Strengthening the country’s economic backbone

Micro, small, and medium-sized enterprises (MSMEs) contribute significantly to the economy. Accounting for more than 99% of business establishments and 63% of the workforce in the country, MSMEs generates 40% of the country’s gross domestic product. Hence, they are regarded as “the backbone of the Philippine economy.”

But this backbone has been greatly affected by the COVID-19 pandemic. In a survey conducted by the United Nations Development Programme (UNDP) in 2020, which showed the impact of the crisis on MSMEs in the country, 81% said they saw lower consumer demand. Apart from the decline in demand, MSMEs’ primary challenges in continuing operations were shortages concerning logistics and transportation as well as lack of financing capacity.

MSMEs also suffered income losses from disrupted cash flow and persisting expenses, with 80% of the surveyed said they decreased their average monthly income from April to June 2020. Despite the income losses, some 20% of the surveyed MSMEs tried to retain their employees and continue providing in full pay, although the severe impact on the cash flow led 25% of them to start laying off employees.

“To address the adverse impacts of the COVID-19 pandemic, MSMEs started implementing adaptive business measures. Among which are digitalization or the use of online platforms for their business transactions, cost reduction, diversification of products and services, utilization of non-cash payment options, and allowing employees to work from home. However, despite these adaptive measures, majority of the MSMEs still need assistance to recover from their losses,” the UNDP reported.

At least 60% of the surveyed MSMEs reported they have not received assistance to recovery from their losses from any stakeholder, such as the government, private sector, and nongovernmental organizations. MSMEs were thus in need of access to credit facilities, tax breaks, and deferred loan payments.

A year after since the COVID-19 pandemic was announced in March 2020, a survey done by the Asian Development Bank (ADB) in some countries in Southeast Asia, including the Philippines, saw the business environment for MSMEs improved “moderately.” In that same period in 2021, the share of temporarily-closed MSMEs was fewer, with 6.3% in the Philippines, likely indicating that several MSMEs have began to reopen their business.

Still, there were downside risks and uncertainties for MSMEs during that period. Yet, in the Philippines, the drop in domestic demand for the products and services of MSMEs somewhat fell from 32.2% to 23.5%. Nonetheless, MSMEs in retail services, with the high demand for essential goods and services, reported a better business environment than before the pandemic, from 16.9% to 31.6% in the country.

Furthermore, sales and revenue also improved around March to April 2021. From 58.8% zero-revenue firms in the Philippines in March 2020, it decreased to 8.9% in the aforesaid period last year. A decrease in revenue, however, remained to be a concern, with 30% Philippine MSMEs reporting.

Meanwhile, in terms of employment among the surveyed MSMEs in the country, the share of those that reduced their employees went down from 37% to 16.9% from the start of 2020 to March-April 2021, while 78.8% reported no change. There were also lesser surveyed MSMEs in the country that held back wages, from 56.7% to 11.4%.

According to the Department of Trade and Industry (DTI), as per the 2021 List of Establishments of the Philippine Statistics Authority, there were more than 1.076 million MSMEs, which make up 99.58% of business enterprises operating in the country. Majority of these were micro enterprises, comprising 90.54%, followed by small enterprises with 8.63%, and 0.41% were medium enterprises. These MSMEs provided more than 5.46 million jobs, contributing 64.67% of the country’s total employment.

Small and medium businesses looked at 2022 with optimism for prospects in economic and business growth, and have plans for expansion. This was seen in the Sun Life Business Growth and Resilience Index, which is based on a Sun Life survey in seven markets in Asia, including the Philippines, in late 2021.

Among the surveyed small and medium enterprises in the country, 76% expected improvement in the financial position of their business, while 69% expected as such in their national economic situation. Meanwhile, 86% have expansion or growth plans for the year, among which were expanding their product offering, digitalization for business growth, hiring new employees, and buying new businesses. However, risks remained for these businesses, concerning the pandemic and health-related risks, increasing market competition, and rising tax or regulatory burdens.

Yet, the revitalization of the country’s MSMEs is one of the top priorities of the current administration.

At the MSME Summit 2022 last August, President Ferdinand R. Marcos, Jr. reiterated “the government’s full commitment to work hand-in-hand with all stakeholders to make certain that MSMEs are protected and provided with ample opportunities, not only to recover from these extraordinary times but to grow and thrive in this modern age.”

The President backed the DTI-led MSME Development Council, which is formulating and implementing strategic goals for the improvement of five key areas, covering business climate, financial access, management and labor, access to technology and innovation, and market access.

“This multidimensional approach will allow us to breathe new life into our MSMEs and help them move forward to a more resilient and prosperous future,” he was quoted as saying in a report from The Philippine Star.

“We will harness the strengths of various sectors to ensure a more cohesive government approach in creating a more sustainable environment for our MSMEs and all our important stakeholders,” he added.

Meanwhile, Go Negosyo’s Kapatid Angat Lahat program, which was launched in the same event, seeks to utilize public-private partnerships to support the development of MSMEs.

Last November, the Department of Labor and Employment mentioned its plan to put MSMEs in focus in improving the quality of jobs, following the worsened job quality seen in September.

“MSMEs are at the forefront of entrepreneurial innovation and serve as a buffer during economic downturns and displacement,” Labor Secretary Bienvenido E. Laguesma was quoted in a BusinessWorld report. — Chelsey Keith P. Ignacio