SMEs expect usual woes but keep positive outlook

CEBU, Philippines - Small and medium enterprises have essentially been contributing to the Philippine economy. But pressing challenges still hound the sector, causing its share to the country’s total economic output limited and muted.

Despite the fact that SMEs account 99.6 percent of registered Philippine businesses, its contribution to the country’s gross domestic product only stands at a little over 30 percent; although it provides majority of the domestic employment.

Cebuano entrepreneur Rey Calooy said SMEs in the country need to grow not just in terms of number but also of economic potential to level with their ASEAN counterparts.

Calooy, who is president of Filipino-Cebuano Business Club Inc., noted the industry has been facing constraints that hinder its growth prospects which are of great concern as the country integrates with Southeast Asian economies. 

Hurdles

Lack of access to credit, rising operational costs, growing competition, slow technology adoption, poor communications technology and manpower issues are among the hurdles small businesses face ahead of the ASEAN economic integration.

“Atong government although naningkamot maka-support sa impact unya sa integration, there is still lack of support especially sa technology. That’s why our SMEs di pa kaayo high-tech compare to [their counterparts] in Malaysia, Thailand or Singapore,” he told The FREEMAN.

He said high power rates and slow Internet speed in the country affect not just consumers but also businesses. The Philippines is one of the highest rated nation in the world when it comes to power cost and is the highest in Asia in terms of residential rates. It has also one of the slowest average Internet connection speeds in Asia Pacific, according to the latest report of cloud services provider Akamai.

Calooy also cited transport infrastructures and technology and knowledge access should be improved to support the sector’s growth.

Lack of funding

The businessman further pointed out a number of enterprises are still getting a raw deal from banks, which shows SME funding challenges still continue until now. Funding to SMEs has been one of the most critical challenges faced by the local industry.

“Although some rural and commercial banks and other financial institutions are considering the SME market because it has potential. Pero naa gihapoy problems because the culture of SMEs way accounting records and financial statements,” explained Calooy who also owns local firm RNC Marketing.

Cebu Bankers Club president Gino Gonzalez said banks could actually grant loans to entrepreneurs who have financial statements and capability to pay. He said banks consider more the financial stability of a company than getting collateral before extending credit because they always make sure their money are paid back. 

SME bourse

The business group said the lack of financing for small companies signals that it is high time to create a stock exchange for SMEs so they can raise capital for business expansion. 

While the Philippine Stock Exchange urges SMEs to list in the local bourse especially next year, Calooy said it is more viable if the sector has its own stock exchange.

But stockbrokers warned the lack of interest from investors to invest in them to plug the gap left by retrenching banks could also be a problem.

Calooy countered small companies have a lot of rooms for growth and could, in fact, attract investors because of the small risk that comes with investing in them. He said: “If you look at the story of all big businesses, they started small. If you’re investing during the time nga small pa siya, mas gamay ra hinuong risk kay gamay pa man.”

The PSE said the successful listing of property firm DoubleDragon Properties and technology firm Xurpas on the SME board this year should encourage more SMEs to get listed next year. The PSE requires a company to have a capital stock of at least P100 million to be listed on the SME board.

The FCBI official expressed hope the bill seeking to create the Small and Medium Enterprises Stock Exchange would be passed soon and that they want Cebu to be the hub for SMEX. According to the bill, SMEX will list companies with net capital ranging from P2 million to P19.9 million and P20 million to P99 million for small and medium enterprises, respectively.

Positive outlook

But despite these external and internal challenges, he expressed positive outlook for the industry amid entry of foreign firms in the country.

The ASEAN Economic Community, which will be the seventh largest market in the world, is seen to open doors for local companies to expand their markets to neighboring countries.

Regional operations undersecretary Zenaida Maglaya of the Trade Department said SMEs have a paramount role in the success of AEC which seeks to build an integrated economic region.

"We are pushing the SME agenda because many of our trade rules and regulations are better suited for big businesses and not so much of SME in mind," Maglaya said during a forum on ASEAN integration in Cebu.

Dr. Ramon Clarete, senior adviser of United States Agency for International Development, also told the said forum small local players need to be part of free trade agreements and other AEC-related policies that could affect their operations.

He pointed out: “In order for this to work and sustain, SMEs need to be part of what is going on right now. Our government should put emphasis on this sector. There’s no inclusive growth without SMEs.”

The Asia Pacific Economic Cooperation which the Philippines is hosting next year is set to highlight the big contribution of SME industry in the country’s economic growth and its integration to global supply chains. (FREEMAN)