The Travails of MSMEs (part 2)

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by Miriam Tan-Fabian

LET us continue where we left off on the challenges, issues, and obstacles that MSMEs need to hurdle just to start, maintain, and sustain micro, small, and medium businesses.

Market transaction costs

Aside from financial support, MSMEs also need to contend with transaction costs. The Philippines is again mentioned as one of the countries with the most expensive power rates in the ASEAN. In fact, if you look at your electric bill, one of the items you are paying for are costs of transmission loss. Instead of customers shouldering this cost, should not Meralco shoulder such inefficiencies which the company should deal with and not customers? While this is already one concern for ordinary citizens like us, it is even a bigger headache for business owners whose power needs are several times more than individuals or even whole families.

In the electronics sector, currently one of the fastest growing industries, electricity is a major manufacturing cost. In the case of Myanmar which has an unreliable power and seasonal black outs, the cost of power is a real limitation even in the agro-processing industry, specifically, the edible nut industry which requires milling machines to process. More importantly, to ameliorate the inadequate power provided by the government, businessmen who own factories, mills, or some kind of machinery have to purchase diesel-powered generators, where the resulting costs of running them are four times the cost of government-produced electricity, just to maintain operations. Another country, Cambodia, also cited high energy cost as a barrier to business.

Another transaction cost is labor costs where the relatively high labor cost in the Philippines could well be losing us investments when compared to the lower labor costs for Vietnam and China. Thailand too, recently approved a minimum wage increase, prompting complaints from the private sector and the closing of several MSMEs.

What are ASEAN governments doing about it?

While it is true that MSMEs have many challenges to surmount, it would be unfair to assert the ASEAN governments are not doing anything about MSMEs. In fact, many of them have put up two to three, or even more government agencies, departments, or other instrumentalities to assist MSMEs. One of these would definitely have something to do with trade and or industry, investment, and what not. In the Philippines, we have the Department of Trade and Industry (DTI), which has a section totally devoted to MSMEs, while Vietnam has the Ministry of Industry and Trade (MOIT), and Indonesia has a Ministry of Industry.

Most governments to have a medium or long-term Development Plan for MSMEs or SMEs. Vietnam has the SME Development Plan of 2011-2015; Indonesia has a Strategic Plan for SMEs, and the Philippines has a Philippine Development Plan for SMEs for 2005-2009. While most strategic planners enjoin top public officials to plan long-term, meaning 10 or more years, the electoral reality is that top government officials, unless they are re-elected, will stay in power for only less than 10 years.

For example, in Vietnam, there is a Vietnam General Office of Statistics which monitors MSMEs.
Several ASEAN countries also have specific laws specifically designed to benefit MSMEs. The Philippines for example has the Magna Carta for SMEs. Indonesia has a Presidential Decree No. 7 of 2005 which includes items on SMEs, and Thailand has Small and Medium Enterprises Promotion Act, and the Tax code of Thailand. This Thai tax code was expanded by several royal decrees to promote SMEs. Although there are some countries though like Myanmar and Vietnam who have yet to craft specific SME laws, policies, and regulations, their governments are aware of this problem and are already in the process of drafting such laws.

Many countries also provide trainings for MSMEs. In the Philippines for example, the DTI’s training arm is the Philippine Trade and Training Center (PTTC) which offers training programs through three modes: 1) onsite or face-to-face, 2) customized in-company courses, and 3) through online training videos. Thus, as long as you have reliable internet access, you can even learn from your house.

On the other hand, if you tend to learn better with a group, you could take up the face to face trainings programs instead. PTTC’s onsite programs include such interesting and relevant topics like: Accounting for Non-Accountants, Analyzing Business Target and Business Buying Behavior (Dealing with Competition), and Basic Business Recording, topics which would be useful for most entrepreneurs. Further, these courses are affordable and competitive when compared to their private sector counterparts, costing anywhere from Php 250 to 500 for half-day affairs and Php 1,750 to Php 3,000 for trainings of 1 to 3 days.

It is unfortunate then that many MSMEs do not know of these programs. Thus, there is a need for the government to actively reach out to these businesses, through a stronger marketing campaign, the effective and active use of social media, and even through the LGUs which hold annual business registration activities for MSMEs and businesses in their jurisdictions. What better way for LGUs to ensure more taxes being paid by these businesses than by helping to improve their capabilities and capacities?

Moreover, since China and India’s economic influence and dominance are felt strongly by neighboring Asian countries, there is a need to seriously work towards the goal of ASEAN economic integration by 2015. We cannot expect to be more competitive if we remain insular, especially since many of the MSMEs in the ASEAN region suffer from the same challenges and obstacles. Hopefully, such a situation will enable some proposed common solutions to be effective in addressing these similar MSME issues and concerns across the region.

Two ways by which we can do this is first through actively enhancing and supporting the implementation of ASEAN Free trade agreements (FTAs) which should enable a regionally mobile workforce, open up foreign markets even to MSMEs, and promote technology transfer. This labor force too can be trained with the required minimum standards through a common labor certification program.

Such an initial step though presumes of course that the state will mainstream these FTAs into national development strategies.

A second way is through the creation of a regional MSME business registration system to facilitate enterprise identification for financing and/or credit guarantee programs and domestic and export market access. This tactic will also aid international organizations like the ADB design a more responsive credit risk profiling of MSMEs in the region.

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