region.

“I don’t think that can come from the government but it can come from the banking system. Connectivity, internet, all those types of things — e-commerce those things which will have to be provided by the private sector. I don’t think the government is in the position to supply everything,” Mr. Luz said in a separate interview.

CONNECTIVITY
Noting poor connectivity among the islands, the Duterte administration kicked off the “Build Build Build” program, which includes 70 infrastructure projects nationwide. Only 12 of these projects are directed towards Mindanao — 10 of which are under project development while two are already being implemented.

Mr. Lopez said the DTI and the Board of Investments (BoI) are working together with the Department of Public Works and Highways (DPWH) for the Roads Leveraging Linkages for Industry and Trade (ROLL IT) program to provide better connectivity in the region, particularly establish a more efficient supply chain linking larger enterprises with the MSMEs in far-flung regions.

“The goal of this program is to prioritize and implement road access infrastructure that leads to various industries and economic zones. Through ROLL IT, we are proposing P12.3 billion-worth of road infrastructure across the country under the proposed 2018 budget,” he added.

Trade Undersecretary for Competitiveness and Ease of Doing Business Group Ruth B. Castelo said the infrastructure projects in Mindanao already serve as the beacon for investors to flock the region.

“If we do not have adequate logistics, we cannot provide for business. It’s going to make their business faster otherwise without infrastructure development, it will be very hard for the investors to come and they will be turned off with all that traffic,” she added.

Ms. Castelo, who previously headed the Construction Industry Authority of the Philippines, said the infrastructure projects will also give a change to link small contractors to the supply chain of larger firms.

“In Mindanao, not only in Mindanao actually, but with the roll out of the projects, the big construction companies with the financial capability cannot of course cannot complete the projects on their own. We have a lot of small and medium contractors, as a matter of fact, there are more of them than big contractors,” she said.

“So, in terms of construction, of course the bigger companies will be able to give opportunities to our smaller contractors for them to develop, in terms of their expertise, their technology and manpower.”

Last April, a roll-on, roll-off route was launched, connecting Davao, General Santos, and Bitung in Sulawesi, Indonesia, the first of many projects aimed to improve connectivity in the Brunei Darussalam-Indonesia-Malaysia-Philippines-East ASEAN Growth Area (BIMP- EAGA).

“Mindanao is the closest to the other ASEAN countries. We can expect a boom in Mindanao in the next five years — not only in terms of construction and infrastructure but also in other industries that we’re developing,” Ms. Castelo said. — Anna Gabriela A. Mogato