The 2011-2016 Small and Medium Enterprise (MSME) Development Plan aims to address the key challenges and constraints that continue to prevent the MSME sector from realizing its full potential and boosting the country’s industrial growth. To achieve this, the Plan lays out the overall framework to guide the formulation of action plans towards a more harmonized approach to MSME development. It was developed in close consultation with national, regional, and provincial stakeholders. It will be implemented through a convergence of stakeholder efforts with regular monitoring, validation, and updating by stakeholders under the stewardship of the MSME Development Council.
MSME Sector: Performance and Challenges to Growth
The Philippine MSME sector is seen as a critical driver for the country’s economic growth. The sector serves not only as supplier and subcontractor to large enterprises and exporters but also as part of the support system for logistics services. The MSME sector accounted for 99.6% of total establishments in the country, and contributed 61.2% of the country’s total employment and 35.7% of total value added. However, the growth of the MSME sector has not been vigorous enough to propel the economy.
Firm size distribution has not changed much in the past two decades as the proportion of medium sized enterprises has remained small. As a result, the country’s industry structure is often characterized by a missing or hollowed middle. The share of medium enterprises remained miniscule at 0.4% while that of small enterprises was almost unchanged at 7.7%. In terms of employment and value added contribution, MSMEs registered modest shares of 31.2% and 30.8%, respectively. Micro enterprises meanwhile formed the bulk of enterprises with a share of 91.6%. They accounted for a share of 4.9% of total value added and 30% of total employment.
The performance of MSMEs has remained constrained by various factors that prevent them from realizing their potentials and surviving and growing in a highly competitive environment. These include high cost of doing business, lack of access to finance and market information, and low productivity and competitiveness. While the poor business conditions have affected the performance and competitiveness of all enterprises, the impact is perceived to be more difficult for MSMEs given their relatively small size and limited resources. Many MSMEs are unable to qualify for bank loans because they lack the necessary track record and collateral. The lack of credit information also deters banks from lending to MSMEs as it is more difficult to determine their creditworthiness. With their limited management and financial capabilities, many MSMEs have remained domestic oriented rather than take the risks of focusing on export markets. Another key concern is the low productivity of MSMEs due to lack of access to new technology, weak technological capabilities, and failure to engage in innovation and research and development activities.
The Plan’s Vision
It is within this context that the 2011-2016 MSMED Plan focuses on addressing the critical constraints to the growth and development of the MSME sector. To develop a vibrant MSME sector, the Plan envisions the implementation of measures to create an enabling business environment and provide government support not only to improve MSME access to finance and expand market access but also to strengthen MSME productivity and competitiveness and their linkage with large enterprises and value chain networks. Moreover, coordination and monitoring of activities among national agencies and local government units (LGUs) will also be intensified to harmonize the implementation of the Plan.
Four Outcome Portfolios
The participants in the consultation process with major stakeholders defined the following four major outcome or result portfolios, namely BE, A2F, A2M, and P&E. Measures will be formulated in regional and provincial action plans to deliver the expected results for each portfolio. By implementing these measures, the Plan targets a 40% contribution of the sector to total value added and generation of 2M employment by 2016.