Bigger role for MSMEs urged as FDI flows into larger companies

By Beatriz Marie D. Cruz | BusinessWorld
February 12, 2023


MICRO, small, and medium enterprises (MSMEs) can survive within an “ecosystem” making them part of a broader supply chain as larger companies take in more foreign direct investment (FDI), economists said.

“The big fish can thrive with the small fish in a healthy ecosystem where they can exist symbiotically,” Ser Percival K. Peña-Reyes, director of the Ateneo Center for Economic Research and Development, said in a Viber message.

Mr. Peña-Reyes was referring to Marikina Rep. Stella Luz A. Quimbo’s contention that more FDI could point to a market opportunity for MSMEs.

“That is the aspiration… MSMEs will eventually find a particular market niche, in which they can become competitive in an ecosystem that will be created by your foreign firms,” Ms. Quimbo told legislators, academics, and the private sector during a public consultation to amend the Constitution in Cagayan De Oro City on Friday.

Ms. Quimbo said, for instance, that makers of household goods could supply multinational home furnishing retailers.

“If you are, for example, a basket maker in Bicol, now that IKEA is here, you can actually supply baskets to IKEA,” she added.

Rogelio Alicor L. Panao, an associate professor of political science at the University of the Philippines, said that amending the Constitution is not a prerequisite to ensure MSMEs can be part of the supply chain.

“It is not about a flawed charter,” he said via Messenger. “Issues with our present Constitution are miniscule compared to the lack of a national economic vision.”

Marinduque Rep. Lord Allan Jay Q. Velasco and Parañaque Rep. Gus S. Tambunting both filed a Resolution of Both Houses to include the phrase “unless otherwise provided by law” in several economic provisions of the Constitution, with the intent of creating a “suitable business environment to secure foreign investment and foster economic cooperation among contracting nations,” according to Mr. Tambunting’s resolution.

Mr. Panao said that lawmakers should craft separate policies ensuring that MSMEs are self-sufficient; otherwise, they will be overshadowed by foreign businesses.

“Without mechanisms that will ensure the growth and survival of MSMEs with the onslaught of foreign investment, it would be difficult for us to take advantage of foreign investment spillovers,” Mr. Panao said.

“Small firms will need access to inputs, technology, credit, and markets in order to survive and thrive,” Mr. Peña-Reyes added.

According to Mr. Panao, legislators need to be more creative in drafting policy to support MSMEs. These could include direct financial assistance, microinsurance, and “developing a supportive regulatory environment” through faster government transactions like paying taxes and obtaining business licenses.

Mr. Panao also called for the strengthening of domestic demand by enhancing productivity. He cited the central bank’s business expectations survey report for the fourth quarter of 2022, which found a “less optimistic” business outlook due to concerns about demand and sales, high inflation and interest rates, and a weak peso.

“This implies the need to improve product offerings and local productivity… we cannot even bring our farmers’ produce to market and lack a mechanism to check unscrupulous middlemen,” he said.

Mr. Panao added that more support is needed to improve entrepreneurial skills and social protections, especially for informal economy workers.

Some 99.58% of Philippines’ business establishments are MSMEs, in industries like wholesale and retail trade, motor vehicle repair, accommodation and food services, and manufacturing, according to a 2021 report by the Department of Trade and Industry.