Political Science 14 research project.

1. An Investigation into the Nature
and Success of the Government’s
Attempts to Support MSMEs
Presented by: Fajardo, Sanchez, Sison,
Sylva, and Torio
To POLSC14 WFY, facilitated by
Prof. Jalton Taguibao
On Saturday, March 22, 2014

2. Introduction and Background
• The project takes a look into the different ways that the
Philippine government attempts to support the MSME
industry, and whether or not their efforts have made a
significant impact.
• The group chose the topic for the broad range of
factors the project would investigate.

3. Research Question
• How effective has the Philippine
government been in fulfilling its duty to
support, develop and protect the
micro, small and medium enterprise sector
of the economy?

4. Objectives of Study
The study aims to:
▫ Describe the current state of the sector
▫ Determine the state’s legal mandate to support the
sector, as well as its programs and plans to improve it
▫ Evaluate the government’s performance in executing its
programs and plans
▫ Discuss the areas in which the government could
improve its treatment of the sector
▫ Inform the public of the means of assistance provided
by the government

5. Significance of the Study
• The micro, small and medium enterprise (MSME) sector
comprises the majority of the businesses in the Philippines.
• The influx of capital into the Philippine economy will
trickle down more effectively with an empowered small
business sector.
• If you were to start a business right now and run it
successfully for a decade, odds are it would still count as an
MSME.

6. Review of Related Literature
“Small and Medium Enterprises across the Globe”
▫ World Bank’s compilation of statistics on the roles of
SMEs in various economies from around the world.
▫ Development of SMEs is a, “core element in its strategy
to foster economic growth, employment and poverty
alleviation.”
▫ Little data regarding SME performance across the world
at the time of writing (2003).

7. Review of Related Literature
“Trickle Down isn’t Good Enough”
▫ Article released in Philippine Star
▫ Cites large imbalance in the distribution of Philippines’
new wealth (10% of population control 85% of wealth)
▫ No trickle-down effect – high GDP not felt by lower
sectors

8. Methodology
The group gathered data from the public records and
documents of various state and international agencies in
order to contextualize the value of the MSME sector, as
well as the state’s mandate and plans to improve and
assist it.

9. Methodology
Adapting from Sec. 2 of the Magna Carta for MSMEs, the group identified six
basic support functions which the government must provide:
1. Training for MSME businesspeople and employees
2. Stable financial assistance
3. Government contracts and similar incentives/preferences
4. Minimization of bureaucratic requirements
5. Promotion of support from and connections to private partners
6. Feedback and evaluation mechanisms for the development of MSMEs

10. Methodology
The group investigated the government’s efforts to achieve each
of the six functions by searching for evidence of assistance in
each aspect, and comparing its accomplished reforms with pre-
2011 (pre-MSMED plan 2011-2016) statistics.
Sources consulted include:
• Data retrieved from various state agency websites
• International assessment studies and reports
• Interviews
▫ Gerardo Sicat, Professor Emeritus of the UPD School of
Economics
▫ Christopher Go, businessman
• Go Negosyo!

11. Possible indicators for success:
• Availability of training programs
• Number of graduates
• Rate of graduate output
• Quality of service provided

12. Results and Findings
The group investigated TESDA as a significant institution for the training and
development of entrepreneurial and labor skills.
• TESDA and partners have produced
▫ over 16 million program graduates from 1994-2011, with an average increase of 16.71%
graduates per year over the period of time. 0.9% fewer graduates were produced in
2011, however.
▫ 3,601,084 certification recipients from 1994-2011, average certification rate of 50.02%
TESDA has drawn criticism from both private and state observers.
PIDS EPM 2011
• Huge gap between graduates and certification recipients
• Structural advantages allowing for poor quality control and abuse of regulatory powers:
TESDA is both a provider of training, and the governing authority for providers of
training.

13. Results and Findings
Interview with Mr. Christopher Go
Mr. Go was the owner and operator of a small-medium call center in QC when he
sought the assistance of TESDA in sourcing agents.
The agents hired as a result of the collaboration resigned or went AWOL after a month
of in-house training with a stipend and a further two to three months of employment.
Based on his own investigations, Mr. Go learned that the deserting agents returned to
their TESDA trainers who referred them to larger call centers for a commission.
Alternatives to TESDA
There are many alternatives to TESDA, such as those provided by the DTI which
provide the public with mobile learning opportunities (ex. the SME Roving Academy)
and open workshops and lecture programs for teaching various skills and techniques (ex.
Philippine Trade Training Center).

14. Possible indicators for success:
• Consistent availability of financial assistance
• Number of loans provided

15. Results and Findings
The World Bank PDR identifies access to finance as
a, “key constraint to firm entry and expansion in the
Philippines,” especially for small and medium enterprises.
RA 9501
• Requires all lending institutions to allocate at least 8%
for micro and small businesses and at least 2% for
medium businesses.

16. Results and Findings
Philippine Senate Economic Planning Office
• Published a report entitled “The MSME Sector at a Glance”
• Reveals downward trend in MSME lending from 2008-2011 (0.90%
average decline)
• Significantly smaller rate of decline from 2010-2011 (0.046% drop)
• Also reveals over-compliance rate of 11.84% or PHP117bn from 1991
to 2010
Go Negosyo!
• Majority of the cases found within the book involved small loans
(microfinance).

17. Possible indicators for success:
• Availability of contracts
• Number of contracts provided

18. Results and Findings
The group’s investigation led to a number of sources confirming the
government’s involvement with MSME contracts.
These include invitations to bids on various government agency websites:
▫NEDA website has 22 active bids as of 5am today
However, some bid-hosting pages are misleadingly out of date:
▫Bureau of Plant Industry has 64 bids… All are dated older than July
2013, and some are as old as April, 2009
Go Negosyo - Case of Orlando Fabila
• A key partner of the Department of Agriculture’s program to promote
DA-certified seeds for better crop yields.
• Produces and sells rice seeds to the DA

19. Possible indicators for success:
• Number of procedures compared to other countries
• Experiences with procedure availability
• Nature of required procedures

20. Results and Findings
Minimizing business regulation procedures is a key part of the
World Bank’s Ease of Doing Business study.
The study ranks economies whose governments have constructed
efficient regulatory systems which cause as few intrusions as
possible.
Bureaucratic inefficiency adds to the challenges faced by the
sector’s entrepreneurs such as the unavailability of capital or lack
of experience in doing business, and the Philippine Development
Report suggests that high restrictions such as tax rates and permits
lead to high instances of informal businesses and business
practices.

21. Results and Findings
The results for the Philippines are as follows, based on
the procedures involved in starting a business in the
country’s largest business city (Makati).
Type of Procedure Number of Procedures
Starting a business 16
Dealing with construction permits 29
Getting electricity 5
Registering property 8
Enforcing contracts 37
Ease of Doing Business in The Philippines (2013)

22. Results and Findings
Type of Procedure Number of Procedures
Starting a business 3
Dealing with construction permits 11
Getting electricity 4
Registering property 5
Enforcing contracts 21
Ease of Doing Business in Singapore (2013)

23. Results and Findings
Interview with Mr. Go
Mr. Go related his experience with starting small food businesses in Quezon
City and Valenzuela City, and the wide variation in regulatory practices between
the two.
Valenzuela
• Processes were facilitated by technology (ex. ATM-like service for
transactions)
• Procedures ended at the municipal level
Quezon City
• Outdated methods (ex. 50pg hardcopy paperwork forms)
• Multiple added processes past municipal level (ex. added payments for signage
and separate liquor permit from barangay)

24. Results and Findings
The Philippine Development Report also stresses the
importance of an uncomplicated tax regime in ensuring
higher instances of formality within the business sector.
The Philippines’ tax regime is as follows:
Paying Taxes
Payments (per year) 47
Time (hours per year) 193
Total tax rate (% of profit) 46.6

25. Possible indicators for success:
• Availability of networking events
• Frequency of events

26. Results and Findings
The Center for International Trade Expositions and
Missions (CITEM), under the DTI, handles the
international marketing of the Philippines’ trade sector.
• Mandated to manage and promote trade fairs for
networking and marketing
• Updated schedules for trade fairs can be found on
various public and privately-operated websites

27. Possible indicators for success:
• Availability of feedback and evaluation system
• Number of factors considered
• Accuracy of data

28. Results and Findings
No specific method for obtaining feedback from the
MSME sector was detailed in RA 9501 or similar
documents.
However, the providing feedback is an implicit function
of the MSMED Council, which was created by mandate
of RA 9501.

29. Conclusion
The quality of the government’s efforts to assist MSMEs has not been
consistent.
• The government has been successful in providing access to finance beyond
its mandated quota, government contracts and prioritization, and
promoting networking and marketing assistance.
• However, it has failed to minimize bureaucratic requirements and
simplify its tax regime.
• Finally, management of its training institutions (TESDA most specifically)
must be improved to exact greater quality and accountability, and the
government must give focus to the specific function of creating a feedback
and evaluation system, which would entail closer monitoring of the MSME
sector.

30. Sources
• Department of Trade and Industry. 2011. Republic Act No. 9501: Magna Carta for Micro, Small, and Medium Enterprises
[Online]. Available at: http://www.dti.gov.ph/uploads/DownloadableFiles/2010_RA_9501_Magna_Carta_for_MSMEs.pdf
[Accessed: February 27, 2014].
• Department of Trade and Industry. Micro, Small and Medium Enterprises – Statistics [Online]. Available at:
http://www.dti.gov.ph/dti/index.php?p=321 [Accessed: February 27, 2014].
• MSMED Council. 2010. Micro, Small, and Medium Enterprise Development Plan for 2011 to 2016 [Online]. Available at:
http://dti.gov.ph/uploads/DownloadableFiles/2012_DTI_MSMEDPlan_2011-2016.pdf [Accessed: February 27, 2014].
• The World Bank. 2013. Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises [Online]. 10th
ed. Washington, DC: World Bank Group. Available at:
http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB13-full-
report.pdf [Accessed: February 27, 2014].
• The World Bank. 2013. Philippine Development Report: Creating More and Better Jobs [Online]. Available at:
http://www.worldbank.org/content/dam/Worldbank/document/EAP/Philippines/PDRFullReport.pdf [Accessed: February
27, 2014].
• Arceo-Dumlao, T. (ed.). 2010. Go Negosyo! Joey Concepcion’s 100 Inspiring Stories of Small Entrepreneurs: Tagumpay
Mula sa Kahirapan. Philippines: 2010.
• Technical Education and Skills Development Authority. 2012. Philippine TVET Statistics, 2005-2011 [Online]. Available at:
http://www.cardiff.ac.uk/insrv/resources/guides/inf057.pdf [Accessed: March 10, 2014]

31. Sources
• Philippine Institute for Development Studies. 2013. PIDS 2012 Economic Policy Monitor: Regional Economic Integration
and Inclusive Growth [Online]. Available at: http://dirp4.pids.gov.ph/ris/books/pidsbk13-epm2012.pdf [Accessed: March
10, 2014].
• Philippine Senate Economic Planning Office. 2012. The MSME Sector at a Glance [Online]. Available at:
http://www.senate.gov.ph/publications/AG%202012-03%20-%20MSME.pdf [Accessed: March 10, 2014].
• National Economic and Development Authority. Bid Announcements [Online]. Available at:
http://www.neda.gov.ph/?page_id=256 [Accessed: March 12, 2014].
• Bureau of Plant Industry. Invitation to Bids [Online]. Available at: http://www.neda.gov.ph/?page_id=256 [Accessed:
March 12, 2014].
• Center for International Trade Expositions and Missions. Organization – CITEM [Online]. Available at:
http://www.citem.gov.ph/main/organization.htm [Accessed: March 10, 2014].
• Ayyagari, M., Beck, T. and Demirgüç-Kunt, A. 2003. Small and Medium Enterprises across the Globe: A New Database
[Online]. Available at: http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-3127 [Accessed: March 22, 2014]
• Chanco, B. 2013. Trickle down isn’t good enough [Online]. Available at:
http://www.philstar.com/business/2013/02/06/905277/trickle-down-isnt-good-enough [Accessed: March 22, 2014]