Strengthening the
Economic Backbone

Improving the economic climate
for MSMEs in the Visayas

Since September 2003 the Private Sector Promotion Program (SMEDSEP) has been helping to improve the business and investment climate for micro, small and medium enterprises (MSMEs) in the Visayas. Growth of MSMEs contributes to the country's sustainable development by creating economic and social benefits while maintaining an ecologically sound development.

Context

Ninety-nine percent of business establishments in the Philippines are MSMEs. These small businesses are quite important in promoting economic development, particularly in rural areas. By creating jobs, MSMEs have a significant potential to alleviate poverty.

However, growth and competitiveness of MSMEs are hampered by a weak business and investment climate. MSMEs are confronted with

• A multitude of regulations and policies companies must comply with;
• A lack of demand oriented, responsive and well coordinated government services; and
• A lack of access to finance and to competent private business development services.

To support the improvement of the country’s business and investment climate for MSMEs, the Republic of the Philippines and the Federal Republic of Germany have initiated a Technical Cooperation project: The Private Sector Promotion Program, or simply SMEDSEP*.

Approach

SMEDSEP is a program with a nine year duration spread over three phases. Phase one was the pilot stage where business and investment climate (BIC) models were introduced and tested in the provinces of Negros Occidental, Cebu and Leyte. In phase two, the replication stage, the BIC models were introduced in more areas in all the 16 provinces in the Visayas.

In its third phase, the Program focuses on three main components:

1. MSME Development Strategy (2010 to 2016)
   Together with its partner, the Department of Trade and Industry (DTI) as secretariat of the National MSME Development Council, SMEDSEP maps out strategic approaches to improve a business and investment enabling environment, facilitate access to finance and to markets and enhance productivity and efficiency. To achieve sustainability, SMEDSEP advocates the integration of global topics such as gender, migration, climate change / green growth and corporate social responsibility (CSR) into the strategies. SMEDSEP focuses on enhancing capacities and competencies of the stakeholders by providing technical and organizational advice and facilitating systematic policy and strategy dialogues among the government, the private sector, local government units (LGUs), service providers and development partners.
   
   
2. Improvement of the Local and Regional Competitiveness
   SMEDSEP uses the Local and Regional Economic Development (LRED) approach - a participatory planning, implementation and monitoring process involving public and private players. The goal is to identify competitive advantages, then prioritize and take action on opportunities and bottlenecks to develop the economic potential of localities.
   
   
3. Improvement of Sector Competitiveness
   SMEDSEP promotes the Value Chain (VC) approach. This approach aims at facilitating access to markets in priority (sub)sectors and at equitably distributing the gains across the VC operators. The introduction of VC on the hapaw baskets in Antequera, Bohol, for example, gave the local weavers higher income with the reduction in the number of middlepersons between them and the Cebu based exporter.

In addition to the components, the program capacitates service providers from the private sector and the academe in the areas of strategic development, process facilitation, planning, monitoring and technical skills.

Results

The Program has generated very positive results in the first two phases. SMEDSEP contributed to improved responsiveness of policies and regulations to business needs in partner cities. According to the 2007 Asian Institute of Management’s Philippine Cities Competitiveness Ranking Project (AIM PCCRP), Cebu City, for example, increased its status in the rating of SMEDSEP supported cities by 8 percent, while Ormoc could even record an increase of 11 percent. The Program’s goal was an increase of at least 5 percent.

Supported cities such as Bacolod achieved an improved rating in the AIM PCCRP indicator “Securing a business permit is simple and efficient” by 6 percent. Ormoc increased its rating by 25 percent and Iloilo even by 28 percent. The programs’s goal was 5 percent.

SMEDSEP also supported the streamlining of business permit and licensing systems (BPLS) in 124 LGUs in the Visayas which reduced bureaucratic costs on average by about four times the 20 percent target.

Furthermore, the program achieved that

• The proportion of MSME loans in the overall credit portfolio of supported banks increased from 22 percent to 45 percent (goal: 10 per cent);
• Four out of five business and investment climate approaches (BPLS, LRED, VC and SME Finance) have been scaled up by at least one international and eight national agencies;
• Vital support has been given to the National Competitiveness Council in the development and validation of Agribusiness and Tourism roadmaps for LGUs; and
• The Public and Private Dialogue (PPD) has been supported for consensus building in the crafting of the Implementing Rules and Regulations of the 2009 Tourism Act

The third phase aims at contributing to

• The national effort of embedding an MSME development strategy in the 2010 to 2016 Medium Term Philippine Development Plan that features the market systems development concept, promotes the LRED and VC approaches;
• The increase in territorial competitiveness in LGUs that adopt LRED; and
• The enhanced competitiveness of the bamboo, creatives and tourism industries, among other sectors.

Program Partners