SME CHARACTERISTICS and STATISTICAL NEEDS in the PHILIPPINES By Benel P. Lagua Small and Medium Enterprises in the Philippines Current State of SMEs in the Philippine Economy Available SME Statistics Deficiencies in the present system of SME statistics Current initiatives to develop SME statistics Conclusion A. SMALL & MEDIUM ENTEPRISES in the Philippines Small and medium enterprises (SMEs) comprise 99.6% of all registered business in the Philippines and employ 70% of the workforce Recently, Republic Act No. 9178, otherwise known as the Barangay Micro Business SMEs Enterprise (BMBE) Act of 2002 has redefined the categories. Hence, the present structure, by law, is as follows : Micro - up to 3,000,000 Small - P3,000,001 - 15,000,000 Medium - P15,000,001 - 100,000,000 Large - above P100,000,000 B. Current State of SMEs in the Philippine Economy 1. Number of Establishments and Employees According to the 2001 statistics of business establishments published by the National Statistics Office, there are 811, 589 business establishments in the country. Of total, micro-enterprises account for 743,949 (97.1%), small enterprises 61,759 (7.6%), medium enterprises 2, 923 (.4%), and large enterprises 2,958 (0.3%). 2. Geographic Distribution The analysis of geographic distribution of enterprises throughout the country indicates a high concentration in the National Capital Region (NCR), which accounts for 24.4% of all establishments and 40.1% of all employees. The five regions subject to the present study (NCR, Regions 3, 4, 7 and 11) hold a combined share of 65.0% of total establishments. Similarly, the regions account for 72.1% of total employees. As a result, around two-thirds of SMEs are concentrated in the five regions. 3. Sales and Value Added by SMEs The recent trends in value added by SMEs in the country and their sales indicate a growing share. SMEs as a whole have been steadily growing year after year with the overall industrial growth, as indicated by relevant factors, including the number of establishments and the number of employees. Nevertheless, compared to the absolute number of establishments and employment, SMEs hold relatively small share of value added and sales, less than 30%, thus suggesting their development potential in the country. C. Available SME Statistics 1. National Statistics Office The primary source of statistics on Philippines SMEs is the National Statistics Office. NSO is the major statistical agency at the national level responsible in collecting, compiling, classifying, producing, publishing, and disseminating general-purpose statistics. Statistics on the census of establishments is done every 5 years 2. Loans lent to SMEs All lending institutions are required to lend set aside at least 6% of their total loan portfolio to small enterprises and at least 2% to medium-sized enterprises. The Republic Act 6977 enacted in 1991 (the Magna Carta for Small Enterprises) required 10% more to be diverted to SME’s. Then, it was amended in 1997 under the Republic Act 8289 to extend the applicable period to 2007 and lower the minimum level to 6% and 2%. The Bangko Sentral ng Pilipinas is mandated by law to monitor this initiative. 3. Tradeline Philippines Tradeline Philippines is an online database service that provides product search listing thousands of manufactured exported Philippine products complete with product specifications and is a business search allowing users to contact Philippine exporters, suppliers and local/foreign buyer details and the products/services they manufacture / provide and export 4. Exponet The Bureau of Export and Trade Promotion's (BETP) Export Assistance Network (EXPONET) helps exporters and prospective exporters’ access information and resolve specific problems related to exporting Exponet provides information on export seminar schedules, export organizing, export procedures and documentation, import facilities for exporters, buyer linkages, export financing and incentives, product raw material sourcing and other statistical information. The agency also assists exporters in export-related problems / trade complaints. D. Deficiencies in the present system of SME statistics 1. Timeliness Statistics on the census of establishments (done every 5 years) and the annual survey of establishments are usually released 15-24 months after the year. This makes the data more or less an imprecise tool for analysis and decision-making. In the same manner, BSP collects information on the loans lent to SMEs (in compliance with the Magna Carta for Small and Medium Enterprise) every quarter. The data athered is usually released only after 3 months. 2. Cross compatibility with other countries for cross country comparisons The major classification used by most countries to define SMEs is through assets and employment size. However, the size ranges of their classification differ, since developed countries have large industries than the less developed ones. Hence, what might be considered as “small” by developed countries will already fall into the “medium” or “large” category for developing countries like the Philippines. Thus, cross compatibility with other countries for cross country comparison, is sometimes inappropriate or could not be used as basis for a policy recommendation. 3. Inadequateness The scope and coverage of SME statistics are limited to 1) the number of establishments, 2) employment contribution, and 3) regional distribution. More important data which will help policy makers and businesses to react quickly in a competitive environment are usually not available. These statistics include: Export contribution of SMEs (direct and indirect contribution) Contribution of micro enterprises/ informal SMEs to GDP, etc. Sectoral statistics/Growth potentials of industries. 4. Availability There are confidentiality clauses in census for firm level data. This cannot be accessed at the National Statistics Office because their agency has to comply with the rules of confidentiality. In similar ways, banks also ensure that access to customer information is limited to selected bank employees and are very conservative in disclosing client information. 5. Coverage The Philippines has a large section of small business constituting the so-called underground or informal economy. This refers to the small scale units in the national economy, which produce and distribute goods and services without the benefit of official sanction or control. They don't register, don't keep books and don't pay taxes. They operate beyond the reach of the law. They have little or no access to organized markets, credit institutions, educational or training centers or public services. Although efforts are being made by the government to bring the underground economy to the surface, the nature of this sector makes it very difficult to gather and process statistics on them. E. What are the current initiatives to develop SME statistics? 1. National Business Registration (NBR) Project The NBR project aims to address the growing concern of having consolidated information on all the registered businesses in the country. Currently, no government agency has a complete record of all registered businesses since registration is being done by various agencies. It is the objective of the NBR project to integrate the information contained in the various agencies and have a single consolidated database containing basic information of all registered businesses. The NBR project is considered a “timely” project for the country in this day and age of global economy. The NBR will not only enable Filipino entrepreneurs to find business ventures with fellow Filipinos but with foreign investors as well. 2. SME Database Project The SME Database (headed by the DTI SME-Project Management Office) aims to act as a repository (databank) of the corporate profiles of SMEs. Its objective is to serve as a tool for monitoring the assistance given by the different agencies to each SME firm. The database is also designed to identify individual companies and to track the kinds of government assistance given to each. The interim database will enable the much-needed tracking of SMEs during the crucial first six (6) months of 2003, especially for measurement against the National SME Agenda objectives. The final database could act as a master database of all SMEs nationwide, possibly supporting other organizations outside DTI, and would allow for more complex analysis and reporting. A networked database would facilitate the encoding of data from the provinces at the source of the information The ultimate benefit of the SMEs is the possibility of minimizing, if not eliminating the need to register numerous times with various organizations. F. Conclusion While the SME sector is recognized as the focal point for growth that will ensure that the Philippine economy moves forward despite the threats of an unfavorable global environment, the overall fiscal condition of the country prevents it from being given utmost financial support. Development programs have been laid out but resources are not readily available because of competing demands for government support. It is also in this light that the government is open to learn new modalities in gathering and analyzing data. The administration has given outmost policy attention to SME development and hopes that that through new and better development initiatives, stakeholders can move the program forward. Thank you very much and MABUHAY!!!