2nd EU-Philippines Business Dialogue
by Secretary Arsenio M. Balisacan

12 May 2015
Shangri-la Hotel Makati City

Sec. Gregory Domingo, Sec. Rogelio Singson, his Excellency Ambassador Guy Ledoux, Michael Raeuber, Director General Lilia De Lima, Excellences and Ambassadors from the various EU-member countries, colleagues from government, our partners from the private sector. Ladies and gentlemen, Good morning!

It is of great pleasure to be invited once again to grace this year’s EU-Philippines Business Dialogue. This event not only further strengthens the long-standing bilateral economic and trade relations between the EU and the Philippines, but also advances our efforts in creating a more favorable market environment to encourage greater investments and promote entrepreneurship in the country.

We commend the European Business Chamber of Commerce of the Philippines (ECCP) for continually engaging various development stakeholders—through the establishment of the EU-Philippines Business Network—in an inclusive discussion that aims to collectively contribute to the improvement of trade and investment partnerships between the two regions. We note, in particular, the network’s continued support in the development of the Small and Medium Enterprises or SME sector.

If you don’t mind I will focus on this because it is very crucial in our effort to win the war against poverty . The role of SMEs in economic development has gained significantly more attention in recent times. SMEs are especially important in Asia where trade and production links have been the key driver of growth for many Asian economies. Latest studies indicate, for example, that SMEs constitute about 77 percent of Viet Nam’s GDP, about 97 percent of Indonesia’s labor force, and about 68 percent of China’s exports. In the ASEAN as a whole, the SME sector accounts for nearly 96 percent of businesses and generates about 50-80 percent of total domestic employment. In the Philippines, latest available data indicate that SMEs account for about 99.6 percent of registered enterprises (including micro enterprises) in the country and contribute about almost two-thirds in the total jobs generated by all types of business enterprises in 2012.

As I was scanning the literature, I observed that the definition of SMEs varied quite remarkably. The concept of SMEs in Europe, for example, are quite different from the way we use SMEs here. In fact, many of the SMEs in Europe are international grant. Don’t get lost with SMEs. These are not small players, these are international grants, many of them at least. Indeed, SMEs serve as valuable partners to large enterprises as suppliers and providers of support services, as well as a seedbed for new ideas and potential large earners of foreign exchange. But more than these, SMEs impact the lives of people by providing job opportunities to the ever-growing labor force and fostering innovation and competition. I need to add that the inclusiveness of our growth process could be very much enhanced if we focus on SMEs in this country. With the SMEs playing such important roles, SME development should remain a top priority in sustaining recent economic gains not only in the Philippines but also in many emerging Asian economies. Not surprisingly, the development of SMEs has taken center stage in critical fora like the ASEAN and the APEC.

Given the importance of SMEs in promoting growth and development, it is imperative to address key constraints that prevent this industry from realizing its full potential. The aftermath of the Global Financial Crisis of 2008-2009, for instance, showed the critical role that access to financing plays in SME development. Today, many SMEs continue to face limited access to finance via commercial bank loans and capital markets. Latest data show that the resulting financing gaps can consequently be large: for China and Southeast Asia, SMEs’ financing gap amount to around $100 billion, while for the world in general it amounts to $1.5 to $1.8 billion. Empirical studies have also verified a distinct disadvantage of SMEs in accessing lines of credit, and the continued high reliance on internal funds suggest the persistent underdevelopment of SME financing institutions.

Another constraint to SME growth and development is their limited participation and integration in global value chains. Globalization presents huge potentials for SMEs all over the world, but the presence of unfavorable business environments, limited market access, and stringent regulations serve as critical constraints to SMEs’ ability to break into international markets and reach their full potential.

To this end, institutions like the APEC have identified key initiatives in addressing these constraints to SMEs’ capacity building and global participation. Aside from improvements in access to finance and markets through greater participation of private sector funding, the APEC recognizes the importance of strengthening institutional support for entrepreneurship and startups, as well as reducing red tape, promoting ease of doing business, fostering intellectual property, and facilitating research and development.

For its part, the Philippine government has been implementing key reforms in the past few years that aim to foster long-run growth of SMEs particularly with the integration in the global supply chains. As you may be aware, the Philippines has seen robust growth in recent years. Our Gross Domestic Product has grown by more than 6 percent per year since 2012, supported by sound and stable macroeconomic fundamentals, manageable inflation, strong external position, and ample liquidity in the credit markets. Moreover, the role of the private sector in development has been enhanced by public-private partnerships and various reforms in the economy and governance that have been put in place.

Indeed, the government’s good governance platform has resulted in respectable economic gains that have placed the country in a much stronger position to benefit from a more globalized market landscape.

Nonetheless, intensifying our efforts and implementing strategies identified in the Philippine Development Plan (PDP) Midterm Update remain critical and even more compelling. Thus, in the remaining one-and-a-half years of this administration, we continue to aggressively pursue economic and governance reforms in line with our goal of promoting a consistent, stable, and responsive environment conducive to businesses and investments.

Along this line, the Philippine government is committed to the development of globally competitive and innovative industry and services sectors by reducing the cost of doing business; improving governance; and ramping up infrastructure support. While both domestic and foreign businesses remain optimistic, business prospects in 2015 are quite conservative. Therefore, we are working double time to address critical bottlenecks when it comes to infrastructure, port congestion, and energy supply.

Furthermore, we continue to pursue programs and interventions that aim to strengthen linkages between agriculture and industry on the one hand, and large enterprises and MSMEs on the other hand. The key is to capitalize on specific growth drivers in view of their potential to contribute to employment generation as well as rapid and sustained growth. These include agribusiness, manufacturing, tourism, Information Technology-Business Process Management (IT-BPM), construction, and logistics. We welcome business-to-business cooperation with European Union SMEs as partnership between Philippine and European firms in these priority sectors will certainly provide support for the attainment of more inclusive and sustained growth.

The government also continues to take fundamental steps to promote competitiveness and workforce productivity. The highly competitive global markets require enhancing the competencies of our labor force through training programs such as the technical vocational education and training or TVET; harnessing science, technology and innovation to further improve the value-added of the SMES to the economy; and expanding cluster development.

Let me also assure you of our support for the passage of critical priority bills such as the antitrust or competition law, that will undoubtedly help promote a more level playing field and promote the growth and development of SMEs. We are similarly promoting additional reforms such as the rationalization of fiscal incentives and amendments to the BOT law. On the amendment of specific laws cited in the Foreign Investment Negative List, the Economic Development Cluster, already endorsed three bills to the Senate, which includes lifting investment restrictions on: (1) adjustment, lending, and financing companies or Senate Bill 2517; (2) specific laws governing the practice of professions; and (3) contracts for the construction and repair of locally-funded public works and contracts for the supply of materials, goods, and commodities to government-owned and controlled corporation, agency or municipal corporation.

Ladies and gentlemen, as we traverse the last few miles of this administration, the government will ensure that the attainment of our goals will be supported by the substantial engagement and strong partnership with the private sector, our development partners, and civil society. Thus, once again, we are delighted that the EU-Philippines Business Network project supports the Philippines, particularly in strengthening key growth drivers in the economy. We encourage SMEs to be more aggressive in establishing linkages and building networks with other SMEs and large enterprises both domestically and internationally. This dialogue is a good step towards this direction and we hope that this will strengthen greater cooperation efforts between Filipino and EU entrepreneurs in achieving our vision of sustained and economic development.

Thank you and I wish you a productive day ahead. Mabuhay!